Issue: 04/2022


Through Circular C494, CySEC brings the attention to Regulated Entities about the informative material issued from competent authorities in relation to sanctions evasion attempts and red flags.

The United States Financial Crimes Enforcement Network (FinCEN) issued a paper (The Paper) in relation to Potential Russian Sanctions Evasion Attempts to alert all financial institutions to be vigilant against efforts to evade the extensive and continuously updated Sanctions/Restrictive Measures against Russia in response to the crisis in Ukraine.

CySEC urges Regulated Entities to be aware of these red flags, as highlighted in the aforementioned documents, when implementing their due diligence measures, especially for ongoing monitoring of accounts and transactions.

Investment Services & Regulated Markets

On 10 March 2022, the European Securities and Markets Authority (ESMA) published its peer review report on the supervision of cross-border activities of investment firms.

ESMA issued Article 16 recommendations as well to the Cyprus Securities and Exchange Commission (CySEC). It is the first time that such recommendations were issued to a National Competent Authority (NCA) by ESMA.

ESMA recognized in the peer review the need for home NCAs to seriously improve their approach in the authorisation, ongoing supervision and enforcement work, relating to investment firm's cross border activities, including calibrating their supervisory work to the nature, scale and complexity of these firms' cross-border activities and the risks they pose.

The exercise that was performed in order to assess how NCAs supervise the investment services that investment firms and credit institutions provide to retail clients on a cross-border basis using a MiFID II passport, focused on the AFM, BaFin, CNB, CSSF, CySEC and MFSA in light of the significance of their domestic firms' cross-border activities.

ESMA is expected to carry out a follow-up assessment in two years to review the level of improvements achieved considering the findings and recommendations of the peer review report. CySEC, following the Article 16 recommendations, will have two months to inform ESMA whether it complies or intends to comply with the recommendations, including ad-hoc and periodic updates provided to ESMA in order to assess that the recommendations are effectively addressed.

On 15 March 2022, the European Securities and Markets Authority (ESMA) published its assessment of the main elements on the European Commission's (EC) MiFIR review proposal.

The letter placed great emphasis on the establishment of the consolidated tape provider (CTP), including however elements such as equity and non-equity transparency, reporting and payment for order flow.

ESMA commented on several topics included in the proposal and recommended to co-legislators the following:

  • allow for more time for running the selection process of the CTP
  • split the selection procedure from the authorisation process
  • mandate ESMA with preparing regulatory technical standards on market data to be included by the CTP instead of an EC delegated act
  • extend the timeline for triggering the assessment for ESMA to be the CTP fall-back solution
  • simplify the non-equity deferral regime as suggested in the ESMA review report on non-equity transparency
  • ensure a level-playing filed across the Union and add a stand-alone suspension mechanism for the derivatives trading obligation, and
  • replace the concept of "traded on a trading venue" to avoid gaps in reporting and transparency publications.

In November 2021, the EC adopted its proposal for a review of MiFIR on enhancing market data transparency, removing obstacles to the emergence of a consolidated tape, optimising the trading obligations and prohibiting receiving payment for forwarding client orders.

On 17 March 2022, the European Supervisory Authorities (ESAs) warned consumers that numerous crypto-assets are highly risky and speculative and laid out key steps that consumers can take to ensure they make informed decisions.

The ESAs emphasized that these assets are not suited for most retail consumers as an investment or as a means of payment or exchange, because of:

  • the strong possibility of losing all the invested money if buying these assets
  • the risks of misleading advertisements, including social media and influencers, and
  • the false promises of fast or high returns, especially those that look too good to be true.

Crypto-assets and related products and services typically do not fall in the existing protection under current EU financial services rules, therefore the ESAs warned as well the consumers that they should be aware of the lack of recourse or protection available to them.

On 31 March 2022, the European Securities and Markets Authority (ESMA) published its final report on guidelines on certain aspects of the MiFID II requirements.

This report summarised the responses to the Consultation Paper (CP) with proposed draft guidelines published on 19 July 2022, and explained how the responses have been taken into account.

ESMA's recommendation is to read both the final report and the CP in order to have a complete view of the rationale for the guidelines.

The guidelines' purpose is to enhance clarity and foster convergence in the implementation of certain aspects of the new MiFID II remuneration requirements that are replacing the existing ESMA guidelines on the same topic, which were issued in 2013.

The implementation of these guidelines should strengthen investor protection as per ESMA's belief.

Anti Money Laundering (AML) & Financial Crime

On 4 March 2022, the Financial Action Task Force (FATF) published the amended R.24, where it restricts the countries to misuse the legal persons for money laundering or terrorist financing. The purpose is to ensure that the information on the beneficial ownership is accurate, reliable, and up to date.

FATF also advices the countries to require this beneficial ownership information to be controlled and held by a public authority or a different body that functions as a beneficial ownership registry.

With these actions FATFS hopes that the Countries will obtain or continue to act more responsible in order to raise awareness of the new obligations to eliminate the misuse of the legal persons and improve their effectiveness of their implementation at national level.

On March 2022, the European Banking Authority (EBA) published the results from its assessment of competent authorities' approaches on AML and CFT from 2019 for the supervision of banks. The results have shown that all competent authorities started to use mechanisms to exchange information with other relevant authorities both locally and abroad such as memorandums on the understanding and AML/CFT colleges.

The report also outlines the following issues:

  • Points out the ML/TF risks in the individual banks and banking sectors.
  • Converts ML/TF risk assessments into risk-based supervisory strategies.
  • Utilises available resources beneficially.
  • Takes appropriate measures to discourage measures to correct AML/CFT compliance weaknesses.

On 31 March 2022 the European Parliament (EP) published a set of rules that will help to prevent the illegal flows in the EU. More specifically:

  1. Crypto-assets transfers shall be tranced and identified.
  2. Traceability of transfers of crypto-assets, states that all transfers shall include beneficiary information that will be available to the authorities.
  3. No minimum thresholds
  4. Public register of high-risk entities - EP asks from the European Banking Authority (EBA) to design a public register list of businesses and the services that are included in the crypto-assets that have a high-risk of AML.

Up until March, no rules are made or agreed in the EU for the crypto asset transfers.