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CySec commenced consultation on the exposure to company directors and shareholders recently. Advocate Tal Ron extrapolates the caveats to be considered by FX firms including the splitting of capital between bank accounts
On April 10 this year, CySec issued a consultation paper which relating to the exposures to directors and shareholders. In order to ensure that the ramifications of this are correctly and concisely explained to interested parties, LeapRate spoke to Tal Ron Drihem & Co, an established law firm with substantial experience in legal consultancy to FX firms.
Advocate Tal Ron went into detail as follows:
New Provisions for Exposures to Directors and Shareholders of Cyprus Investment Firms (CIF’s).
This particular consultation paper remains a proposal and has not yet been accepted or finalized by CySec. This proposal is intended to replace the existing provisions in paragraph 8 of the Commission’s Directive 144-2007-06 regarding “large exposures”.
In this Consultation Paper, CySec repeatedly refers to the term “Exposure”. Exposure is defined as the situation where a company gives out money to a Bank, Debtor, Director, and/or Shareholder.
An exposure can be “secured” or “unsecured”. A secured exposure is one which is protected by underlying collateral. For CySec, a company which has a balance with their bank of more than 10% of their capital is considered to have a “large exposure”. What needs to be highlighted from these provisions is that, a licensed CIF will need to split its initial capital of 200,000 Euros between several different European bank accounts in order to reduce its exposure. Indeed, the more bank accounts, the less exposure a CIF will have. In these new provisions, CySec describes several exposure limits which need to be monitored constantly in order to avoid the termination by CySec of one of the CIF’s Directors.
It is important to note that these provisions mainly relate to a CIF’s “Post-Regulatory Phase”. Therefore these provisions will not need to be dealt with prior to obtaining a CySec License. Once you have obtained your CySec License, and in order to avoid complications in defining the appropriate exposure limits, we strongly advise you to seek specific tailor made advice from our Law Firm: Tal Ron Drihem & Co.
Since Cyprus became a member of the European Union in 2004, the Cyprus Securities and Exchange Commission (CySec) has become part of the European MIFID regulation, giving firms registered in Cyprus access to all European markets through MIFID “Passportation”. This has led to a number of overseas firms registering in Cyprus to take advantage of this regulatory regime.
In order to understand some of a CIF’s obligations and restrictions, our Law Firm has compiled a set of frequently asked questions:
Tal Itzhak Ron, Advocate, Tal Ron Drihem & Co.
Stephanie Attias, Financial Jurist, Tal Ron Drihem & Co.