On 7 July 2017 Law 87(I)/2017 was published in the Official Gazette of Cyprus, transposing the revised European Union Markets in Financial Instruments Directive (MiFID II) into Cyprus law. The new law, which will apply in Cyprus from 3 January 2018, will introduce significant changes to the Investment Services and Activities and Regulated Markets Law of 2007 to 2016.
The original Markets in Financial Instruments Directive, commonly known as MiFID, has been in force in Cyprus since November 2007, bringing Cyprus within the European legal framework regulating the provision of investment services within the European Economic Area. The principal aim of the previous legislation was to create a single market for investment services and activities and to ensure a uniform high degree of protection for investors in financial instruments throughout the single market. The 2008 financial crisis revealed shortfalls in the regulatory regime and showed the need for increased transparency, better protection for investors, examination of unregulated areas and provision of adequate powers to supervisors.
The changes introduced by MiFID II, which are reflected in the new law, include the following:
- Extension of the scope of application of the law to include new financial instruments, such as emissions allowances and new investment products such as structured deposits;
- Widening of the categories of persons subject to authorisation and regulation requirements, such as persons dealing on own account and applying a high frequency algorithmic trading technique;
- Redefining of the current exemptions under MiFID I and introduction of new exemptions;
- Introduction of a new concept of management body, and strengthening of corporate governance requirements;
- More rigorous conduct of business rules, including the introduction of an extended scope for the appropriateness test and enhanced information to clients; and
- New transparency requirements, which will apply to a broader range of trading venues than previously.
There are significant penalties for breach of the new law and businesses potentially falling within its scope should seek professional advice in order to ensure that they comply with their obligations.
The Cyprus Securities and Exchange Commission, as the competent regulatory body, is expected to issue secondary and implementing legislation in line with the relevant EU authorities.