CySEC Circulars C507 & C508 – EBA Guidelines on sound remuneration policies under IFD and internal governance under IFD

1. Circular C507 (“the Circular”) dated 05/05/2022 regarding EBA Guidelines on sound remuneration policies under Directive (EU) 2019/2034 (the “IFD”)

In light of the Prudential Supervision of Investment Firms Law of 2021 (the “Law”), CySEC wishes to remind Cyprus Investment Firms (CIFs) that the European Banking Authority (EBA) has published the Guidelines on sound remuneration policies (the “Remuneration Policy Guidelines”) under Directive (EU) 2019/2034 (the “IFD”).

The key takeaways from the CySEC’s C507 circular can be found below:

• The Remuneration Policy Guidelines apply to Class 2 CIFs that do not fall under section 3(3) of the Law and do not meet all of the conditions to qualify as small and non-interconnected investment firms under article 12(1) of Regulation (EU) 2019/2033 (the “IFR”), on an individual and consolidated basis;

• The aim of the abovementioned guidelines is to specify how the provisions under the Law on remuneration policies and variable remuneration to identified staff (i.e., staff whose professional activities have a material impact on the risk profile of CIFs) should be applied, and specify the sound and gender-neutral remuneration policies;

• Additional requirements apply to remuneration policies and the variable remuneration of identified staff;

• CIFs should take all necessary actions in order to ensure their compliance with the abovementioned guidelines;

• The Remuneration Policy Guidelines entered into force on 30th April 2022; and

• The remuneration policies should be applied in line with the abovementioned guidelines for the performance year starting after 31 December 2021.

2. Circular C508 (“the Circular”) dated 05/05/2022regarding EBA Guidelines on internal governance under Directive (EU) 2019/2034 (the “IFD”)

In light of the Prudential Supervision of Investment Firms Law of 2021 (the “Law”), CySEC wishes to remind CIFs that the EBA has also published the revised Guidelines on internal governance (the “Internal Governance Guidelines”) under Directive (EU) 2019/2034 (the “IFD”).

The key takeaways from the CySEC’s C508 circular can be found below:

• The Internal Governance Guidelines apply to Class 2 CIFs that do not fall under section 3(3) of the Law and do not meet all of the conditions to qualify as small and non-interconnected investment firms under article 12(1) of Regulation (EU) 2019/2033 (the “IFR”), on an individual and consolidated basis;
• The aforementioned guidelines apply in relation to CIFs’ governance arrangements that are required under the Law, including their organisational structure and the corresponding lines of responsibility, and also to the processes to identify, manage, monitor and report all risks that might be exposed to;

• The aim of the abovementioned guidelines is to specify the tasks, responsibilities and organisation of the management body and the CIFs, including the need to create transparent structures that allow for supervision of all their activities;

• They also specify the requirements needed to ensure the sound management of risks across the compliance, independent risk management and internal audit functions;

• The Guidelines should be read in conjunction with:
  • the MIFID II requirements;
  • the Commission Delegated Regulation (EU) 2017/565;
  • Directive (DI87-01) for the Safeguarding of Financial Instruments and Funds belonging to Clients;
  • EBA Guidelines on sound remuneration policies;
  • EBA and ESMA Guidelines on the assessment of the suitability of members of the management body and key function holders; and
  • ESMA Guidelines on product governance and any other relevant guideline of regulation.

• The Internal Governance Guidelines entered into force on 30th April 2022; and

• CIFs to which these guidelines apply, should take all necessary actions to ensure their compliance.

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