Investment Services and Markets (Υπηρεσίες και Αγορές)
Scope of the domain
The CySEC Advanced syllabus tests the MiFID II regime as transposed in Cyprus by the Investment Services and Activities and Regulated Markets Law of 2017 (Law 87(I)/2017). Expect questions on authorisation, passporting, client classification, conduct of business, best execution, inducements, product governance and transaction reporting.
Authorisation and passporting
A Cyprus investment firm needs CySEC authorisation before providing investment services. Under the MiFID II baseline, initial capital is €50,000 for firms providing reception/transmission, portfolio management or advice; €125,000 for firms executing orders or dealing on own account; and €730,000 for operators of an MTF or OTF. An authorised firm may use the MiFID passport: a branch in another EEA state after notification, or cross-border services without a branch. The host regulator supervises conduct for branches; CySEC remains home supervisor.
Client classification and conduct
Clients are eligible counterparties, professional clients (per se or elective) or retail clients. Elective professional status requires a qualitative assessment and, for retail individuals, a quantitative test (portfolio over €500,000, or relevant experience). Classification drives information, suitability and appropriateness. Suitability applies to advice and portfolio management; appropriateness applies to non-advised complex products, with a warning if information is insufficient. Best execution requires all sufficient steps for the best possible result considering price, cost, speed, likelihood of execution and settlement, size and nature of order. An execution policy must be disclosed, monitored and reviewed.
Inducements and product governance
Inducements must enhance the service, not impair the firm's duty, and be disclosed. For independent advice or discretionary management, third-party inducements are prohibited except minor non-monetary benefits. Manufacturers must define a target market, test distribution and review products.
Worked example
A Cyprus firm gives retail advice on a €50,000 structured note. It must obtain knowledge/experience, financial situation and objectives, issue a suitability report, check the product's target market, and disclose costs. If the firm holds itself out as independent, it cannot accept a 2% commission from the issuer; it must refuse or change its status to non-independent and disclose.
Traps
Best execution is not simply best price. Professional classification does not remove all protections or the duty to act honestly. Appropriateness is not a substitute for suitability. An execution venue is not chosen only by lowest fee.