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Regulatory requirements

Regulation

The Company is regulated by the Cyprus Securities and Exchange Commission and is subject to the requirements of the European Union’s Markets in Financial Instruments Directive (MiFID).

MiFID establishes a consistent regulatory framework across the European Economic Area (“EEA”). MiFID introduces new and more extensive requirements with which investment firms must comply. MiFID has been transposed into the national laws of EEA states at 1st November 2007. To this end, Cyprus enacted the Investment Services and Activities and Regulated Markets Law of 2007 (Law 144(I)/2007) implementing directives 2004/39/EC and 2006/73/EC of the European Parliament and of the Council on 26th October 2007.

The main objectives of the Law 144 (I)/2007 is the protection of clients through the provision of detailed information regarding the Investment and Ancillary Services and the organization of Firms providing these services, as well as, the provision of Investment Services in a transparent way within the EEA.


Scope of MiFID

In order to assess the scope of MiFID a distinction must be made between investment services and activities and ancillary services. If a firm provides investment services, it is subject to MiFID regarding these services but also any ancillary services provided to the Client as well. However, if a firm only provides ancillary services and/or performs investment activities, i.e. dealing on own account without the provision of Investment Services, it is not subject to MiFID (but nor can it benefit from the MiFID passport). As provided in Section 79 of Law 144(I)/2007, Investment Firms may use their MiFID passport and provide services in the European Union without the need to be authorized in the host Member State.

MiFID covers almost all tradable financial products with the exception of certain foreign exchange trades. This includes commodity and other derivatives such as freight, climate and carbon derivatives.

MiFID impacts mainly upon the following key areas:

  • —Best Execution Policy;
  • —Order Handling;
  • —Client Categorization;
  • —Terms of Business and Client Agreements;
  • —Suitability and Appropriateness Tests;
  • —Client notifications;
  • —Pre and Post Trade Transparency;
  • —Transaction Reporting;
  • —Safeguarding Client Financial Instruments and Funds;
  • —Conflicts of Interest.


Client Categorization

In accordance with Law 144(I)/2007 we are required to classify our clients and counterparties into one of the following three regulatory categories, (1) Retail Clients, (2) Professional Clients and (3) Eligible Counterparties.

The greatest level of regulatory protection is afforded to Retail Clients, and the lowest level to Eligible Counterparties. The level of protection is primarily based on the Clients’ knowledge and experience to make their own investment decisions and properly assess the risks that may incur.

A Retail Client is a client who is neither a Professional Client nor an Eligible Counterparty.

Professional Clients include:

  • —entities which are required to be authorised or regulated to operate in the financial markets, including credit institutions, investment firms, insurance companies, collective investment schemes and pension funds and their management companies, commodities and commodity derivative dealers, and other institutional investors;
  • —large undertakings meeting two of the following size requirements on a company basis;
  • —balance sheet total of ˆ20 million;
  • —net turnover of ˆ40 million;
  • —own funds of ˆ2 million;
  • —national and regional governments, public bodies that manage public debt, central banks and international and supranational institutions;
  • —other institutional investors whose main activity is to invest in financial instruments, including entities dedicated to the securitisation of assets or other financing transactions.

Firms which are treated automatically as Eligible Counterparties include:

  • —Investment firms;
  • —Credit institutions;
  • —Insurance companies;
  • —UCITS and their management companies;
  • —Pension funds and their management companies;
  • —Other authorised and regulated financial institutions;
  • —Certain undertakings exempted from the application of MiFID;
  • —National governments and public bodies that deal with public debt;
  • —Central banks and supranational institutions.

Under MiFID, all Client categories may request a different level of Classification. For example, Retail Clients may request to be treated as Professional Clients.

Under MiFID, Investment Firms must take reasonable care to ensure that a Retail Client requesting treatment as a Professional Client is able to meet similar qualitative criteria and, a separate quantitative test. At least two of the following quantitative criteria must be met:

  • —the client has carried out transactions, in significant size, on the relevant market at an average frequency of ten per quarter over the previous four quarters;
  • —the size of the client's financial instrument portfolio, defined as including cash deposit and financial instrument, exceeds ˆ500,000;
  • —the client works or has worked in the financial sector for at least one year in a professional position which requires knowledge of the transactions or services envisaged.

Clients have the right to request a different classification in order to benefit from a higher degree of regulatory protection should they require it. BCS Cyprus has the right to deny to the Client such request.


Identification of Conflicts of Interest

For the purposes of identifying the types of conflict of interest that arise in the course of providing investment and ancillary services or a combination thereof and whose existence may damage the interests of a client, the Company takes into account, whether the Company or a relevant person, is in any of the following situations, whether as a result of providing investment or ancillary services or investment activities or otherwise:

  1. The Company or relevant person is likely to make a financial gain, or avoid a financial loss, at the expense of the client;
  2. The Company or relevant person has an interest in the outcome of a service provided to the client or of a transaction carried out on behalf of the client, which is distinct from the client's interest in that outcome;
  3. The Company or relevant person has a financial or other incentive to favour the interest of another client or group of clients over the interests of the client;
  4. The Company or relevant person carries out the same business as the client;
  5. The Company or relevant person receives or will receive from a person other than the client an inducement in relation to a service provided to the client, in the form of monies, goods or services, other than the standard commission or fee for that service.


Procedures and Controls to Managing Conflicts of Interests

In general, the procedures and controls that the Company follows to manage the identified conflicts of interest include the following measures:

  1. Effective procedures to prevent or control the exchange of information between relevant persons engaged in activities involving a risk of a conflict of interest where the exchange of that information may harm the interests of one or more clients;
  2. The supervision of relevant persons whose principal functions involve carrying out activities on behalf of, or providing services to, clients whose interests may conflict, or who otherwise represent different interests that may conflict, including those of the Company;
  3. Measures to prevent or limit any person from exercising inappropriate influence over the way in which a relevant person carries out investment or ancillary services or activities;
  4. Measures to prevent or control the simultaneous or sequential involvement of a relevant person in separate investment or ancillary services or activities where such involvement may impair the proper management of conflicts of interest. Such measures include the following:
    • —A policy governing the dissemination of confidential or inside information within the Group.
    • —Chinese walls restricting the flow of confidential and inside information within our company, and physical separation of departments.
    • —Procedures governing access to electronic data.
    • —Segregation of duties that may give rise to conflicts of interest if carried on by the same individual.
    • —The prohibition of external business interests conflicting with our interests as far as the Company’s officers and employees are concerned, unless board approval is provided.
    • —A policy designed to limit the conflict of interest arising from the giving and receiving of inducements.
    • —Establishment of in-house Compliance Department to monitor and report on the above to the Company’s Board of Directors.
    • —Appointment of Internal auditor to ensure that appropriate systems and controls are maintained and report to the Company’s Board of Directors.
    • —Establishment of the four-eyes principle in supervising the Company’s activities.
  5. The Company also undertakes ongoing monitoring of business activities to ensure that internal controls are appropriate;
  6. The Company has an in-house Compliance Department that is responsible for identifying and managing potential conflicts of interests. The above will also update the relevant internal procedures and ensure compliance with such procedures.


Disclosure

Where a conflict arises and the Company is aware of it, it will disclose the conflict to the client prior to undertaking investment business for that client or, if it does not believe that disclosure is appropriate to manage the conflict, we may choose not to proceed with the transaction or matter giving rise to the conflict.

The Company reserves the right to review and/or amend its Policy and arrangements whenever it deems this appropriate.


Disclosures & Market Discipline