CySEC bans Cyprus Investment Firms from retaining interest on client funds following ESMA guidelines
Cyprus Securities and Exchange Commission (CySEC) has instructed Cyprus Investment Firms (CIFs) that they can no longer retain interest earned on client funds deposited with banks. This decision follows a new supervisory stance adopted after the European Securities and Markets Authority (ESMA) clarified that under MiFID II rules, firms are prohibited from using client money for their own benefit, including interest accrued.
CySEC issued a circular on September 29 withdrawing its previous guidance and requiring CIFs to promptly review and adjust their arrangements to align with the updated position. Firms must ensure they comply with Article 17(9) of Law 87(I)/2017 and incorporate safeguards protecting clients' rights to interest generated on their funds.
Senior management must oversee effective implementation of these measures, with compliance and audit teams reflecting these changes in their reviews. CySEC warned that during supervisory assessments, CIFs will need to demonstrate full compliance with both local legislation and ESMA’s Q&A 2785 to avoid regulatory breaches.
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