## IOSCO OFC Assessment 2005—Recommended Action Plan

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### Executive summary and main recommendations
- Comprehensive legislative framework largely based on European Union (EU) law in place for supervision of the securities sector in Cyprus.
- The Cyprus securities regulator—the Securities and Exchange Commission (CySEC)—appears to be carrying out its function in an effective manner.
- Main recommendations:
  - CySEC should carry out an inspection of the Cyprus Stock Exchange (CSE) as a matter of urgency to satisfy itself that the CSE is well positioned to broaden its activities (e.g., permitting over-the-counter (OTC) trading, stock lending and derivatives trading).
  - Consider whether the State should continue to own the exchange; privatization may be worth considering given questions over the continued viability of the exchange.
  - In supervising market intermediaries, CySEC should pay particular attention to those intermediaries that are foreign-owned and provide services largely to overseas clients, particularly from a code of conduct and ‘know-your-customer’ point of view.
  - CySEC should seek to ensure that it has at all times sufficient funding to fulfill its legal obligations.
  - A number of other largely technical recommendations are scheduled to be addressed in upcoming legislation.

### Methodology and institutional context
- Analysis based on IOSCO’s Objectives and Principles of Securities Regulation as part of the Financial Sector Assessment Program (FSAP).
- CySEC is the main authority responsible for supervision of the securities market in Cyprus; the Central Bank of Cyprus (CBC) currently supervises certain private collective investment schemes, a responsibility to pass to CySEC under forthcoming legislation.
- Analysis drew on the 2005 Offshore Financial Center Program (OFC) assessment, review of legislation (notably EU Directives transposed after Cyprus’ EU accession in May 2004), factual updates from CySEC and CBC, and discussions with CySEC, CBC, Ministry of Finance (MoF), the CSE and private sector stakeholders.
- Recently transposed legislation includes the Markets in Financial Instruments Directive (MiFID), the Prospectus Directive, the Transparency Directive, the Market Abuse Directive, the Takeover Directive, and the UCITS Directive.

### Institutional and market structure — key statistics and features
- CSE listings and instruments:
  - 13 listings in the main market (of which the 2 large banks dominate).
  - 127 supplementary listings.
  - 44 government bond issues.
  - 10 corporate bond issues.
- Market capitalization and turnover:
  - At end-August 2008, market capitalization was euro 17.4 billion, down from euro 25.3 billion at end-2007.
  - Turnover for the CSE for the first 6 months of 2008 was euro 886 million.
  - Average daily turnover for the first 6 months of 2008 was euro 7.5 million per trading day.
  - Turnover for 2007 was euro 3.9 billion and average daily turnover for 2007 was euro 15.7 million.
- Exchange cooperation:
  - In October 2006, the CSE entered into an agreement with the Athens Stock Exchange (ASE) to establish a common platform.
  - The two largest companies on the CSE, the Bank of Cyprus (BoC), and Marfin Popular Bank are also traded on the ASE; currently, 49 percent of trades in BoC and 61 percent of trades in Marfin are transacted on the ASE.
  - Discussions ongoing with the Romanian Stock Exchange to enhance cooperation.
- Market participants:
  - 67 market intermediaries have been authorized.
  - About 40 of these are owned by Russian interests, 10 by Cypriots and the balance by other overseas interests.
  - The Russian-owned firms largely provide investment services to overseas clients on a cross border basis.
  - Industry sources informed assessors that about 60 percent of all trades on the Moscow Stock Exchange originate in Cyprus due to the favorable double taxation agreement between the two jurisdictions.
- Collective investment schemes:
  - Two CIS regimes: UCITS (supervised by CySEC) and private investment schemes (currently supervised by the CBC).
  - About 40 private funds with a net asset value of US$675 million.
  - No UCITS authorized to date because of unfavorable tax treatment; legislation is being prepared to harmonize taxes and transfer supervision of international investment schemes to CySEC.
- CySEC resources and legal powers:
  - CySEC employs 42 persons.
  - CySEC funding comes from a combination of State and industry sources with an increasing emphasis on the latter.
  - Under current legislation CySEC must provide the Minister of Finance with any information he may deem necessary for the benefit of the public interest; this provision is being addressed in forthcoming CySEC Law.
  - From November 1, 2007, when the MiFID was transposed into Cyprus law, CySEC has full supervisory powers over the Exchange.

### Preconditions for effective securities regulation
- Regulatory regime highly influenced by Cyprus’ EU membership; almost all regulatory framework determined by European law.
- Company law strongly influenced by U.K. legislation.
- Sound legal, taxation, and accounting framework appears to be in place; Cyprus has adopted International Financial Reporting Standards (IFRSs).

### Main findings (by IOSCO principle groups)
- Regulator (Principles 1–5):
  - Regulatory responsibilities of CySEC are set down clearly in legislation and applied in a clear and consistent manner.
  - It is vitally important that sufficient funding is provided to CySEC in the future given market turmoil, recent EU directive implementation and expected increase in responsibilities (e.g., transfer of supervision for private investment funds and anticipated UCITS development).
  - Constitutional restriction that previously prevented CySEC from supervising the CSE has been rectified.
- Self-regulatory organizations (Principles 6–7):
  - The CSE has a very limited self regulatory role; it can fine members for breaches of listing rules (e.g., late submission of accounts).
- Inspections, investigations and enforcement (Principles 8–10):
  - CySEC has wide powers of inspection, investigation and enforcement largely derived from relevant EU regulatory directives.
- Information sharing and cooperation (Principles 11–13):
  - Law allows for sharing information and cooperation with domestic and foreign regulators.
  - Two difficulties: CySEC cannot collect information or carry out investigations on behalf of non-EU regulators unless it has an independent interest; difficulties in obtaining identification of beneficial owners of shares registered in the name of lawyers acting on behalf of beneficial owners. Both issues are being dealt with in draft CySEC legislation before parliament.
- Issuers (Principles 14–16):
  - Cyprus law transposing the EU Prospectus and Transparency Directives, company law and stock exchange law provide for accurate and timely disclosure and adequate safeguards for fair and equitable treatment of shareholders.
  - Accounting and auditing standards are in line with best international practice; Cyprus has adopted IFRSs.
- Collective investment schemes (Principles 17–20):
  - UCITS legislation is comprehensive, but CySEC needs to introduce specific rules for valuing assets other than shares in listed companies held by UCITS. CySEC expects to introduce such guidelines shortly and before it authorizes any UCITS.
- Market intermediaries (Principles 21–24):
  - Strong and effective supervisory regime in place for market intermediaries overall, but CySEC should pay particular attention to foreign-owned intermediaries serving non-residents to ensure appropriate codes of conduct and effective ‘know-your-customer’ processes.
  - CySEC should consider establishing memorandums of understanding (MoUs) with jurisdictions with greatest representation among intermediaries.
- Secondary market (Principles 25–30):
  - CySEC now has full supervisory powers over the CSE (since November 1, 2007), but it had not carried out any inspection of the CSE to date; a comprehensive desk review was carried out in 2008.
  - It is essential that CySEC carry out an inspection, particularly given the CSE’s plans to permit OTC transactions, stock lending (and possibly short selling), derivative trading, and its alliances with neighboring jurisdictions.
  - Authorities have scheduled such an inspection for early 2009.
  - The 2007 annual accounts for the CSE were not available in October 2008, which is concerning given the CSE’s responsibility to ensure listed members finalize their accounts within four months of year end.

### Viability and structural concerns of the CSE
- "Its level of trading is very small and in forming a common platform with the ASE, it has loss considerable business to that CSE as regards its two most traded stocks."
- "The remaining stocks on the CSE have a relatively thin market and it is questionable if they could support the continued viability of the CSE."
- "In view of the increasing ease with which EU citizens can invest throughout the community, it may be more attractive for Cypriots to use exchanges which have greater choice and are deeper and more liquid than the CSE."
- Policy question: "On a wider level, the State should consider if it wants to remain the owner of the CSE or whether privatization should be considered."

### Implementation status and selected ROSC findings (as of 2008)
- Principle 1 and 25:
  - "The CySEC was unable to supervise effectively the CSE as both were public administrative bodies and one such body cannot supervise another such body."
  - Recommended action: "The transposition of the EU MiFID into Cyprus law removed this anomaly."
  - Status 2008: "CySEC is now without question the supervisor of the CSE."
- Principle 11:
  - "The CySEC could not share information or carry out investigations on behalf of foreign regulators where CySEC did not have an independent interest in the matter under investigation."
  - Recommended action: "An amendment to the law to remove this obstacle."
  - Status 2008: "Partly achieved. Following the transposition of a number of EU Directives, CySEC can now share such information and carry and out inspections on behalf of fellow EU regulators but not for non-EU regulators. Legislation is currently before Parliament to address this shortcoming. It is expected to be enacted late 2008/early 2009."
- Principle 13:
  - "The CySEC was experiencing difficulties in obtaining the identities of the beneficial owners of shares which were registered in the name of lawyers on behalf of the beneficial owners."
  - Recommended action: "An amendment to the law that would bring clarity to the matter."
  - Status 2008: "Not achieved as yet but is expected to be dealt with in the proposed legislation referred to above."
- Principle 2:
  - "The CySEC must provide the Minister of Finance with any information he may deem necessary for the benefit of the public good. (This was seen as potentially impacting on the independence of CySEC)."
  - Recommended action: "That this clause be revoked from the relevant legislation."
  - Status 2008: "Not achieved as yet but is expected to be dealt with in the proposed legislation referred to above."
- Principle 20:
  - "The CySEC did not have specific rules for the valuing of assets of UCITS other than for shares in listed companies."
  - Recommended action: "CySEC to introduce such rules and particularly before the authorization of the first UCITS."
  - Status 2008: "No local UCITS have been authorized (due to lack of clarity re. tax) but nor have any valuation rules been issued yet. The tax uncertainty is due to be dealt with soon and CySEC has indicated that it will introduce the relevant valuation rules before the first authorization of a UCITS."

### Summary implementation findings and supervisory priorities
- Principle 2:
  - Draft new CySEC law "will revoke this provision" requiring CySEC to provide the Minister of Finance with any information he may deem necessary for the benefit of the public interest.
- Principle 11:
  - "CySEC cannot collect information or carry out investigations on behalf of non-EU regulators unless it has an independent interest in the matter. This weakness is being addressed in the forthcoming new CySEC law."
- Principle 13:
  - "CySEC has experienced difficulties in respect to the identification of the beneficial owners of shares registered in the name of lawyers acting on behalf of the beneficial owners. The issue is being addressed in the forthcoming legislation currently before parliament."
- Principle 20:
  - "CySEC should introduce specific rules for the valuation of assets other than shares in listed companies as a matter of urgency and in any event no later than when it starts authorizing UCITS."
- Principle 21:
  - Given the "unusual nature of the market intermediary sector in Cyprus whereby most of the intermediaries provide investment services to overseas clients mainly on a cross border basis," CySEC should:
    - Ensure segregated client asset accounts in overseas operations.
    - Ensure application of 'know-your-client' rules in the context of anti money laundering requirements.
    - Consider establishing MoUs with relevant supervisors for jurisdictions where intermediaries have significant presences — "since the FSAP mission, such an MoU was signed with the Russian supervisor."
- Principle 26:
  - "Nearly one year after the relevant legislation was enacted, CySEC has not yet carried out an inspection of the Exchange... CySEC should satisfy itself that the CSE is well positioned to undertake all these initiatives."

### Recommended Action Plan — priorities (selected)
- Principle 26 – Stock Exchange:
  - "CySEC should carry out an immediate inspection of the CSE to satisfy itself that the CSE is well positioned to implement its strategic plan."
  - "On a wider level, the State should consider if it wants to remain the owner of the CSE or whether privatization should be considered. This in turn gives rise to the continued viability of the CSE, particularly in the light of its low levels of trading and its lost of business to the ASE."
- Principle 21 – Market intermediaries:
  - "In supervising market intermediaries, CySEC should pay particular attention to those intermediaries which are foreign owned and provide investment services largely to overseas clients."
- Principle 3 – Funding:
  - "CySEC should seek to ensure that it will have sufficient funds to carry out its statutory obligations."
- Principle 11 – Information sharing:
  - "CySEC should ensure that its inability to collect information or carry out investigations on behalf of non-EU regulators where it does not have an independent interest in the matter is addressed in forthcoming legislation."
- Principle 13 – Assistance to foreign regulators:
  - "CySEC should ensure that in forthcoming legislation its difficulties in obtaining the identities of beneficial owners of shares registered in the name of lawyers acting on behalf of the beneficial owners is addressed."
- Principle 2 – Regulatory independence:
  - "The clause in existing legislation whereby the Minister of Finance can require CySEC to provide him with any information he may deem necessary for the benefit of the public interest should be revoked in forthcoming legislation."
  - "For all other corporate governance issues relating to independence/accountability, e.g., objective criteria re the appointment of directors, terms of office, removal from office, and reporting to Parliament, the law is adequate."
- Principle 20 – Collective investment schemes:
  - "CySEC should introduce rules for the valuation of assets other than shares in listed companies."

*IMF staff content unit _cr09169 - 27. The question arises as to whether the State should continue to own the CSE or*

### 1. IOSCO OFC Assessment 2005—Recommended Action Plan ............................................11

### IOSCO OFC Assessment 2005—Recommended Action Plan

### Executive summary and main recommendations
- There is a comprehensive legislative framework, largely based on European Union (EU) law, in place for the supervision of the securities sector in Cyprus.
- The Cyprus securities regulator—the Securities and Exchange Commission (CySEC)—appears to be carrying out its function in an effective manner.
- Main recommendations:
  - CySEC should carry out an inspection of the Cyprus Stock Exchange (CSE) as a matter of urgency to satisfy itself that the CSE is well positioned to broaden its activities (e.g., permitting over-the-counter (OTC) trading, stock lending and derivatives trading).
  - Consider whether the State should continue to own the exchange; privatization may be worth considering given questions over the continued viability of the exchange.
  - In supervising market intermediaries, CySEC should pay particular attention to those intermediaries that are foreign-owned and provide services largely to overseas clients, particularly from a code of conduct and ‘know-your-customer’ point of view.
  - CySEC should seek to ensure that it has at all times sufficient funding to fulfill its legal obligations.
  - A number of other largely technical recommendations are scheduled to be addressed in upcoming legislation.

### Introduction and methodology
- The analysis was based on IOSCO’s Objectives and Principles of Securities Regulation and was undertaken as part of the Financial Sector Assessment Program (FSAP).
- CySEC is the main authority responsible for supervision of the securities market in Cyprus. The Central Bank of Cyprus (CBC) currently supervises certain private collective investment schemes; this responsibility will pass to CySEC under forthcoming legislation.
- The analysis drew heavily on the 2005 Offshore Financial Center Program (OFC) assessment, review of relevant legislation (notably EU Directives transposed after Cyprus’ EU accession in May 2004), factual updates from CySEC and CBC, and discussions with CySEC, CBC, Ministry of Finance (MoF), the CSE and private sector stakeholders.
- Legislation transposed recently includes the Markets in Financial Instruments Directive (MiFID), the Prospectus Directive, the Transparency Directive, the Market Abuse Directive, the Takeover Directive, and the UCITS Directive.

### Institutional and market structure — key statistics and features
- CSE listings and instruments:
  - 13 listings in the main market (of which the 2 large banks dominate).
  - 127 supplementary listings.
  - 44 government bond issues.
  - 10 corporate bond issues.
- Market capitalization and turnover:
  - At end-August 2008, market capitalization was euro 17.4 billion, down from euro 25.3 billion at end-2007.
  - Turnover for the CSE for the first 6 months of 2008 was euro 886 million.
  - Average daily turnover for the first 6 months of 2008 was euro 7.5 million per trading day.
  - Turnover for 2007 was euro 3.9 billion and average daily turnover for 2007 was euro 15.7 million.
- Exchange cooperation:
  - In October 2006, the CSE entered into an agreement with the Athens Stock Exchange (ASE) to establish a common platform.
  - The two largest companies on the CSE, the Bank of Cyprus (BoC), and Marfin Popular Bank are also traded on the ASE; currently, 49 percent of trades in BoC and 61 percent of trades in Marfin are transacted on the ASE.
  - Discussions ongoing with the Romanian Stock Exchange to enhance cooperation.
- Market participants:
  - 67 market intermediaries have been authorized.
  - About 40 of these are owned by Russian interests, 10 by Cypriots and the balance by other overseas interests.
  - The Russian-owned firms largely provide investment services to overseas clients on a cross border basis.
  - Industry sources informed assessors that about 60 percent of all trades on the Moscow Stock Exchange originate in Cyprus due to the favorable double taxation agreement between the two jurisdictions.
- Collective investment schemes:
  - Two CIS regimes: UCITS (supervised by CySEC) and private investment schemes (currently supervised by the CBC).
  - About 40 private funds with a net asset value of US$675 million.
  - No UCITS authorized to date because of unfavorable tax treatment; legislation is being prepared to harmonize taxes and transfer supervision of international investment schemes to CySEC.
- CySEC resources and legal powers:
  - CySEC employs 42 persons.
  - CySEC funding comes from a combination of State and industry sources with an increasing emphasis on the latter.
  - Under current legislation CySEC must provide the Minister of Finance with any information he may deem necessary for the benefit of the public interest; this provision is being addressed in forthcoming CySEC Law.
  - From November 1, 2007, when the MiFID was transposed into Cyprus law, CySEC has full supervisory powers over the Exchange.

### Preconditions for effective securities regulation
- The regulatory regime is highly influenced by Cyprus’ EU membership; almost all regulatory framework is determined by European law.
- Company law is strongly influenced by U.K. legislation.
- A sound legal, taxation, and accounting framework appears to be in place; Cyprus has adopted International Financial Reporting Standards (IFRSs).

### Main findings (by IOSCO principle groups)
- Regulator (Principles 1–5):
  - Regulatory responsibilities of CySEC are set down clearly in legislation and applied in a clear and consistent manner.
  - It is vitally important that sufficient funding is provided to CySEC in the future given market turmoil, recent EU directive implementation and expected increase in responsibilities (e.g., transfer of supervision for private investment funds and anticipated UCITS development).
  - Constitutional restriction that previously prevented CySEC from supervising the CSE has been rectified.
- Self-regulatory organizations (Principles 6–7):
  - The CSE has a very limited self regulatory role; it can fine members for breaches of listing rules (e.g., late submission of accounts).
- Inspections, investigations and enforcement (Principles 8–10):
  - CySEC has wide powers of inspection, investigation and enforcement largely derived from relevant EU regulatory directives.
- Information sharing and cooperation (Principles 11–13):
  - Law allows for sharing information and cooperation with domestic and foreign regulators.
  - Two difficulties: CySEC cannot collect information or carry out investigations on behalf of non-EU regulators unless it has an independent interest; difficulties in obtaining identification of beneficial owners of shares registered in the name of lawyers acting on behalf of beneficial owners. Both issues are being dealt with in draft CySEC legislation before parliament.
- Issuers (Principles 14–16):
  - Cyprus law transposing the EU Prospectus and Transparency Directives, company law and stock exchange law provide for accurate and timely disclosure and adequate safeguards for fair and equitable treatment of shareholders.
  - Accounting and auditing standards are in line with best international practice; Cyprus has adopted IFRSs.
- Collective investment schemes (Principles 17–20):
  - UCITS legislation is comprehensive, but CySEC needs to introduce specific rules for valuing assets other than shares in listed companies held by UCITS. CySEC expects to introduce such guidelines shortly and before it authorizes any UCITS.
- Market intermediaries (Principles 21–24):
  - Strong and effective supervisory regime in place for market intermediaries overall, but CySEC should pay particular attention to foreign-owned intermediaries serving non-residents to ensure appropriate codes of conduct and effective ‘know-your-customer’ processes.
  - CySEC should consider establishing memorandums of understanding (MoUs) with jurisdictions with greatest representation among intermediaries.
- Secondary market (Principles 25–30):
  - CySEC now has full supervisory powers over the CSE (since November 1, 2007), but it had not carried out any inspection of the CSE to date; a comprehensive desk review was carried out in 2008.
  - It is essential that CySEC carry out an inspection, particularly given the CSE’s plans to permit OTC transactions, stock lending (and possibly short selling), derivative trading, and its alliances with neighboring jurisdictions.
  - Authorities have scheduled such an inspection for early 2009.
  - The 2007 annual accounts for the CSE were not available in October 2008, which is concerning given the CSE’s responsibility to ensure listed members finalize their accounts within four months of year end.

### Recommended action plan (high-level)
- Conduct an urgent on-site inspection of the Cyprus Stock Exchange to assess readiness for broader activities (OTC trading, stock lending, derivatives trading) and to evaluate the exchange’s viability.
- Review policy options regarding State ownership of the CSE, including potential privatization.
- Enhance supervisory focus on foreign-owned intermediaries servicing non-resident clients to ensure code of conduct compliance and robust ‘know-your-customer’ practices.
- Ensure CySEC has reliable and sufficient funding to meet legal obligations and expanding responsibilities.
- Finalize and enact CySEC Law amendments to address information provision to the Minister of Finance and powers to assist non-EU regulators and identify beneficial owners.
- Introduce UCITS valuation rules for non-listed assets before authorizing any UCITS.
- Consider establishing MoUs with jurisdictions that have significant representation among Cyprus-based intermediaries.

*IMF staff summary of “IOSCO OFC Assessment 2005—Recommended Action Plan”*

### 27. The question arises as to whether the State should continue to own the CSE or

### 27. The question arises as to whether the State should continue to own the CSE or whether it should consider its privatization

### Viability and structural concerns of the CSE
- "Its level of trading is very small and in forming a common platform with the ASE, it has loss considerable business to that CSE as regards its two most traded stocks."
- "The remaining stocks on the CSE have a relatively thin market and it is questionable if they could support the continued viability of the CSE."
- "In view of the increasing ease with which EU citizens can invest throughout the community, it may be more attractive for Cypriots to use exchanges which have greater choice and are deeper and more liquid than the CSE."
- Policy question: "On a wider level, the State should consider if it wants to remain the owner of the CSE or whether privatization should be considered."

### IOSCO OFC Assessment (2005) — Implementation status and key findings (as of 2008)
- Principles 1 and 25: "The CySEC was unable to supervise effectively the CSE as both were public administrative bodies and one such body cannot supervise another such body."
  - Recommended action: "The transposition of the EU MiFID into Cyprus law removed this anomaly."
  - Status 2008: "CySEC is now without question the supervisor of the CSE."
- Principle 11: "The CySEC could not share information or carry out investigations on behalf of foreign regulators where CySEC did not have an independent interest in the matter under investigation."
  - Recommended action: "An amendment to the law to remove this obstacle."
  - Status 2008: "Partly achieved. Following the transposition of a number of EU Directives, CySEC can now share such information and carry and out inspections on behalf of fellow EU regulators but not for non-EU regulators. Legislation is currently before Parliament to address this shortcoming. It is expected to be enacted late 2008/early 2009."
- Principle 13: "The CySEC was experiencing difficulties in obtaining the identities of the beneficial owners of shares which were registered in the name of lawyers on behalf of the beneficial owners."
  - Recommended action: "An amendment to the law that would bring clarity to the matter."
  - Status 2008: "Not achieved as yet but is expected to be dealt with in the proposed legislation referred to above."
- Principle 2: "The CySEC must provide the Minister of Finance with any information he may deem necessary for the benefit of the public good. (This was seen as potentially impacting on the independence of CySEC)."
  - Recommended action: "That this clause be revoked from the relevant legislation."
  - Status 2008: "Not achieved as yet but is expected to be dealt with in the proposed legislation referred to above."
- Principle 20: "The CySEC did not have specific rules for the valuing of assets of UCITS other than for shares in listed companies."
  - Recommended action: "CySEC to introduce such rules and particularly before the authorization of the first UCITS."
  - Status 2008: "No local UCITS have been authorized (due to lack of clarity re. tax) but nor have any valuation rules been issued yet. The tax uncertainty is due to be dealt with soon and CySEC has indicated that it will introduce the relevant valuation rules before the first authorization of a UCITS."

### Summary implementation findings from ROSCs (selected principles)
- Principle 2: The CySEC Law contains a provision whereby "CySEC must provide the Minister of Finance with any information that he may deem necessary for the benefit of the public interest." Draft new CySEC law "will revoke this provision."
- Principle 11: "CySEC cannot collect information or carry out investigations on behalf of non-EU regulators unless it has an independent interest in the matter. This weakness is being addressed in the forthcoming new CySEC law."
- Principle 13: "CySEC has experienced difficulties in respect to the identification of the beneficial owners of shares registered in the name of lawyers acting on behalf of the beneficial owners. The issue is being addressed in the forthcoming legislation currently before parliament."
- Principle 20: "CySEC should introduce specific rules for the valuation of assets other than shares in listed companies as a matter of urgency and in any event no later than when it starts authorizing UCITS."
- Principle 21: Given the "unusual nature of the market intermediary sector in Cyprus whereby most of the intermediaries provide investment services to overseas clients mainly on a cross border basis," CySEC should:
  - Ensure segregated client asset accounts in overseas operations.
  - Ensure application of 'know-your-client' rules in the context of anti money laundering requirements.
  - Consider establishing MoUs with relevant supervisors for jurisdictions where intermediaries have significant presences — "since the FSAP mission, such an MoU was signed with the Russian supervisor."
- Principle 26: "Nearly one year after the relevant legislation was enacted, CySEC has not yet carried out an inspection of the Exchange... CySEC should satisfy itself that the CSE is well positioned to undertake all these initiatives."

### Recommended Action Plan — priorities (selected)
- Principle 26 – Stock Exchange
  - "CySEC should carry out an immediate inspection of the CSE to satisfy itself that the CSE is well positioned to implement its strategic plan."
  - "On a wider level, the State should consider if it wants to remain the owner of the CSE or whether privatization should be considered. This in turn gives rise to the continued viability of the CSE, particularly in the light of its low levels of trading and its lost of business to the ASE."
- Principle 21 – Market intermediaries
  - "In supervising market intermediaries, CySEC should pay particular attention to those intermediaries which are foreign owned and provide investment services largely to overseas clients."
- Principle 3 – Funding
  - "CySEC should seek to ensure that it will have sufficient funds to carry out its statutory obligations."
- Principle 11 - Information sharing
  - "CySEC should ensure that its inability to collect information or carry out investigations on behalf of non-EU regulators where it does not have an independent interest in the matter is addressed in forthcoming legislation."
- Principle 13 – Assistance to foreign regulators
  - "CySEC should ensure that in forthcoming legislation its difficulties in obtaining the identities of beneficial owners of shares registered in the name of lawyers acting on behalf of the beneficial owners is addressed."
- Principle 2 – Regulatory independence
  - "The clause in existing legislation whereby the Minister of Finance can require CySEC to provide him with any information he may deem necessary for the benefit of the public interest should be revoked in forthcoming legislation."
  - "For all other corporate governance issues relating to independence/accountability, e.g., objective criteria re the appointment of directors, terms of office, removal from office, and reporting to Parliament, the law is adequate."
- Principle 20 – Collective investment schemes
  - "CySEC should introduce rules for the valuation of assets other than shares in listed companies."

*Source: IMF staff content unit _cr09169 - 27. The question arises as to whether the State should continue to own the CSE or*

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