— Ministry of Finance dupes locals and Russians —
Cyprus’ attempt to become a credible financial centre was dealt a serious blow after the Finance Ministry tricked 200 candidates sitting for the MiFID examinations held last December by asking them non-syllabus questions, resulting in more than 70% failing the exams because of a deliberate mistake by the Ministry.
Many candidates, mostly employees at Cyprus investment and financial services companies, are furious for wasting precious time, money and resources only to be tricked by the Ministry and are considering filing a legal challenge, which will damage Cyprus’ reputation as a credible financial centre.
Cyprus is one of the leading EU member states that organises examinations, allowing professionals employed at financial services companies based in Cyprus, in other member states and in Russia the opportunity to secure MiFID compliance certificates.
The practice has proved extremely popular with hundreds of Russians and locals participating in order to secure the certificates to find employment at one of the growing number of Cyprus investment companies or in their home markets.
MiFID
The Markets in Financial Instruments Directive (MiFID) came into effect on November 1, 2007. MiFID is a European Union law that provides harmonised regulation for investment services across the 30 member states of the European Economic Area (the 27 EU member states plus Iceland, Norway and Liechtenstein). The main objectives of the Directive are to increase competition and consumer protection in investment services.
The MiFID rules allow a regulated investment firm based in Cyprus to carry out operations across the EU. Combined with Cyprus’ advantageous tax regime and ability to deliver competent staff to be employed at such firms, Cyprus has become a major centre with more than 70 such firms already operating and another 40 in queue with prospects to attract even more.
THE EXAMS
The Ministry of Finance has been organising MiFID compliance examinations since 2007. A Ministry official chairs the examination board, which also includes representatives from the Central Bank of Cyprus and the Cyprus Securities & Exchange Commission, while the drafting and marking of questions has been outsourced to the University of Cyprus.
In view of huge demand from locals and mostly Russian and other CIS citizens, the Ministry organises the exams in English and Greek, twice a year.
The General Part covers the MiFID law and regulations and then candidates can sit for specific exams on any one of the main categories offered by investment firms.
The six principle areas of activities for which certification is required are: Receipt and Transmission of Orders, Execution of Orders, Portfolio Management, Own Account Trading, Investment Advice and Underwriting.
A candidate needs to pass the General Part and then combine it with any of the other six specific exams. Failure to pass the General Part automatically disqualifies the candidate.
TRICKING CANDIDATES
During the exams held on 5-7 December 2009, the examination board decided to break its own rules and instead of asking questions on the legislation of MiFID, money laundering, market abuse, corporate governance, customer protection and proper organisation of investment firms, they also included questions mostly related to financial analysis and specific valuations (pricing of options, futures), which would have to be asked only from those taking the exams for the portfolio management, own account trading, underwriting and investment advice categories.
All the candidates who sat for the exams complained that the examination board had violated its own rules and deliberately tricked them by putting questions not in the syllabus.
In fact, 20 out of the 50 questions were beyond the General Part syllabus, but the examination board still decided to punish the candidates in order to cover up its own mistake.
The objective is perhaps to fail as many as possible to oblige them to re-sit the exams again, considering that the Ministry charges on average EUR 850 for two exams, the norm taken by candidates, which means the Ministry rakes in on average more than EUR 30,000.
“IGNORANT”
“They (the organisers) are ignorant since they are asking financial valuation questions in the General Part, which is mandatory for all candidates to take, including those who wish to obtain only Receipt and Transmission and Execution of Orders certificates,” a candidate told the Financial Mirror.
The candidate explained that the MiFID rules specifically separate those functions, with those employed at the Receipt and Transmission and Execution of Orders Departments mostly concerned at best execution of orders on behalf of clients, leaving financial analysis, valuation and advice to the persons who have been trained and have the knowledge to be employed in the Investment Advice and Portfolio Management departments.
“Surely, the examination board and the University of Cyprus should have known the basics before embarking on the exams,” continued the candidate.
GOING TO UK
Many Russian and local residents who were tricked into believing that Cyprus is a credible financial centre and can deliver what it promises, are considering heading to the UK to secure their MiFID compliance certificates and even base their operations there.
The fiasco also risks driving many of the investment firms that have set up a base in Cyprus or are in the process of securing permission from CySEC to head to other EU locations.
Malta, Estonia and the UK are serious contenders to steal business from Cyprus, which has seen many of its successful ideas copied by others, resulting in loss of business.
Cyprus is no longer a credible banking centre, having lost most serious Russian business to UK and Swiss banks. Years of neglect and delays by civil servants also cut short Cyprus’ popularity in company registrations and the civil servants are now busy destroying one last bright spot left, that of Cyprus becoming a base for investment companies!
