The European Securities and Markets Authority (ESMA), together with national regulators including CySEC, has launched a Common Supervisory Action (CSA) to assess how investment firms manage conflicts of interest under MiFID II. The focus is on how firms identify, prevent, and handle conflicts when offering financial instruments, especially to retail clients.
Key areas of supervisory attention
- Remuneration and Incentives: Examination of whether staff remuneration structures, bonus schemes, or other incentives could lead employees to favor specific products or services.
- Product Distribution Practices: Assessment of how firms determine which financial instruments to offer clients and whether commercial relationships or financial benefits influence these decisions
- Digital and Online Distribution: Evaluation of whether digital platforms, automated tools, or algorithm-driven systems could steer clients toward particular financial instruments.
- Governance and Internal Controls: The firms’ policies, procedures and governance arrangements for identifying and managing conflicts of interest.
Practical consideration for Cyprus investment firms
As part of the CSA, national regulators such as CySEC may conduct targeted on-site visits and/or desk-based reviewed of selected firms.
These assessments may involve:
- Requests for conflicts of interest policies, procedures and registers
- Assessment of remuneration and incentive frameworks
- Examination of product governance and distribution processes
- Review of digital distribution channels and tools
While the CSA mainly gathers information, firms should ensure their frameworks are up to date and fully compliant. Clear documentation and robust internal controls will help streamline any supervisory engagement.