Published on: 29 September 2026 | By: Xenia Neofytou, B.Sc. (Hons), FCCA
Founder & Managing Director, CX Financia | CySEC Advanced Certificate Holder
Introduction
On 29 September 2026, the Cyprus Securities and Exchange Commission (CySEC) issued Circular C801 to inform Cyprus Investment Firms (CIFs) of ESMA’s Q&A ‘ESMA_QA_2785’ on the treatment of interest earned on client funds deposited with credit institutions. This circular is a clarification of existing obligations under MiFID II and CySEC’s Law 87(I)/2017, withdrawing previous guidance (Circular ΕΓ144-2009-07) with immediate effect. CIFs must review their arrangements without delay to ensure compliance with the new supervisory expectations. To align your internal structures with these updated regulatory standards, explore our Investment Firm Licensing (CySEC CIF) services.
CySEC Circular C801 – At a Glance
- Issued date: 29 September 2026
- Applies to: Cyprus Investment Firms (CIFs)
- Key requirement: CIFs must not retain any interest earned on client funds deposited with credit institutions and must review and document their arrangements to comply with Article 17(9) of Law 87(I)/2017 and ESMA Q&A 2785.
What Does This Circular Require?
What firms must do. CIFs are required to review their arrangements relating to interest generated on client funds held with credit institutions without delay. They must take all necessary steps to ensure compliance with Article 17(9) of Law 87(I)/2017 and the ESMA Q&A, demonstrating that their arrangements have been assessed, documented, and implemented to safeguard client rights and interests.
Legal basis. Article 16(9) of Directive 2014/65/EU (MiFID II) and Article 17(9) of Cyprus Law 87(I)/2017. For comprehensive guidance on maintaining robust operational compliance frameworks, see our Regulatory Compliance & AML Advisory.
Regulatory objective. To safeguard client rights by preventing investment firms from using client funds for their own account, including the retention of any interest accrued from those funds.
Who Is in Scope?
The circular applies to all Cyprus Investment Firms (CIFs) that hold client funds in accounts with credit institutions.
- Cyprus Investment Firms (CIFs)
Edge cases and exceptions:
- Firms holding client funds in savings accounts with credit institutions: Must ensure no interest is retained.
- Firms with existing arrangements under Circular ΕΓ144-2009-07: Must update policies to reflect the withdrawal of this circular.
Key Requirements Breakdown
Validation or Approval Process
CIFs must document their review and assessment of arrangements relating to client fund interest. They should ensure that compliance officers, internal and external auditors consider these developments in their reviews and reflect findings in reports submitted to CySEC. Maintaining precise oversight in these evaluations is a core pillar covered under our Internal Audit & Risk Management Compliance solutions.
Practical Implementation: What Firms Should Do
In practice, you must immediately assess whether your firm retains any interest earned on client funds deposited with credit institutions. If so, you must cease this practice and implement measures to ensure compliance with Article 17(9) of Law 87(I)/2017.
CySEC expects senior management to oversee these changes and ensure timely implementation. Compliance officers and auditors should update their reviews to include this requirement, documenting any gaps and corrective actions taken.
Key Dates and Deadlines
How to Apply This Correctly
- Review your firm’s current arrangements for client funds deposited with credit institutions, focusing on how interest earned on these funds is treated.
- Ensure that no interest earned on client funds is retained by the firm. Update policies and procedures to reflect this requirement.
- Document the review process, including any assessments, decisions, and actions taken to comply with Article 17(9) of Law 87(I)/2017 and ESMA Q&A 2785.
- Oversee the implementation of changes through senior management, ensuring timely and effective compliance.
- Update compliance and audit functions to include this requirement in their reviews, reflecting any findings in reports submitted to CySEC.
Compliance Officer Checklist
- Have you reviewed your firm’s arrangements for client funds deposited with credit institutions?
- Have you ensured that no interest earned on client funds is retained by the firm?
- Have you documented the review, assessment, and any corrective actions taken?
- Has senior management overseen and approved the changes?
- Have compliance officers and auditors updated their reviews to include this requirement?
Evidence to Retain
- Documented review of client fund arrangements, including interest treatment.
- Updated policies and procedures reflecting compliance with Article 17(9) of Law 87(I)/2017.
- Records of senior management oversight and approval of changes.
- Reports from compliance officers and auditors addressing this requirement.
Why This Matters
Non-compliance with the ESMA Q&A and Article 17(9) of Law 87(I)/2017 exposes your firm to supervisory scrutiny and potential enforcement action. CySEC may request evidence of compliance during its supervisory activities, and failure to demonstrate adherence to these requirements could result in regulatory sanctions, reputational damage, or loss of client trust. To support your structural adaptation to these rules, visit our Corporate Banking & Financial Services department.
Frequently Asked Questions
Does MiFID II permit CIFs to retain interest earned on client funds?
No. According to ESMA’s Q&A, MiFID II prohibits investment firms from retaining any interest earned on client funds deposited with credit institutions, as this would constitute using client funds for the firm’s own account.
What happens to Circular ΕΓ144-2009-07?
CySEC has withdrawn Circular ΕΓ144-2009-07 with immediate effect. CIFs must no longer rely on its guidance and should align their practices with the ESMA Q&A and Article 17(9) of Law 87(I)/2017.
What must CIFs do to comply with the new expectations?
CIFs must review their arrangements for client funds, ensure no interest is retained, document the review process, and update compliance and audit functions to reflect these changes.
Who is responsible for overseeing compliance with this requirement?
Senior management is responsible for overseeing the actions taken to comply with the ESMA Q&A. Compliance officers and auditors must also consider these developments in their reviews.
Will CySEC request evidence of compliance?
Yes. CySEC may request CIFs to demonstrate their compliance with Article 17(9) of Law 87(I)/2017 and ESMA Q&A 2785 during its supervisory activities.
What are the risks of non-compliance?
Non-compliance may lead to regulatory scrutiny, enforcement action, reputational damage, and loss of client trust, as it violates MiFID II safeguarding requirements.
How CX Financia Can Support You
At CX Financia, we help firms navigate regulatory changes like this ESMA Q&A with tailored services, including Regulatory Compliance reviews, AML/CFT assessments, and Risk Management frameworks. Our Internal Audit and Licensing teams can also assist in documenting and implementing the necessary changes to ensure your firm meets CySEC’s expectations. Contact us to discuss how we can support your compliance journey. For deeper insights into European regulatory interpretations, you can review the European Securities and Markets Authority (ESMA) guidelines and official updates from the Cyprus Securities and Exchange Commission (CySEC). To streamline your corporate restructuring and administrative procedures following these updates, check out our Company Formation & Fiduciary Services.
Read the CySEC Circular C801
Read more at Regulatory Updates
Disclaimer
This article provides general information and is not intended as regulatory or legal advice. While we strive for accuracy, CX Financia accepts no liability for any actions taken based on this content. For specific compliance queries, consult a qualified professional or contact CySEC directly.