Legal opinion on services provided to Cypriot Investment Firms

This opinion is provided to Acuity Research Limited, a company incorporated under the laws of the United Kingdom and registered with the Company's Registrar of England and Wales with Company number 07428345

This opinion is provided to Acuity Research Limited, a company incorporated under the laws of the United Kingdom and registered with the Company's Registrar of England and Wales with Company number 07428345 (hereinafter referred to as the "Company")

The opinion is provided in our capacity as legal advisers in the Republic of Cyprus, in connection with services/products provided by the Company to Cyprus Investment Firms ("CIFS") under the Client's "Signal Centre" brand. 

In particular, we have been requested to opine as to whether the services/products of the Company [as defined in 3.1 g) below] fall within the meaning of the investment service of Investment Advice, and/or Portfolio Management and/or Reception and Transmission of Client orders as these are defined under MiFID II as transposed into Cyprus Law, the Investment Services and Activities and Regulated Markets Law of 2017 (87(1)/2017) as amended from time to time and thus requiring the person providing these services to obtain a license from the Cyprus Securities and Exchange Commission (hereinafter referred to as "CySEC") in its capacity as the regulatory authority of investment firms in the Republic of Cyprus (hereinafter referred to as the "Scope"). 

  1. Applicable Law and regulations 

1.1. We are lawyers qualified to practise in the Republic of Cyprus and express no opinion as to any laws other than the laws of Cyprus currently in force as applied by the courts of the Republic of Cyprus and published and in effect on the date of this opinion. It is given on the basis that all matters relating to it will be governed by, and that it (including all terms used in it) will be construed in accordance with Cyprus law. For the purposes of this opinion, we have not made any investigation of the laws of any jurisdiction outside the Republic of Cyprus, and we express no opinion on the laws of any other jurisdiction. 

1.2. This opinion is given only with respect to the specific matters of Cyprus law as expressly set out in paragraph 4 and, therefore, the applicability of this opinion is limited to the Cyprus jurisdiction. 

1.3. For the purposes of giving this opinion we have examined, inter alia, the following Cyprus legislations: 

a) The Investment Services and Activities and Regulated Markets Law of 2017 (87(1)/2017) as amended from time to time (hereinafter referred to as the "Investment Services Law"); and 

b) The Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 supplementing Directive 2014/65/EU (MiFID II) of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive.

c) CERN's Policy statement and subsequent Feedback statement on - Understanding the Definition of Advice under MiFID CESR/10-293 and CESR/10-294 

d) CESR's Technical Advice to the European Commission in the Contest of MIFID review - investor Protection and intermediaries (Ref: CESR/10- 859) 

e) ESMA's Technical Advice to the Commission on MiFID II and MiFIR 19 December 2014 | ESMA /2014/1569 

 

2. Relevant Documentation and Enquiries 

2.1 For the purposes of this Opinion, we have examined only the following: 

a) the staging site of the Company's platform allowing the reader to view 

trade ideas. (see link here) 

Documents listed in paragraph 2.1 are hereinafter referred to as the "Documents".

3. Assumptions 

3.1 For the purposes of this opinion, we have assumed the following: 

a) The Documents and the information contained therein are truthful, valid, accurate and complete; and 
b) No provision of the laws of any jurisdiction other than Cyprus affects the conclusions in this opinion; 
c) There has been no amendment on the Documents, and they continue to be in full force and effect at the date of this opinion; 
d) The copies of the Documents we have received conform to the original Documents; 

e) The PI First Limited is duly constituted and validly in existence and effect and complies with the applicable laws of the UK; 

f) The PI First Limited is authorised by the UK Financial Conduct Authority (FCA) as an Exempt MiFID firm (i.e. unable to carry on any investment services and activities (to which MiFID applies) on a regular basis) 

g) The Company

  • carries out technical analysis on a range of financial instruments and 
  • generates signals containing trade ideas. 

Signals/trade ideas may be interpreted as comprising recommendations in relation to one or more transactions in financial instruments (we are not addressing contextual changes that may be effected by the Company's CIF Clients which are outside the Company's control, nor do we assess the potential regulatory transformation to a potential new product/service as this is outside the Company's control and outside the scope of this opinion). 

We are providing this opinion in only in relation to the product/service outlined here within and irrespective of any other product or service offered by the Company. 

Any reference to 'product(s)' and/or 'service(s)' and/or 'signal' and/or 'trade ideas' (in conjunction or in isolation) shall mean the product descried above. 

h) The Company provides its product to Cyprus Investment Firms (herein after "CIF Clients") who may redistribute it to their customers/potential investors using communication channels of their choosing (including the internets and/or emails). 

i) As per the Company's representations the Company does not offer automated trading based on Signals and its product/service does not include such functionality 

j) As per the Company's representations the Company does not receive clients' orders and its product/service does not include such functionality 

k) The Company does not engage, nor does it have knowledge of individual or groups of, customers of its CIF clients, does not control onward distribution of its product to potential investors and is not in a position to assess the suitability of its product to individual persons or groups of persons to whom its product is onward distributed. 

l) The Company's CIF clients do not act as agents for investors as outlined in Part 5b of CESR's Consultation Paper “Understanding the definition of advice under MiFID" (Ref: CESR/09-665) and confirmed in the related Feedback Statement (Ref: CESR 10-294) 

4. Opinion 

Based upon and subject to the foregoing and subject to the qualifications set out herein and to any matters not disclosed to us, we provide our opinion herein below for each question raised by the Company: 

4.1 Do the services provided by the Company constitute the investment service of Investment Advice according to MiFID II as transposed to Cyprus Law? 

a) The services provided by the Company do not constitute Investment Advice as defined in MIFID II as transposed to the Investment Services Law, as it does not fulfill the requirement of Personal Recommendation as required by the Investment Services Law, Article 9 of the - Commission Delegated Regulation (EU) 2017/575 and as clarified in CESR's Consultation Paper and subsequent Feedback Statement2 on "Understanding Investment Advice under MiFID". 

b) The Investment Services Law defines Investment Advice as: 

"[...]the provision of personal recommendations to a client, either upon its request or at the initiative of the IF, in respect of one or  more transactions relating to financial instruments

 

Article 9 of the Commission Delegated Regulation (EU) 2017/565 clarifies that: 

"[...] For the purposes of the definition of 'investment advice' in Article 4(1)(4) of Directive 2014/65/EU, personal recommendation shall be considered a recommendation that is 

made to a person in his capacity as an investor or potential investor, or in his capacity as an agent for an investor or potential investor.

 

That recommendation shall be presented as suitable for that person, or shall be based on a consideration of the circumstances of that person, and shall constitute a recommendation to take one of the following sets of steps: 

(a) to buy, sell, subscribe for, exchange, redeem, hold or underwrite a particular financial instrument

(b) to exercise or not to exercise any right conferred by particular financial instrument to buy, sell, subscribe for, exchange, or redeem a financial instrument

A recommendation shall not be considered a personal recommendation if it is issued exclusively to the public.” 

c) It is noted that although it its preamble the Commission Delegated Regulation states that recommendations issued through distributions channels such as the internet could qualify as personal recommendations, the Company's services fail to meet the criteria outlined in explanatory statements issued by European regulatory authorities. 

In particular: 

1. The Company does not have any contact with, nor does it have knowledge of individual or groups of, its CIF clients' customers and it cannot be seen as providing personal recommendations. 

2. The Company does not control the distribution list nor how its CIF clients may choose to onward distribute its product. I.e. it is not the Company that selects the distribution channel nor how its recommendations may be communicated to potential investors (customers of the CIF Clients). 

3. The Company does not target distribution of its product (and is not in a position to target the distribution of its product) to any specific type/group of audience based on the group members' personal circumstances within the context of Part 4 (paragraphs 63 and 64) of CESR's Consultation Paper on Understanding Investment Advice under MiFID (CESR/09-665).

Targeting in this context (which would be one of several factors to consider in assessing if the service provided would constitute advice) could only be carried out (if it is carried out) by the Company's CIF clients that also control the distribution channels and have access to client's personal circumstances. In the absence of targeting recommendations are not personal. 


4. On the same basis as 1., 2., and 4. above, it is clear that in providing its product to its CIF clients the Company's product are not presented, may not be presented (by the Company), and could not be perceived as being presented, as suitable for any individual person (or on based on the consideration of a person's circumstances). 

5. Based on the Company's representations, its CIF clients are not agents of investors or potential investors as per Article 9 of the Commission Delegated Regulation (EU) 2017/565 as further clarified in Part 5b of CESR's consultation paper "Understanding Investment Advice under MiFID". It is noted that in the aforementioned Consultation paper, guidance provided indicates that a party could be seen as an agent where it is taking action on behalf of the investor. Specifically, the CP states 

“[...] For example, where an investment firm provides recommendation to a portfolio manager, it will usually be the case that the investment firm is not giving investment advice to the portfolio manager's client but is simply providing a general recommendation, such as an investment tip. However, there may be cases where a firm such as a portfolio manager does commission advice for client from a third party - such as from a specialist adviser on a particular subject area -- and in doing so acts as an agent. In such cases, it will be important for the firms involved to be clear about the fact that the portfolio manager is acting for a particular client (or a particular group of clients) and to ensure that the investment firm commissioned possesses the necessary information about the clients involved." 

In context of the above, the absence of specific action by CIF clients on behalf of their customers (either by vertu of an explicit power or attorney or a more general mandate e.g. discretionary portfolio management) means that an agency relationship between a CIF client and its customers is not substantiated (i.e.recommendations are not personal on the basis of an agency relationship between CIF clients and their customers) and cannot be assumed unless this is explicitly disclosed by the CIF client. 

 

This Opinion does not address matters outside the Company's control and beyond our knowledge (e.g. the manner in which a CIF client may communicate the Company's product to the former's customers). Any action outside the Company's control taken by CIF clients ought not to be seen as bestowing regulatory obligations onto the Company. 

4.2. Do the services provided by the Company constitute either of the investment services of: i) Portfolio Management; and/or ii) Reception and Transmission of Orders, according to MiFID II as transposed to Cyprus Law? 

a) The services provided by the Company do not constitute neither Portfolio Management nor Reception and Transmission of orders as defined in MIFID II as transposed to the Investment Services Law, since according to the Company's representations its service does not contain the  functionality of automatic trading based on its Signals or the functionality of sending/receiving trading orders. The Company also represents that it does not provide such services to customers of its CIF clients as it does not engage or have any knowledge of such clients. 

 

This opinion does not address potential regulatory implications from the introduction of additional functionalities by the Company's CIF clients (which would in any case occur outside the Company's domain and would thus be out of scope for the purposes of this opinion). The introduction of additional functionalities by the Company's CIF clients would not impact the regulatory nature of the Company's services assuming that the Company does not actively facilitate the additional functionalities and has no control over (and/or knowledge of) the actions of its CIF clients 

5. Qualifications 

5.1 The opinion expressed above is subject to the following qualifications: 

a) The opinion on the matters referred to above is confined solely to the laws and case law of the Republic of Cyprus in force at the date of this opinion and we have made no investigation and no opinion is expressed or implied as to the laws and case law of any other jurisdiction; 

b) The replies and/or our opinion in paragraph 4 above are based on our understanding of them and on the information, we received from the Company; and 

5.2 This opinion is provided in connection with the request by the Company and is addressed to the Company. This opinion may not be disclosed without our prior written consent, nevertheless, it may be disclosed on an exceptional basis to: 


a) Cyprus Investment Firms with which the Company is looking to establish (or currently maintains) contractual relationships within the context of this opinion given on the date of its issuance. For any amendments after the date of this opinion, we bear no legal responsibility; 

b) any person to whom disclosure is required to be made by applicable law or court order or pursuant to the rules or regulations of any supervisory or regulatory body or in connection with any judicial proceedings; 

c) the officers, employees, auditors and professional advisers of the Company; and 

d) any affiliate of the Company and/or group company of the shareholders of the Company and the officers, employees, auditors and professional advisers of such affiliate,

on the basis that (i) such disclosure is made solely to enable any such person to be informed that an opinion has been given and to be made aware of its terms but not for the purposes of reliance, (ii) we do not assume any duty or liability to any person to whom such disclosure is made and (iii) other than in relation to disclose under paragraph (a) (above), such person agrees not to further disclose this opinion or its contents to any other person, other than as permitted above, without our prior written consent. 


Legal opinion provided by KPK LEGAL (Kitromilidoub, Psillidou & Co LLC) on the 19th October 2021

Williamson House, Aiolou & Panagioti Diomidous 9, Katholiki, 3020 Limassol, Cyprus, PO Box, 59511, 4011 Limassol, Cyprus


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