CySEC releases suitability quiz to test investment knowledge

The Cyprus Securities and Exchange Commission (CySEC) has released an online quiz for the public to help those just getting into the investment space to evaluate how much they know and test their knowledge of basic financial matters.

The initiative comes on the sidelines of CySEC’s participation in the World Invest Week 2022. It also aims to raise awareness on the importance of the financial education essential for making sound financial decisions. The watchdog wants to educate investors about the types of investment risks, a matter in which Cyprus lags behind, as indicated by CySEC’s recent studies.

To stay on top of compliance, financial services operators have to gain insights into the financial situation of the client, including his investment knowledge, experience, and objectives. The genesis of these requirements lies in Markets in Financial Instruments Directive (MiFID II) regulation, which took effect in 2018.

As a result of the CySEC’s audits, several types of violations were found in many compliance areas, including self-assessment only by the client of his own investment knowledge or asking the client to select his own risk profile.

“Inexperienced investors often make wrong investment decisions, based on assumptions and beliefs that stem from overconfidence in their investment knowledge or following encouragement from friends, relatives, and/or celebrities who promote investment products online, exposing them to high investment risks. What is more, investment risks are continually increasing due to new digital investment trends that are especially attractive to youngsters,” the statement reads.

CySEC also said it had contacted many firms requesting them to rectify compliance deficiencies in the area of the obligatory assessments to the suitability of its prospective clients.

Cypriot regulators launched earlier this year a campaign to educate its ‎citizens on the potential risks involved when it comes to online trading‏.‏

The watchdog issued a public statement advising retail traders to be cautious when engaging so-called “finfluencers” and conduct serious due diligence on any prospective partners. It says those promoters must be licensed to give financial advice, or are authorised representatives of advisers. The same rules apply to influencers who earn affiliate commissions for referring their pages’ followers to online brokers, which also requires a licence to give such advice.

The regulator added that investment recommendations had to be produced in an objective and transparent way, so that investors could distinguish fact from opinions.

These warnings were in response to a rise in unregulated trading offers on online forums, and a concern that retail investors are not aware of the risks associated with following such tips.