CySEC’s Latest Circular May Force Brokers to Give Up License

Tougher Regulations Put CIFs in Compromising Position

cysec head

The leading regional financial regulator has been putting increasing pressure on the companies that it oversees. Over the course of the past year, CySEC has taken a stricter approach in its compliance requirements from all CIFs (Cyprus Investment Firms) who offer trading on financial instruments including Forex, CFDs and binary options.

A few months ago, the watchdog introduced a cap on leverage, limiting it to 1:50, as well as a blanket ban on promotional bonuses, which were a popular marketing tactic used by many brokers. The more recent amendments to regulations, issued in a circular published in January, concerns the marketing behaviour and effective monitoring of broker staff, as well as their outsourcing procedures.

The circular outlined the fact that from now on, all firms are required to operate all business either from its headquarters or from a branch located in another EU-member state. This amendment appears to arise from the fact that many Israel-based firms have been known to outsource operations to the Far East, in an attempt to target traders from these locations. This will also come as bad news to many brokers who operate call centres in Israel, a popular hub for the online financial trading industry.

CySEC’s director Demetra Kalogerou, has stated that the regulator has also strengthened ties with the ISA (Israeli Securities Authority), after a recent meeting with its chairman Prof. Hauser, and confirmed that both are now on the same page.

The watchdog reiterates that operations which are outsourced to non-EU countries will likely breach their policies and firms will subsequently find it difficult to provide evidence to the contrary. Additionally, the regulator is not legally able to exert control over staff and business practices conducted outside the EU region.

Other regulations mentioned in the circular, which will take effect from January 2018 under the MiFID II, will require firms to monitor all business transactions by their customers.

The implemented changes will mean that CySEC-licensed brokers will be forced to fork out more funds to monitor and train staff adequately. This increase in costs and competitiveness will likely lead many brokers to renounce their license and regulated status. However, this seems to be the aim of CySEC all along, as fewer CIFs would mean more control for the Cypriot industry.