The financial regulatory authority of the Republic of Cyprus is called the Cyprus Securities and Exchange Commission (CySEC). The Central Bank of Cyprus was the regulating authority before the formation of CySEC in 2001. The geographical advantages and cost (tax) savings brought a huge inflow of retail Forex brokers. This prompted the creation of the CySEC, a licensing organization for Forex brokers and similar firms. The CySEC regulates some of the biggest brands in the retail Forex brokerage industry.
Responsibilities of CySEC
- Manage licensing of investment firms, finance consultants, and brokerage companies.
- Supervise and control the Cyprus Stock Exchange.
- Monitor and supervise operations of licensed investment services companies, investment consultants, collective investment schemes, and mutual fund management companies.
- Carry out investigation processes on behalf of foreign competent authorities in the financial sphere.
- Request and collect information from people and companies if that information is necessary to perform CySEC's duties.
- Penalize brokers for regulatory non-compliance and impose administrative sanctions.
- Apply to a court in issues that require detention, or charge, or freezing, or prevention of alienation of assets.
- Issue cease and desist orders to stop any practice, which is against the regulatory legislation.
- Control regulation by issuing relevant Directives and Decisions.
- Exchange information with other Cyprus authorities and with competent foreign authorities.
Who should register?
- Cyprus Investment Firms (CIFs) — this is what Cyprus Forex brokers register as.
- Cyprus branches of investment firms of other EU states.
- Agents of CIFs.
- Undertakings for Collective Investment in Transferable Securities (UCITS).
- Agents of UCITS.
- UCITS management companies.
- Cyprus branches of UCITS companies from other EU countries.
- Administrative services companies — trustee and fiduciary service providers.
- Variable Capital Investment Companies.
- Alternative Investment Fund Managers (AIFMs).
- Regulated markets.
- Trade depositories of over-the-counter derivatives.
- Central Counterparty Clearing House (CCPs) of OTC derivatives.
Registration and compliance requirements
- As is the case with the rest of the European Union, a broker can be acting as an STP and then require at least €150,000 in regulatory capital, or as a market maker, which would require €750,000 capital.
- Authorization fees start from €7,000.
- The review process for licensing applications can take up to six months.
- Detailed daily, weekly, and monthly reporting is a must. In this regard, CySEC has begun to enforce EMIR (European Market Infrastructure Regulation) standards.
- A Forex broker should have an office in Cyprus. The nominated employees should reside in the country. If the company is outsourcing any brokerage related work, it should inform CySEC about it.
- Bonuses and promotions are not allowed.
- The Forex brokers should continue to monitor and evaluate their own funds level and capital adequacy ratio and ensure that it stays above the limit specified by the CySEC at all times. A Forex broker should also submit a capital adequacy report prepared by an external auditor within four months of the end of a financial year.
- The employees of a Forex broker should not provide any kind of investment advice unless the Forex broker has the necessary authorization to do so. Even then, only qualified employees, as stipulated by the CySEC, should offer investment advice to clients.
- A Forex broker should also provide regular training to the staff providing investment advices such that they possess up to date knowledge and competence. Additionally, the staff employed by the Forex broker should not be bankrupt or have any criminal record. In this regard, a Forex broker should provide the necessary certificates from the competent authorities to the CySEC.
- The staff should communicate with the clients in their original name and provide their true credentials.
- Frequent phone calls to clients should be avoided. The staff should not use aggressive language or employ any kind of tactics to receive additional deposits from the clients. A Forex broker should have a credible internal assessment mechanism to evaluate staff. If a staff member gets dismissed for serious violation of rules, CySEC should be informed immediately. If necessary, CySEC may take further legal action against the dismissed employee.
- A Forex broker should not outsource investment advice, client support, and back office functions outside Cyprus. These critical functions should be provided from the headquarters or from the branch office situated in the Cyprus or another EU member state.
- Withdrawal charges should be comparable to the regular commercial charges applied by major financial institutions.
- The Forex broker should also have a proper system to prevent money laundering and terrorist financing. An annual statement, as prescribed, should be submitted by the board of directors of the Forex brokerage company to the CySEC.
- A Forex broker should have an adequately trained risk management department.
- Unless specifically requested by elected professional traders, the maximum leverage offered to any retail trader should not exceed 1:30.
- The Forex brokers are also prohibited from offering their services to non-EU countries without permission from the CySEC. Additionally, the Forex broker should also have the necessary permission from the concerned authority in the territory in which they offer their services.
- The companies should also act on complaints/grievances from clients in a prompt, effective, and transparent manner. The broker should also maintain a detailed verifiable record of the complaint and the measures taken to resolve the issue.
Some of the Forex brokers were taking undue advantage of the supportive CySEC authority. However, things have changed a lot in the recent past. After joining the EU, Cyprus is taking all the necessary precautions to shed its “easy” regulator image.
Considering the fact that Cyprus is a full member of the European Union since 2004, the CySEC follows the MiFID guidelines for the market. If a Cyprus broker becomes insolvent, then the retail clients can claim up to €20,000 (or 90% of funds, whichever is lower) from the Investor Compensation Fund.
Powers at CySEC’s disposal
On May 20, 2020, the CySEC issued a warning regarding www.everfx.uk website, which had been operating without authorization from the CySEC.
In January 2020, the CySEC imposed a €10,000 penalty on CIF Solid Financial Services Limited for failure to report to a trade repository details regarding derivative contracts concluded as well as for providing a false statement about the reporting.
In May 2021, the CySEC suspended the CIF license of Felicitas Management Investment Services Ltd due to non-compliance with the conditions for the granting of a license.
Prohibition of professional activity
In June 2021, CySEC announced a temporary prohibition of professional activity for Mr. Petar Kazivoda, Mr. Dusko Knezevic, Mr. Aleksandar Krtinic and Mrs. Ljiljana Dragicevic, who have been directors of CIF Atlas Capital Financial Services Ltd, due to their non-compliance with the organizational requirements under the Investment Services and Regulated Markets Law of 2007 that was in force at the time.
If the violation is huge, the CySEC can even file a case in court to receive an order of detention or to freeze assets.
If you want to share your opinion, observations, conclusions, or to ask a question regarding the Cyprus Securities and Exchange Commission (CySEC), feel free to start a discussion on our Forex forum.
If you want to get news of the most recent updates to our guides or anything else related to Forex trading, you can subscribe to our monthly newsletter.