Applying Restraint While Trading With CySEC Forex Brokers
CySEC FX brokers have traditionally had mixed response from the retail trading markets, ever since Cyprus was formally inducted into the European Union in 2004. Previously, CySEC was formed by the Cyprus Government in early 2001 to regulate and license financial firms according to the country’s overall plans to expand into the global capital markets. Cyprus offered a low-tax environment for financial companies that wished to operate in the country, which helped numerous Forex brokers to enjoy a highly cost-effective brokerage environment to increase their profits and bottom line. However, CySEC had been subject to multiple scams and wide-spread criticisms due to the relaxed regulatory attitude, which had diminished the prospects and reputation of genuine CySEC regulated Forex brokers. However, once Cyprus was formally accepted into the EU, there was a significant turnaround in the way CySEC started to regulate and license Forex brokers that were domiciled in the country.
The Resurgence Of Cyprus Forex Brokers As Cypriot Investment Firms (CIF)
The Cyprus Securities and Exchange Commission () had to undergo various regulatory changes and had to incorporate new rules and guidelines as per the European FX broker regulatory framework. The ECB and various other European regulators are dedicated to the welfare of its investors, which led to the creation of the European Markets in Financial Instruments Derivatives (MiFID), which contains a detailed set of policies and laws to maintain a uniform code of conduct throughout the EU. All Cypriot Investment Firms, otherwise known as CIFs, are subject to the highest regulatory scrutiny according to the MiFID derivatives and the CySEC’s own regulatory guidelines. Cyprus was formally forced into adhering to all the regulatory supervisory as suggested by the EU regulators if it were to maintain its EU membership. Such a move not only elevated Cyprus’s status in the global financial markets, but all Forex brokers in Cyprus were naturally required to conduct their business in a safe and secure manner.
The Ever-Increasing Popularity Of CySEC Regulated Forex Brokers
Despite the changes in regulations and an improved regulatory framework, Cyprus has managed to stay relevant in the financial markets by offering one of the best business environments for Forex brokers and other non-banking financial companies. Cyprus heavily depends on the revenue from companies domiciled in the country, and an influx of investments from foreign investors. Cyprus aims to attract new companies and corporate investors by offering the lowest tax regime in the EU and a low-cost business setup procedure that is guaranteed to save a significant amount of operational costs. Most online businesses are looking for innovative ways of improving their bottom line. In the modern Forex markets, countries such as the US are strengthening their Forex broker regulatory guidelines on a daily basis to limit the freedom available to its traders. Most Forex brokers from the US and other similar jurisdictions have to spend a ton of money to keep afloat in the financial markets. Such a hostile market environment can prove to immensely expensive for a business, which not only reduces the revenue, but traders will be forced to find other alternatives in the market. Cyprus, on the other hand, not only offers a low-cost environment, but it also supports the concept of open markets without any restrictions on Forex trading. Cyprus FX brokers are free to offer all types of Forex trading products and services, provided they are properly regulated and licensed by the CySEC. It is also normal for CySEC regulated FX brokers to offer other exotic financial products such as binary options online and CFD trading, which are usually banned in other major financial markets. Therefore, Cyprus has managed to increase its popularity in the markets by becoming one of the most highly preferred Forex broker destinations in the entire world.
European Access Through The EEA Initiative
Forex brokers regulated by the CySEC are authorized by the European Economic Area (EEA) passport to operate in the EU through a single CySEC license. Forex brokers primarily choose Cyprus as their preferred broker location in Europe due to its EU membership, low business costs, and the ability to cater to the entire European Union through the EEA agreement. Forex brokers that are located in the EU or any other part of Europe can indulge in cross-border sharing of services, provided they comply with all the regulatory policies that are applicable in a particular country. Although the EEA facilitates a free trade that enables Forex brokers in Cyprus to offer their services to any member nation of the EU, Forex brokers must be careful about its modus of operation and whether the broker does satisfy the existing laws of a country. Cyprus FX brokers are expected to prove compliance with the current laws, failing which, such companies may face legal actions, hefty penalties, and even cancellation of licenses. There have been numerous cases where CySEC regulated FX brokers have been banned from operating in several other European member nations due to operational differences, which does indicate that Forex brokers must remain vigilant to offer the highest quality of services while operating in the EU.
How Do CySEC Forex Brokers Keep Their Clients’ Funds Safe?
The CySEC has implemented several policies as per the input from the MiFID, the ECB, and its partnership with other leading regulators in the EU. These regulatory guidelines help the CySEC to maintain a safe environment for investors and traders, which is paramount to ensuring the long-term viability of both companies, as well as its traders. Here are some of the few core operational guidelines that help the CySEC to maintain the integrity of the European financial markets:
Forex brokers in Cyprus should satisfy a minimum capital requirement of €750,000, but the CySEC has increased the minimum requirement to €1 million for all new Forex brokers. The minimum operating capital should be maintained at all times, and it is the duty of the Forex trading companies to provide a clear track of their financial transactions to ensure that they do comply with the CySEC policies. Regular audit reports and financial scrutiny from the CySEC does help in keeping the brokers honest without any chance for financial malpractices. Apart from minimum capital requirements and a high capital adequacy ratio, CySEC FX brokers must also keep its clients’ trading capital in segregated accounts. It is also essential for CySEC Forex trading companies to offer protection of clients’ funds for up to €20,000 through the Investor Compensation Fund, in the event of broker default or bankruptcy. The ICF is one of the industry’s leading compensation schemes for investors, but the compensation amount is one of the lowest in the industry. CySEC also mandates a low-conflict of interest for brokers while dealing with their clients’ trading capital, and even in the case of market maker accounts, brokers are banned from trading against their customers. A broker should not create any unfavorable trading circumstances such as tampering with the trading platform, quoting incorrect price feeds, or absorbing the opposite end of their clients’ orders.
How To Avoid Scams & Financial Malpractices
CySEC regulates the highest number of Forex brokers in the market, and it is not a surprise that Cyprus tops the list for the sheer number of Forex brokers that has set up their base in a single country, seconded only by leading financial markets such as the UK, Australia, and the US. However, the high number of Forex brokers in Cyprus is also a recipe for an incredibly large number of broker scams and malpractices, as Cyprus may at times be unable to ensure regulatory compliance for all of its regulated member firms. It is also common for unethical Forex brokers to display false regulatory information by forging its licenses and regulatory information. Some Forex brokers may claim to be regulated by the CySEC, but in reality, they may not have any affiliations with the CySEC or any other allied regulatory organization. Therefore, traders must be extremely cautious while dealing with Forex brokers that claim to be regulated by the CySEC but does not offer any clear-cut information on its regulatory licenses or CIF registration. The CySEC has an official list of regulated and licenses Forex brokers that are authorized to offer Forex brokerage and allied trading services to retail traders. All CIFs will have a unique registration number and a certificate of authorization, which can be retrieved from the official CySEC website. Any company that is not listed in the official CySEC register is most likely a fraudulent company, and traders must avoid investing with such a broker.
CySEC’s Consumer Protection Laws & Broker Penalties
The CySEC tries in its best capacity to eradicate broker scams and create a sense of confidence and security among its investors. Although Cyprus is home to the largest collection of Forex brokers in the market, CySEC does employ several regulatory filters to ensure that brokers do not indulge in any scam practices or take any undue advantage of their clients. The CySEC actively takes part in broker scrutiny and whistleblower programs, which are aimed to reduce any instances of fraudulent business practices. CySEC does not involve directly in any arbitration between a broker and its clients, neither does the agency accept any complaints directly from traders. On the other hand, CySEC has made it compulsory for Forex brokers to offer the best customer service channels to its investors, or traders are free to contact the financial ombudsman for resolving any issues. The Financial Ombudsman service is a great platform for receiving expert guidance on almost all the key broker issues, but if the arbitration fails, traders are free to approach the court or any other higher authorities. If a broker is found to be in consistent violation of the ethics and regulatory principles, CySEC will ensure that the company faces legal and disciplinary action. The CySEC, in its modern guise, is entirely different from its initial phase of operations, where broker scams were relatively unchecked. However, under the MiFID derivatives, CySEC has certainly evolved into one of the most highly efficient Forex regulatory agencies in the industry that not only protects investors through proactive measures but also prevents large-scale financial scams that may hurt the integrity of the markets. Even though CySEC Forex brokers may not offer the same regulatory protection as provided by other regulators such as the NFA (US) or the FCA (UK), the CySEC does have its major high points that should help in keeping your trading funds safe and secure.