CySEC Slaps Binary and Forex Brokers with More Legal Requirements
12th of May 2017
Things are about to change for CySEC-regulated binary options and forex brokers; and in a big way. The changes will affect CIFs (Cyprus Investment Firms), which include binary options brokers. The new rules will come into force on May 31 of 2017, which is less than a month away.
This was revealed through a circular sent by the watchdog to all its regulated brokers. The new laws are in regard to the onboarding of overseas clients. Basically, the brokers will have to do more to enjoy this privilege.
This is an important turn of events since many brokers regulated by this authority have a strong focus on overseas clients. Although this practice is not being prohibited, a broker will have to prove to the authority that it can effectively offer trading services to international clients before doing so.
Consequently, the focus for the affected binary options brokers will be to meet all the conditions necessary to enjoy this right to avoid getting into trouble with the Cypriot regulator.
As expected, CySEC is seeking to boost its credibility by making it clear that it will not be the authority licensing rogue international brokers; a reputation it has had ascribed to it in the past.
It’s simple – binary options brokers, as well as forex brokers, will now need a green light from the overseas countries they operate in to meet CySEC’s new laws. There are two ways the brokers can achieve this goal.
One of them is getting authorization to offer their services in the said country. The other is to prove that they have been granted the authority to provide trading services in the said countries despite the absence of a local license.
This information is expected to be submitted to CySEC by the affected firms under the title “C204 – Freedom to provide investment and ancillary services and/or perform investment activities in a third country.”
The submission should detail all the countries the broker is providing its services in, and for each country, say whether the authority to provide such trading services has been obtained or not.
CySEC does not mention whether the brokers have to submit proof that they are authorized to offer their services in the countries they claim to have the mandate to serve.
All in all, this is a very interesting development. For one thing, it puts a lot of strain on the brokers since they might have to deal with authorities that generally don’t have authorization processes for binary options trading.
In other cases, trying to get authorized in another jurisdiction might make them subject to a different set of rules that could put their current binary options trading services in disarray. This could introduce lots of uncertainty and difficulties for such brokers.
Overseas clients might suffer as a result of these requirements as well. In cases where the brokers are unable to comply or obtain verification for their services, leaving such markets might be the only option if retaining CySEC licensing is a priority. The affected clients will therefore have to find other, possibly worse, alternatives.
Besides, the extra regulatory hurdles might increase the expenses these firms have. This could affect their bottom line and draw their focus away from providing good quality services to their clients.
These repercussions will be especially profound if CySEC decides to do follow ups to prove that its regulated brokers have a legal mandate to provide their services in all the countries where they have operations.