CySEC bans trading bonuses, sets max default leverage to 1:50

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From here:

The Cyprus Securities and Exchange Commission (CySEC) has issued a circular to the Cyprus investment firms setting some new rules regarding trading bonuses, maximum default leverage and fund withdrawal processing terms. In essence the new rules concern all forex and binary options brokers regulated by the CySEC.

Trading bonuses

In its circular the Cyprus regulator says that the brokers “must avoid the practice of offering bonuses that are designed to incentivise retail clients to trade in complex speculative products such as CFDs, binary options and rolling spot forex as it is unlikely that a firm offering such bonuses could demonstrate that it is acting honestly, fairly and professionally and in the best interests of its retail clients”.

Furthermore, the CySEC expects that the brokers will not launch any such bonus programs to retail clients, with the current ones not being renewed. Also, all forex and binary options brokers regulated by the CySEC, must inform it whether or not they have such bonus schemes by December 14.

As for the offering of other trading benefits, the brokers must inform CySEC beforehand and to demonstrate they are not infringing on clients’ interests.


CySEC notes that the brokers offering “excessive leverage” to retail clients are most likely not doing it in the best interest of the clients, hence from now on all forex and binary options brokers should design their trading systems to set as default a lower leverage and give them the option, if they wish, to change the leverage to a higher level. Further in its letter CySEC sets the maximum default leverage as 1:50.

Also, the brokers should set limits to the leverage available to clients who have failed the appropriateness test, or the sum they can trade in any one transaction for a period of time.

The brokers should also ensure that clients cannot lose more than they have in their accounts negative balance protection) and establish a leverage policy approved by the board of directors of the company and be included in the internal procedures manual.

Withdrawal of funds

In its circular the CySEC also sets a rule that in case of a positive cash balance in a client’s account brokers must process the client’s fund withdrawal request on the same day it was made, or the next working day if the client’s request is received outside of normal trading hours.

In conclusion, the CySEC gives the forex and binary options brokers until January 30, 2017 to take the appropriate measures and actions in order to operate with the new rules. From then onwards, the regulator intends to “conduct thematic reviews” to ensure they are complying with them, as well as with the general provisions of the law. In case of infringement, the CySEC will take relevant measures.
So if this is accurate, all I get from it is the following:

Cypress finally hit the point where the bad press, bad reputation, and risky legal liabilities, outweighed the local economic benefit of having so many shady brokers operate out of their jurisdiction (a considerable portion of their population is employed in the finance sector.)

Simply put, shady FX brokers will likely move onto other parts of the world.

What's interesting though, is that some brokers have been playing a game where they'd get an entity under FCA regulation in the UK, but only service UK residents under that entity while redirecting all other clients to their CySEC regulated arm of the company... all the while, they get to market and advertise themselves as FCA regulated with FCA-level protections. Sooooo.... I see these same brokers simply picking another area of the world to run their operations.

In its circular the CySEC also sets a rule that in case of a positive cash balance in a client’s account brokers must process the client’s fund withdrawal request on the same day it was made, or the next working day if the client’s request is received outside of normal trading hours.

This is the most interesting part, and the reason why I think most shady brokers will move on from Cypress.

Britain clamps down on spread betting industry

"By Noor Zainab Hussain and Huw Jones
Dec 6 (Reuters) - Britain's financial watchdog has joined other European regulators in a crackdown on financial spread betting, a fast-growing 3.5 billion pound ($4.5 billion) industry where most retail investors lose money.
The Financial Conduct Authority (FCA) said it had found evidence of poor conduct across the market over the past six years and that people using the most popular financial betting product - known as a contract for difference (CFD) - lost 2,200 pounds ($2,805) a year on average.
"We have serious concerns that an increasing number of retail clients are trading in CFD products without an adequate understanding of the risks involved," the FCA's Executive Director of Strategy and Competition Christopher Woolard said.
Shares in Britain's major financial betting firms lost more than a quarter of their value on Tuesday and lawyers said the FCA proposals were much tougher than expected.
IG Group, which has 40 percent of Britain's financial spread betting active accounts, fell more than 30 percent, making it the biggest loser across major European stocks. Rivals CMC Markets and Plus500 posted similar falls.
In recent months, France has moved to ban digital advertising of CFDs and the Netherlands is considering a similar measure, Belgium has banned CFD trading and Germany could "intervene shortly", Numis analysts said, highlighting the regulatory risks faced by the sector.
The spread betting industry in Britain has grown rapidly and there are about 125,000 retail customers in the country trading CFDs. There are 97 CFD firms authorised by the FCA, double the number six years ago, and they also serve some 400,000 retail clients outside Britain. Another 130 firms, mainly based in Cyprus, offer CFDs to clients in Britain.
CFDs let investors bet on both the direction a share price, currency or other financial product will move, and the extent of the change in price, and there is no stamp duty.
The industry is regulated by European Union rules which have no caps on leverage. That means investors can take out bets that are far larger than their initial outlay, offering greater potential returns but also running the risk of huge losses.
The FCA wants to split the retail CFD market into two categories: people with little experience and more experienced investors. Under the first category, the exposure taken on must not be greater than 25 times the initial outlay, and it would be capped at 50 times for the second group. Under current rules, some firms have been offering leverage of up to 500:1.
The watchdog also wants to ban "bonuses" to entice new investors. It wants the measures in place by mid 2017 and believes they will reduce losses for retail investors by 20 percent to 40 percent.
Lawyers said the FCA was taking a very protectionist approach as many retail investors probably understood the risks.
"This is less an example of 'conduct regulation', rather, 'product intervention', and this will come as a shock to the UK industry, which received detailed briefings from the FCA earlier in this year where this was not indicated," said Jake Green, a regulation partner at law firm Ashurst.
IG Group said some of the FCA's proposals could "enhance client outcomes" but noted they did not appear to apply directly to firms outside Britain offering CFDs.
CMC Markets said it already focused on "higher-value", experienced clients who understood the products. Plus500 said the proposed measures would affect about a fifth of its revenue.
Cyprus's financial regulator CySEC issued a warning last week to retail currency brokers registered on the island over their use of bonus schemes to encourage trading in risky products and their poor treatment of clients.
"FCA seems to be imposing more penal rules than the Cypriot regulator last week ... This will result in a much smaller, less profitable CFD and spread betting industry," said Liberum analysts.
The FCA also said it would look at new rules for binary options - a product that lets people take a position on a price movement in a fixed time frame - once it assumes regulatory responsibility for them from the UK's Gambling Commission.
(For a Reuters special report on binary options, click on:
($1 = 0.7844 pounds)
(Reporting by Huw Jones in London and Noor Zainab Hussain in Bengaluru; editing by Louise Heavens and David Clarke)

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Oh man.. I wonder if CySEC did their announcement because they knew the FCA was about to clam down themselves? lol
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