CySEC Punishes Broker for Infractions

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CySEC Punishes Broker for Infractions

By Lex Yaranu | Friday, August 28th, 2020

As the binary options market deepens with more stringent measures applied by regulators for market infractions, traders will get to see more news about which brokers are in right standing and which ones are not.

On August 3, 2020, the Cyprus Securities and Exchange Commissions (CySEC) which acts as the regulatory watchdog for the binary options market in Cyprus, released a statement concerning a decision it had reached on several complaints about the activities of Banc de Binary. Banc de Binary was fined 22,000 Euros for contravening sections of the Prevention and Suppresion of Money Laundering and Terrorist Financing Law DI144-2007-08 of 2020. This law was passed by the Cypriot government to prevent the use of the Cypriot financial system as a conduit for terrorist financing and money laundering. As part of the requirements of brokers to qualify as CIF which can operate as binary options brokers in Cyprus. clients of brokerage firms are required to make certain disclosures as to the source of funds to be used for binary options trading, in addition to fulfilling Know Your Customer (KYC) requirement of submitting a government issued ID and a proof of residence document.

The finding though is that not all brokers follow these rules strictly. There is a lot of competition for clients as the number of brokerage houses offering European-style binary options has increased dramatically in the last two years. Some firms may therefore not follow the laid down procedures of identifying customers and their means of income before allowing them to operate binary options accounts.

By coming out to sanction Banc de Binary, CySEC has made yet another statement in its quest to ensure that the binary options marketplace in Cyprus is sanitized and that brokers operating with its license comply with the laws of the land.

This is not the first time that Banc de Binary is finding itself at odds with a regulator. In 2020, it had issues with the Commodities and Futures Trading Commission (CFTC) which regulates binary options in the US. The CFTC accused the company of illegally soliciting US clients. In the US, it is illegal for companies that operate outside of the CFTC’s jurisdiction to solicit and operate binary options accounts for US citizens and residents.

For now, Banc de Binary is still able to conduct binary options brokerage business as its license was not suspended by CySEC. It is therefore still open for business but new clients can expect a much tougher account opening regime by this broker.

CySEC Regulation & Forex Brokers in Cyprus

CySEC is one of the most popular regulatory agencies in the world when it comes to regulating all types of financial companies operating out of Cyprus. The Cyprus Securities And Exchange Commission was introduced way back in 2001, even before Cyprus joined the European Union in 2004. Ever since Cyprus became a part of the EU, the CySEC also became a subsidiary of the European MiFID regulatory organization, thereby enabling all CySEC members to carry out business across the European continent.
Cyprus is a highly popular attraction for Forex brokers who wish to set up base in a relatively easy and convenient location. Cyprus offers a lot of advantages when it comes to setting up a corporate headquarter, which is one of the main reasons why Cyprus sees the maximum number of Forex brokers offering financial services for traders across the world. CySEC Forex brokers are completely accountable to the CySEC under the MiFID directive, and are liable to legal action, including hefty fines and suspension of licenses, for non-compliance of the stipulated laws and guidelines.

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CySEC has relatively easy regulatory guidelines and a fast approval process that allows CySEC regulated brokers to set up camp in Cyprus with minimum formalities. Cyprus was also formerly known as a tax haven before being admitted into the EU, which provided additional incentives for companies who wished to save on taxes and increase their revenue.
CySEC also used to be broker friendly in terms of fines or suspension of licenses for misdeeds, which attracted criticism from all quarters of the globe, especially from other European Union members and their regulatory agencies. CySEC regulated Forex brokers have been known to indulge in financial malpractices and fraud, which had resulted in clients losing millions of dollars on an annual basis. This forced the CySEC to reform its regulatory guidelines to ensure that all regulated Forex brokers adhere to the most stringent laws to protect clients’ funds and interests.

A Pioneer In The Field Of Regulations

While CySEC received wide-spread criticism for its governing policies during the initial days, CySEC is clearly a pioneer in terms of bringing ground-breaking regulatory guidelines that changed the financial markets for the better. CySEC is the first regulatory agency in the world to regulate binary options by terming it as a valid financial instrument and is at the forefront of regulating a majority of leading binary options brokers in the entire world. CySEC paved the way for all the other regulatory agencies to quickly follow in their footsteps by recognizing binary options as a valid financial instrument and regulating related brokers in their respective countries.

How Are The Consumers Protected?

Since 2020, CySEC has been continuously updating their regulatory framework to incorporate several new initiatives that are designed to safeguard consumers against financial crimes and abuse. CySEC now works extensively with the European MiFID to create guidelines that concentrate on ensuring that all compliant members are honest in their dealings with the general public to ensure the integrity of the markets.
Unlike the NFA or CFTC, CySEC does not entertain consumer complaints directly. The CySEC has instructed all regulated members to address their clients’ complaints in an efficient manner through a dedicated customer support channel. Therefore, a trader should contact their broker directly regarding any complaints and await further instructions on a problem resolution. In case the client does not receive an amicable solution, CySEC recommends contacting the Financial Ombudsman, or the Court as a last resort.
The primary mission of CySEC is to regulate the markets and to supervise the conduct of financial organizations operating on Cyprus soil. While investor protection is a top priority in their updated mission, consumers can not contact the CySEC directly for any complaint resolution or arbitration services.

Verifying The Authenticity of CySEC Regulated Forex Brokers

The relatively easy CySEC regulations provided scam Forex brokers to make false regulatory claims and trick unsuspecting users. Current CySEC regulations state that all Forex brokers are required to quote the five digit CySEC license number prominently on their website. Consumers are also encouraged to verify the authenticity of a Forex broker by confirming the license information through the official CySEC website.
CySEC frequently updates its circulars and warning notices to inform the public about members that have been fined or have their licenses revoked for any financial wrongdoings. In case the consumers are confused about the status of any particular company, they can directly contact the CySEC to get more information.

Criticism & Way Forward

CySEC can be considered as a controversy’s play child since most EU regulators often criticise the way CySEC works. Most regulators often feel that the fines levied on members for non-compliance is small, and companies are let off with a simple warning for financial frauds that can get them banned in other countries. Therefore, the MiFID constantly oversees the working of the CySEC to ensure that their regulatory guidelines are continually adjusted to bring financial firms in line with standard protocols.
Despite the fact that CySEC has a long way to move forward in terms of regulation, it is indeed one of the most popular regulatory organizations that have achieved a tremendous growth rate. Financial companies still favour CySEC over other agencies due to the relative ease of regulation and lesser formalities. However, all of that is set to change in the next few years if CySEC hopes to be taken seriously by the MiFID.

FxNet Pays €60,000 to Settle Multiple Violations with CySEC

The CySEC fine reflects the violations of several articles of the Investment Services and Activities and Regulated Markets Law.

The Cyprus Securities and Exchange Commission (CySEC) has just announced that it has reached a settlement with FxNet Ltd, fining the firm €60,000 for violating the Investment Services and Activities and Regulated Markets Law.

Cyprus Investment Firm (CIF) FxNet Ltd is regulated by CySEC since 2020 and therefore has to comply with Cypriot regulations in order to maintain its CIF trading license, which enables the broker to offer its services across Europe, the watchdog stated.

FxNet is an STP broker headquartered in Limassol, with some clients in Eastern Europe. The broker operates under the umbrella of its parent entity BelFX, which is licensed by the International Financial Services Commission (IFSC).

The CySEC fine reflects the violations of several articles of the Investment Services and Activities and Regulated Markets Law.

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FxNet has to take corrective measures

More specifically, the fine is for non-compliance with Section 28(1) of the law, which often refers to a CIF’s failure to establish adequate policies and procedures to ensure the compliance of its marketing material with regulatory obligations. This may include the failure to maintain an internal operation manual or orderly records of the information related to the assessment of its marketing materials.

CySEC has further explained that the financial penalty was also imposed for non-compliance with Article 36(1) (a) of the law, relating to conduct of business obligations when providing investment and ancillary services to clients. The violation of this section often arises when the information provided on the broker’s website was not appropriate or sufficient to allow clients to reasonably understand the nature and risks of the investment service that the company offers.

CySEC ordered the company to take corrective measures within a set framework; otherwise, additional measures will be taken, such as the imposition of new fines, or suspension and/or even the withdrawal of their licenses.

However, it is important to note that fines are usually issued within six months of an inspection, so at the point of the fine, the majority of issues should have already been resolved.

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