Who is CySEC?
CySEC is the regulatory body that regulates financial services in Cyprus. The word CySEC is an anagram of “Cyprus Securities and Exchange Commission” and CySEC is one of the busiest regulatory agencies in the world due to the fact that Cyprus is a financial sanctuary for investment companies thanks to the low taxes and much easier entry requirements.
At the time of this writing there are over 40 Forex Brokers in Cyprus, which is probably more forex brokers than any other jurisdiction, and CySEC is responsible for regulating those brokers.
Why is CySEC so important?
In 2004, Cyprus became a member of MFID (Markets in Financial Instruments Directive), which is part of the European Economic Area (EEA). CySEC’s membership into the MiFID allowed for CySEC Registered Forex brokerage firms admittance into European markets without being subjected to many of the strict requirements placed on several other European financial regulatory agencies.
The main duties and responsibilities of the CySEC are outlined in Article 25 of the Law which regulates organization, powers and duties of the Security and Exchange Commission.
A summary of these duties would include (but are not limited to):
- Examining all applications and granting or revoking operating licenses to Forex Brokerage Firms under their direct supervision.
- Regulation of Cyprus Stock Exchange and all organized markets in Cyprus and supervision of any and all transactions done in these markets.
- Regulation of any agency under its direct supervision, ensuring compliance with governing laws.
- Carrying out all necessary investigations in consideration of the exercise of its duties according to current law and on behalf of acknowledged foreign exchange authorities.
- Imposing proper administrative and disciplinary actions as provided by the law.
- Stopping any practices contrary to the securities market laws.
- Application to proper court authorities in order to issue an order for detention, charge or freeing or other transaction involving actual assets.
- Issuing of all regulatory Directives and Decisions to proper agencies and CySEC Forex Brokers
- Publishing and making available a list of CySEC regulated forex brokers which enables forex traders to immediately find trusted brokers in order to avoid being scammed.
Cyprus is notorious for its many scams in brokerage firm operations, but CySEC is putting in a good effort to stop the scammers. Not only does CySEC publish a list of the current CySEC Regulated Forex Brokers, but it also lists CySEC Forex Brokers who aren’t in good standing with CySEC. This allows you to quickly determine which Cyprus Forex brokers can be trusted and which ones to avoid.
The list includes the address, phone and fax, registration and license number of each Forex Broker.
CySEC Regulated Brokers Guidelines
All CySEC Regulated Forex Brokers must adhere to certain guidelines in order to help to protect investors and preserver the legitimacy of the foreign exchange market. The following is a short list of some of these guidelines:
l In order to operate as a CySEC forex broker, all companies must apply and be approved for CIF (Cyprus Investment Firm) authorization. There are certain exemptions to this rule, such as those Forex Brokers who are already member of the European system of Central Banks or other national bodies who perform similar functions.
l There must be more than 1 person who is involved in the administration of any Forex broker, listed as the appropriate register.
l When applying for license, All CySEC forex brokerage firms are required to include all services they are planning to offer, and are not generally allowed to alter the memorandum and articles of association.
l In order for a broker to qualify for and be issued a license to become a CySEC Forex Broker, they must also meet certain financial requirements. A few of these requirements are as follows:
- a) Initial share capital must be greater than 200,000 Euros if they are handling client’s funds.
- b) For reception, transmission, investment advice without handling any clients’ funds/instruments their initial capital must be 80,000 Euros if they are not insured.
- c) If the broker is insured by professional indemnity insurance with coverage in all member states then their initial capital must 40,000 Euros or greater.
- d) Insurance must cover at least 1 Million Euros for each individual loss and a total of 1.5 Million Euros annually for any and all losses arising from negligent acts or inactions.
If a broker does not meet these guidelines any currently held license will be revoked and CySEC will list these brokers on their list of non-regulated Forex Brokers and will issue a warning such as in the following example:
The Cyprus Securities and Exchange Commission (‘CySEC’) wishes to inform investors that the company ‘TD Options Limited’ (www.basicventure.com/abouttdoption):
- Is not permitted to provide investment and ancillary services in the Republic, pursuant to Investment Services and Activities and Regulated Markets Law, as:
- It has never been authorized by the CySEC.
- It is not a bank or a cooperative firm, established in the Republic and authorized to provide such services.
III. No notification has been received by a competent authority of another Member State, pursuant to sections 77 and 80 of the above mentioned Law.
- Is not regulated by the CySEC.
What entities does CySEC regulate?
CySEC is responsible for the administration of foreign exchange tasks and financial service operations in order to confirm and validate complete compliance with all relevant legislation and includes the following bodies or entities:
- Administrative Services Companies – Trustee and Fiduciary Service Providers
- Alternative Investment Fund Managers (AIFMs)
- Central Counterparty Clearing House (CCPs) of over-the-counter (OTC) derivatives
- Cyprus branches of Investment Firms (Ifs) of other EU member-states
- Cyprus branches of UCITS Management Companies of other EU member-states
- Cyprus Investment Firms (CIFs) and Tied Agents
- Regulated Markets
- Trade depositories of over-the-counter (OTC) derivatives
- UCITS Agents
- Undertakings for Collective Investment in Transferable Securities (UCITS), Management Companies and Agents
- Variable Capital Investment Companies
Traders can ensure safe trading by using only CySEC Regulated Forex Brokers. If you are planning on using a Cyprus based Forex broker, you will find the CySEC website an invaluable aide in helping you to choose the best broker and avoiding the shady brokers and scam artists.
The board of CySEC, charged with administration and regulation of the Forex Market, are appointed by the Council of Ministers at the proposal of the Minister of Finance to a five year term, which is renewable.
By perusing CySEC’s many helpful guides, plans and warnings, foreign exchange investors increase their ability to find the best Forex Brokers and can be assured they are regulated and meet all necessary requirements.