In the last decade, some of the financial instruments that allow greater gains, such as Forex trading and binary options, have become a “Cypriot specialty”, with hundreds of operators of all sizes concentrated in the Mediterranean island that more than thirteen years ago became a part of the European Union.
The Cif companies (Cyprus Investment Firms) with a regular license were just 48 in 2004, in 2010 they became 95, more than 300 at the end of 2017. The users of the Cypriot financial companies are 1.5 million in the Forex market (with an increase of 60% in one year), almost 359 thousand for binary options (with a boom of 97% in one year) and just 88 thousand on traditional instruments such as Ucits funds (+ 18%). More than 3,500 employees of all nationalities work in these Cypriot financial companies.
The Cysec, the Cyprus Securities and Exchange Commission, whose objective is literally to “carry out effective supervision to ensure investor protection and a healthy development of the market”, oversees this heterogeneous world of large and small operators. This is a commission founded in 2001 and currently composed of five members, led by the president Demetra Kalogerou. But Cysec was also the institution that on 4 May 2012, for the first time in the European Union, took away the customs and related taxes on binary options, considering them “financial instruments” rather than gambling: this obviously allowed the companies to attract dozens of new operators on their territory. A few months later Malta followed the Cyprus route too.
Now a Cysec license represents a sort of “Community passport” to operate throughout the European Union, of course respecting the MiFID directives too.
So, what safeguards are there now for the ones opening an account based in Cyprus? Is there a pre-contractual information notice?
Obviously yes, because of the European Union’s directives. Warnings against “high risks of trading” appear on all sites (unfortunately, in a very small font), warning users that there is a real danger of losing all their money. And more: in the pre-contractual information, under the heading “Potential conflicts of interests”, the risk that the financial company “earns money, or avoids financial losses, to the detriment of the customer” is clearly mentioned. And again, under the heading “risk disclosure”, it is emphasized that “the customer is responsible for all losses suffered on his account. As a result, the customer must be ready to lose all the capital invested. Do not invest money that you can not afford to lose “. It would be difficult to put it down in a more clear way. But are we sure that the unwary speculators seduced by the dream of easy money will dwell on these warnings?
Well, no. The result is that in 2017 Cysec received more than 340 official complaints against financial companies on the island. Most of them concerned the contractual terms (evidently signed with lightness by the customers, who found themselves losing all the invested capital) or the commissions, but also extremely slow or not transparent execution of the investments or the insufficient adequacy of the information provided.
So what can Cysec do? Does it fool the investors?
Cysec regularly denounces all unlicensed brokers (as it did for example in 2013 with TraderXP, NRGbinary, PlanetOption and LBinary) and sometimes temporarily suspends companies that “endanger customer interest” (it happened with Cedar Finance at the end of 2013). On other occasions it forces platforms to pay administrative penalties which, however, do not affect them in the slightest.
In a nutshell, it makes the minimum necessary to safeguard the national businesses without losing its face.
But how does Cysec address the regulation of European markets? Well, they certainly can not be avoided, but Cysec does its best not to put the major operators on the island at risk. This is demonstrated by the story of the company IronFX, one of the major platforms of Forex: in 2015 it was forced to pay just € 340.000, against its huge irregularities of all kind.
It’s clear that greater control and transparency is needed.