CySEC | Financial Regulator Of Cyprus

Description and functions of CySEC

CySEC, the Cyprus Securities and Exchange Commission, was established in 2001. In 2008, it got broader powers to control legal entities. In particular, CySEC can directly intervene in a company’s operation if it goes bankrupt or defaults. Licensing and control by CySEC are mandatory for investment companies (brokers in particular), their branch offices, and subsidiaries.

Tasks and purposes of CySEC in the Forex market

• Ensures that brokers comply with the law of Cyprus and the eurozone.

• To develop legislation and audit licensees;

• Prevent insider trading.

• Collect and analyze information about regulated entities.

• Supervise brokers.

• Receive and analyze complaints and take them into account when conducting audits.

A CySEC license means that a broker is periodically audited. Inspections may be performed by auditors of the “Big Four” accounting firms: Deloitte, Ernst &Young, KPMG, and PricewaterhouseCoopers (PwC). In case a violation is found, the regulator has the right to impose a fine, revoke a license, or initiate a lawsuit.

To obtain a CySEC license, a broker has to

• Complete an application on the regulator’s official website and pay a fee.

• Confirm the availability of up to €1 million registered capital. The amount depends on the services provided by the broker.

• Provide a business plan and a road map for 3 years.

• Show the company management structure, which must include such full-time employees as a risk manager, fraud and money laundering officer, representatives of IT, financial, and accounting departments, etc. Confirmation of qualifications may be required.

• Have documents that confirm the availability of a transaction account and segregated accounts at accredited banks.

• Have its management team be personally present before the final approval to open an account, if requested.

Most brokers choose CySEC for several reasons that include: lower taxes, a license can be obtained in 1-3 months (the Financial Conduct Authority (FCA) may review documents for up to 6 months), lower monthly fees, and fewer requirements regarding the provision of financial documentation.

Official website | Available information

Overview of the CySEC website:

• Home. Return to the homepage from other sections.

• The Commission. General information. Here you can find CySEC’s history, objectives, and organizational structure, read reports from previous years, view the schedule of seminars and conferences, etc.

• Public Information. This section contains general information about the results of the regulator’s operation such as court decisions, administrative sanctions, warnings, statements, etc.

• Regulated Entities. This section interests traders and brokers who can create their digital signatures here.

• Regulatory Framework. Documents that regulate the interaction between all market participants.

• Investor Protection. Client section.

Investor Protection, the main section for traders:

CySEC Review — Website sections

Here you can submit a complaint against a broker, apply for compensation, and contact the financial ombudsman.

How to confirm a broker’s license on the CySEC website

Brokers can be searched by name or license number. A broker’s name is a brand or a trademark that, in most cases, is not the same as the broker’s legal name. That is why searching by license number is easier.

• 1

  On the broker’s website, find its license number. It can be in the homepage’s footer, FAQs, or About Us.

• 2

  On the CySEC website’s homepage, enter the license number in the search box.

  

  CySEC Review — Broker’s license number

• 3

  Compare the results to information provided on the broker’s website such as registration address, company name, valid license, etc.

  

  CySEC Review — Broker’s license search results

CySEC’s basic requirements for brokers

Basic requirements to obtain a license:

• Up to €1 million registered capital, depending on the services provided by the broker.

• The head office must be located in Cyprus.

• In accordance with the principle of asset segregation, client accounts must be opened at Cyprian banks and separated from the broker’s transaction account.

• Provide complete information about business structure. In some cases, the broker’s management team is required to be personally present when submitting an application.

The regulator can impose a fine or revoke a license. A revoked license means that the broker is forbidden from operating in Cyprus. In some cases, the regulator may initiate legal proceedings.

CySEC license | Pros and cons

CySEC is considered to be an offshore regulator that nevertheless strictly follows European rules and the Markets in Financial Instruments Directive (MiFID). Brokers choose Cyprus for lower taxes compared to Europe. Registration in Cyprus automatically forces brokers to submit an application to CySEC. A CySEC license is a benefit for brokers, as this regulator is deemed to be the second strictest after the British FCA. For traders, a CySEC license is a guarantee that the broker is not a financial pyramid and is not involved in fraud.

Main advantages of trading with a CySEC-licensed broker:

CySEC’s jurisdiction

The regulator’s jurisdiction is Cyprus. To obtain a license, a broker has to open a branch office in Cyprus and apply for a license. Since CySEC operates in compliance with MiFID II, its license entitles brokers to operate in a number of European countries (the exceptions for each broker must be specified on its website).

Compliance with MiFID II requires that:

• Brokers must provide extensive sets of documents every year. In addition to financial statements, brokers must provide information about their owners and management teams and confirm the absence of criminal records or open lawsuits.

• All MiFID II entities have a single economic passport and are entitled to provide services in the eurozone.

• The professional and financial categorization of traders determines the extent of their investor protection.

CySEC is not as meticulous as the FCA, but it also has a reputation of being a professional and trustworthy regulator.

Submission and consideration of complaints

CySEC does not consider individual complaints but promises to take them into account when conducting audits. Only collective complaints are accepted for consideration, but the website does not lay out the submission procedure or specify how many people have to submit a complaint to trigger an investigation. The regulator recommends sending copies of complaints to the website of the Cyprian ombudsman http://www.ombudsman.gov.cy/. The submission form is in pdf format.

CySEC Review — Submission and consideration of complaints

Complaint submission procedure:

• 1

  On the regulator’s website, check if the broker has a valid license. If its status is Created/Modified, the license is valid and a complaint can be submitted. If the license is invalid or absent, the complaint will not be considered.

• 2

  On the homepage, select “Investor Protection” and then “Complaint Regarding CIFS”.

  

  CySEC Review — Procedure for submitting a complaint to CySEC

• 3

  Enter your personal details.

  

  Submitting a Complaint to CySEC — Entering your personal details

• 4

  To fill out the next part, you need the broker’s registration number. It’s in the broker details that can be found by the organization’s name or license number.

  

  Submitting a Complaint to CySEC — Selecting a cause

List of possible causes of complaints:

• Execution of orders. Complaints about the execution of orders, artificial slippage, etc.

• Investment advice. Complaints about wrong recommendations from brokers. For example, a broker promised a 100% accurate trade signal. This cause occurs rarely, as brokers warn about the risks in advance.

• Portfolio management. Complaints against investment companies. They regard brokers indirectly.

• Quality or lack of information provided to the client. Complaints about inaccuracy or hiding of information that led to losses. For example, a broker did not warn a trader that it was mandatory to work off a bonus. Proving that a violation did take place is hard because many conditions are included in the offer and client agreement.

• Terms of contract/fees/charges. Violations of the terms of the offer and client agreement. Financial issues such as a broker denies money withdrawals or charges unnecessary fees, money does not arrive, etc.

• General admin/customer services. Complaints about user account settings or the blocking of a trading account or a user account.

• Unauthorized business being offered or carried out. Complaints against a broker that violates the EU law or MiFID clauses.

• Other.

• 5

  Specify the instrument type and complaint amount.

  

  Submitting a Complaint to CySEC — Selecting an instrument type and complaint amount

This 5th item mostly concerns Forex brokers. The other items concern stock and investment companies.

Complaint consideration time depends on the circumstances. The regulator’s representative can contact you by phone to check and clarify information in a week.

CySEC-licensed brokers | How to check on a broker

A broker may hold several licenses. So that it’s easier for you to check if a license is valid, TU has prepared a list of brokers that currently hold valid CySEC licenses. The list is reviewed and updated by TU’s analysts every month.

About the author of this review

Oleg Tkachenko, author and analyst at TU
Oleg Tkachenko has been TU’s financial analyst and economic observer since 2016. During this time, he has prepared more than 100 reviews of financial companies and analytic articles on technical and fundamental analysis, as well as developed over 10 trading systems. Oleg’s motto is to help everyone come all the way from a novice trader to a professional.