CySEC Regulated Forex Brokers

More about CySEC-regulated brokers

History of CySEC

The Cyprus Securities And Exchange Commission was inaugurated a couple of decades ago in 2001, back then, Cyprus had not yet become part of the European Union which was in 2004. After Cyprus joined the EU and adopted the Euro as its currency, CyCEC automatically also became a subsidiary of the European MiFID regulatory framework which allowed all companies registered under CySEC to transact business throughout the entire European continent. When CySEC debuted in the Forex scene they began by creating very favorable conditions for Forex brokers who desired started offering a highly conducive regulatory environment for Forex brokers. The existence of tax savings and flexible laws governing the trade enabled several brokers to operate Forex brokerage in Cyprus. This made Cyprus a popular forex market as a country making it a preferable destination for brokers.

Cypress observed a substantial upsurge in the number of Forex brokers looking to enjoy the benefits of the flexible terms imposed by CySEC. Eventually, the country became a breeding ground for scammers and fraudsters. This in turn reduced the ability to deal with irregularities and financial fraud. Another weakness that CyCEC had was letting off easily companies involved with simple cautions without taking any punitive measures even when the scale of crimes they engaged in was grave. This was because Cypress did not want to lose investors and to prevent them from closing down their business and moving elsewhere. For a while, the absence of a tight regulatory regime affected CySEC’s standards as a financial regulatory authority.

Reasons Why Forex Brokers Choose CySEC

Brokers across the markets have different opinions and considerations as to why they would choose or not to be under the regulation of CySEC as far as retail brokers are concerned, it is a love-hate relationship with CySEC.  The reasons accounting for the popularity of CYSEC’s brokers in the financial markets are many. However, the main reason behind its acclaimed reputation is the agency’s stern approach and policy towards brokers involved in scandals involving broker scams and large-scale financial frauds during its years of inception.

The year 2012 saw a paradigm shift for CySEC as it significantly changed its policy on the way it handled financial companies. The CySEC, under the regulation of the MiFID, initiated many new laws and regulations which allowed it to earn a reputation as one of the most reliable and revered financial regulatory agencies globally. CySEC stopped shielding the companies and minding their welfare. CySEC now emphasized in regulating financial companies to limit and avoid fraudulent activities and financial abuse.

CySEC’s regulatory guidelines are fairly easy and the agency is quick to approve firms seeking to register under it and to set up their business in Cyprus without going through many formalities and processes.

Cyprus had previously honed a reputation for itself as a tax haven even before joining the European Union, this gives more reason for investors who want to save on taxes and profit more.

CySEC is highly active in investigating all cases involving broker scams and has in place an online platform for traders to flag any suspected financial fraud.

Much as CySEC commits to ensuring the welfare of the brokers, it stays away from direct involvement in broker-client relationships.  All complaints by the consumers of the company’s services are taken care of by the broker, financial ombudsman, and the courts of law.

Despite of their shaky history, and criticisms over the years, the CySEC prevails as one of the preferred agencies for forex brokers. The aggressively competitive nature of Cyprus’  retail trading market makes brokering firms focus on providing quality services that are consequently to the benefit of the trader. Much as traders are assured of receiving the best service from any Forex brokers under the regulation of the CySEC, it lies with them to steer clear of scams by ensuring that they always chose a verified and registered broker.

The relationship between the regulator, broker, and trader

CySEC is among the few top financial agencies that are keen on evolving by adopting new ideas and putting in place improved regulations to accommodate new financial services. After Cyprus joined the EU, CySEC has significantly grown and taken a turn for the better from its tumultuous past becoming a prime regulatory authority in the industry. In the global financial business market, Cyprus indeed harbors among the top brass of forex brokers and most of the popular Forex companies today were first registered by CySEC when they first started.

The CySEC hardly has any restrictions on traders; investors who chose to set up shop in Cyprus are free to do so without major concern about being regulated. CySEC was among the pioneer regulatory agencies in the sphere of binary options brokers and has already embraced other newer ideas such as spread betting. It is evident that CySEC is flexible in providing traders with the freedom to choose which kind of strategy they’d like to apply and this has aided CySEC brokers to offer substantial leverage, hedging functionalities, and other conditions suitable for trading.

Initially, the relaxed regulations provided by CySEC had created a favorable for scammers to easily get away with misrepresentations they made to unwary traders. The current CySEC regulations stipulate that brokers must quote a unique 5-digit CySEC license number which can be verified by checking their website. Traders can also check the authenticity of a broker by verifying the license number via the regulator’s website. CyCEC regularly refreshes its circulars and caution notices to make the public aware of any members that may have been penalized or had their licenses withdrawn for involvement in financial malpractices or fraud. If at all a consumer feels confused about whether a particular broker is licenced they have access to contact the agency for further information.

The Responsibilities of CySEC

The official CySEC website outlines the following as the authority’s main responsibilities.

1. To ensure that the Cyprus stock exchange and brokers are efficiently monitored
2. The distribution of licenses grants permission to companies and brokers to operate in the stock, Forex, and CFD markets.
3. Gathering and collecting the information required about brokers and forex companies on their role as registered firms.
4. CySEC must accommodate and embrace evolving concepts in the financial markets such as Cryptocurrency and blockchain virtual currency.
5. CySEC must regularly update, review, and where need be, amend their regulations, and advice they give to investors.
6. Providing webinars to consumers that tackle key issues such as money laundering.
7. Inspection of the registered brokers on their list, plus ensuring that they meet the necessary reporting requirements and have policies that favor the clients.
8. Make inquiries and put up sanctions against any companies in their jurisdiction that are involved in malpractices.

Rules that Govern CySEC Regulated FX Brokers

Cyprus came up with several comprehensive CySEC guidelines which are constantly amended and renewed to keep brokering firms in check. For any forex broker to attain permission to operate within Cyprus they must conform to these regulations;

1. Any broker under CySEC must have the bare minimum of €750,000 in operating capital. This was not the case in the years of the inception of CySEC. This new rule which dictates the operating capital is reinforced by the MiFID directive which expects the brokering firms to be in a position to hold their customer’s positions without easily being hurt by the volatile market.
2. Members of CySEC are required to maintain regular financial statements which are to be submitted to the authority to be reviewed periodically. They are expected to send in annual audit reports which are done by authorized independent third-party auditors.
3. CySEC-regulated brokers are expected to keep traders' capital in top, tier-1 banks within the continent and in segregated accounts. This is done to avoid mixing up the trading capital with the broker operating capital this ensures that the operations are done transparently.
4. Brokers are expected to obey all new rules that CySEC and the MiFID may adapt as time goes by.
5. CySEC Forex brokers are responsible for protecting their traders from becoming insolvent or going bankrupt by securing them under the ICF (Investor Compensation Fund). The ICF gives compensation of up to €20,000 in case a broker is rendered insolvent this helps the customers protect a significant amount of their trading capital.

Challenges facing CySEC-regulated brokers

Between 2014 and 2015, CySEC came under attack majorly from retailers and industry experts who argued that CySEC required better laws governing the regulation and supervision of high-risk investment opportunities. CySEC Critics also say that the fines imposed by the agency are usually smaller than those of other financial regulators in the EU. CySEC has greatly criticized authorizing operations of binary options brokers.

1. Due to unclear definitions and dormancy, some CYSEC-regulated brokers and firms have not been punished for flouting the rules.
2. Although CySEC has the law on its side, the officers responsible for compliance fine quite low fees.
3. CySEC has been accused of being reluctant in responding to breaches of regulations. A case in point is the investigation of IronFX which only commenced when the media gave it traction and many clients complained.
4. The absence of direct communication when clients have some grievances to air is another challenge. What makes CySEC different from other regulators such as the NFA is that the complaints are to be directly raised to your broker. This exposes the clients to slow and inefficient responses.

Examples of popular CySEC Forex brokers

Hot Forex: This is a financial company based in Cyprus with a license and regulation of CySEC. This by extension also means that it is bound by the regulations of MiFID. HotForex has been a commendable broker gathering several awards over the years, HotForex was voted the Number one new entrant in the South African market in 2016, and awarded for providing quality customer care the same year. HotForex has quite several good offers for their client which include a VIP contest that gives clients the chance to trade and win a luxury trip to Cyprus and a lot of prices.

XM Forex: Another popular broker (Find XM review here) under the licensing and regulation of CySEC that entered the forex market as early as 2009. What stands out about this particular broker is that it offers its clients a variety of currency pairs from which they can choose to trade.