The Cyprus Securities and Exchange Commission (CySEC) confirmed on Wednesday that Alfa Capital Holdings (Cyprus) Ltd has renounced its Cyprus Investment Firm (CIF) License, as of October 5, 2020.
Alfa Capital provides spot foreign exchange (forex) to retail brokers, HFTs, asset managers and other institutional investors, among other instruments. It had been operating the retail FX brand Alfa-Forex, but in 2018 announced that it would be focusing more on its institutional operations, after no longer offering its services to individual clients and other users which are categorized as ‘retail’ under MiFID, from the end of June 2019.
Alfa Capital made the strategic decision to focus on providing ‘premium trading services’ on forex and related products to institutional market participants through its existing trading platforms.
The Cypriot watchdog made it clear that Alfa Capital’s surrender of the license is entirely voluntary based on the company’s decision and does not arise as a result of any regulatory action taken by the CySEC.
Under the Cypriot regulatory framework, the company must return all outstanding balances to its clients and handle all of their complaints. In addition, Alfa Capital must provide a confirmation from its external auditor that it does not have any pending obligations and must include details of each of the company’s clients.
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How Brokers Survive under Recent Restrictions
Although the regulator did not clearly state why Alfa Capital decided to withdraw its CIF authorization, the last three years saw many regulated brokers opt to voluntary surrender their license, and not as a result of any regulatory issues.
Also in 2018, Alfa-Forex suspended its service to Russia’s residents due to CySEC’s new licensing restrictions, which require all Cyprus Investment Firms (CIFs) to fully disclose all countries in which they are operating.
Firms need to notify CySEC when they are providing their services in third countries. Before they can deliver their product in a given country, they need to get appropriate authorisation from the country’s regulatory authorities first.
This was obviously a mess for Cypriot brokers since their financial statements show that the bulk of revenue does not come from Europe. In other words, brokers cannot survive on European business alone.
How these brokers managed to maintain their market share outside of Europe depended entirely on their business models. Some turned their focus to more ‘universal’ regulations. But, this was also more complicated since it implies additional sub-strategies to handle dealing with non-EU clients from countries with regulators, and non-EU clients from countries without a regulator.