The Cyprus Securities and Exchange Commission (CySEC) today published a new circular that is causing concern amongst regulated brokers. According to the document, all Cyprus Investment Firms (CIFs) will need to fully disclose all countries in which they are operating.
The move comes amid the increasingly tight regulatory restrictions in Europe that are being deliberated by the European Securities Markets Authority (ESMA). Increasing worry on part of regulators regarding the operations of CIFs outside of Europe are to materially impact broker operations.
Firms will need to notify CySEC when they are providing their services in third countries. Before they can deliver their product in a given country they will need to first get appropriate authorisation from the country’s regulatory authorities.
Brokers will then need to provide a copy of that license to CySEC. In cases where the country does not require additional authorisation, the CIF should present to the Cypriot watchdog a legal opinion from a qualified lawyer or firm from the relevant country.
Brokers should send a letter to the regulator with a full list of the counties in which they are providing or intend to provide their services. Next to each country, the firms will need to list the relevant authorisation.
CIFs will also need to list all of the countries in which they are operating on their websites.
This new requirement will have material implications for brokers operating outside of the European Union. Not only do they need to adhere to local regulations, but they will also have to provide proof that they are allowed to operate in every country that they are onboarding clients from.
Brokers have been spending material resources in recent quarters attempting to diversify their exposure as European regulations tighten. From Latin America to the Far East, local regulatory requirements can be vague or in contrast very strict.
CIFs will need to dedicate additional resources to comply with the new requirements, or start exiting some of the markets that they are diversifying into. In both cases, the new CySEC requirements will result in more costs for the companies that wish to operate outside of the EU.