CySEC-Licensed Broker Alfa-Forex Halts Service to Russia Residents ‎

Cyprus-based broker Alfa-Forex is suspending its service to Russia’s ‎‎residents,‎ ‏‏probably due to CySEC’s new licensing restrictions.

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The brokerage statement Tuesday cited the regulatory obligations as the ‎reason for discontinuing its offering to Russian clients, which takes effect on ‎March 23, 2018.‎

The announcement reads: “All the obligations to the current Alfa Forex clients will be duly performed in ‎accordance with the present agreements, Terms of Business and applicable law ‎under the control of the CySec.” ‎

Last week, the Cyprus Securities and Exchange Commission ‎‎(CySEC) ‎published a new circular that is requiring all Cyprus Investment Firms (CIFs) ‎‎to fully disclose all countries in which they are operating.‎

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.‎

If that were the case, indeed, we may anticipate more brokers to announce ‎a similar suspension in coming weeks, not only in Russia but across many other ‎non-European ‎jurisdictions.‎

This will obviously be a mess for Cypriot brokers since ‎their financial ‎statements show that the bulk of revenue ‎isn’t coming from Europe. In other ‎words, brokers cannot ‎survive on European business alone.‎

The above approach, if confirmed, is expected to cause a ‎tremendous stir ‎among Cyprus-based operators and clients ‎alike. Confirmation means that ‎the Cypriot financial ‎regulator would announce a more detailed ruling, or ‎enforcement actions related to the ‎one issued a weak ago, by which brokers ‎operating ‎under the CIF license are obliged to cease soliciting ‎business ‎outside the European Union.‎

The first thing that comes to mind is that CySEC is just ‎proceeding with what ‎it has been doing since it first issued ‎its circular banning trading bonuses ‎and tightening trading ‎conditions, including the allowed leverage. The ‎second ‎explanation is that CySEC is following in the footsteps of ‎several ‎other European regulators.‎

However, in either case, CySEC can’t simply follow in the ‎footsteps of such ‎regulators, whether they be established ‎watchdogs such as those of the UK, ‎Spain, France and ‎Germany, or even minor ones such Malta’s MFSA. FX ‎‎business for these jurisdictions is tiny as a proportion of ‎the rest of their ‎financial industries. Sometimes, they just ‎don’t want the FX business to ‎tarnish their brand as it ‎ultimately damages the reputation of the country ‎itself.‎

This isn’t the case for Cyprus and simply means that it ‎could lose its position ‎as a financial hub bridging Asia ‎and the Middle East to mainland Europe.‎

It would also effectively kill the growth of the Cypriot ‎brokerage sector, ‎including banks which benefit from the ‎brokers clients’ deposits, whilst ‎playing into the hands of ‎jurisdictions that can offer less strict regulations, or ‎at ‎least the advantage of setting up in a more prestigious ‎hub.‎

How these brokers will manage to maintain market share ‎outside Europe ‎depends entirely on their business models. ‎Obviously, they will turn their ‎focus to more ‘universal’ ‎regulations. But this is 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.‎