CySEC Reaches Settlement With eToro at €50,000 for Undisclosed Violations

It seems CySEC is rolling up its regulatory sleeves lately as it has announced several settlement cases with forex brokers.

cysecIt seems CySEC is rolling up its regulatory sleeves lately as it has announced several settlement cases with forex brokers. The problem however is that unlike NFA or FSA, CySEC doesn’t really disclose the full details of the cases – so we are left wondering what really happened there. Another, even bigger, problem is that CySEC either fines or settles with brokers for very low sums – it is quite possible that some of its brokers have made millions from cheating clients but are only paying ridiculous amounts to settle the cases and put them behind. If CySEC isn’t actively investigating all of its brokers making them pay back the unfairly gained sums as well as fining them – then it’s not doing its job. Moreover it is quite possible, and the market is full of these rumors  that some of its brokers are outright ponzi schemes that CySEC is just afraid to investigate – so these potential schemes continue undisturbed.

If there’s one good thing to say about the NFA is that it goes very deep into brokers’ pockets once it finds them guilty of unacceptable practices.

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With regards to eToro CySEC again doesn’t really disclose much but hints of early operation flaws which apparently were since rectified. This is the announcement as made by CySEC and the relevant law articles are found below:

The Cyprus Securities and Exchange Commission would like to inform the public that, pursuant to section 37(4) of the Cyprus Securities and Exchange Commission Law, it reached a settlement with Etoro (Europe) Limited , for the amount of €50.000.

The settlement reached concerns weaknesses in the application of the Investment Services and Activities and Regulated Markets Law of 2007, as amended (the “Law”).

The alleged weaknesses concerned the organisation/operation structure (articles 18 and 36 of the Law) of the Company in their early operation days (2010) and the Company has since then rectified the alleged weaknesses and is now in compliance with the requirements of the Law.

The Company has paid the amount of €50.000.

Nicosia, 12 February 2013

Extracts:

Law 144(I) 2007

The present English text is for information purposes only and is not legally binding. The

legally binding document is in the Greek language.

Organisational requirements.

18.-

(1) A CIF must comply with the organisational requirements laid down in subsection (2).

(2) A CIF must –

(a) Establish adequate policies and procedures sufficient to ensure its compliance, including its managers, employees, tied agents and other relevant persons, with its obligations pursuant to this Law and the directives issued pursuant to this Law, as well as appropriate rules governing personal transactions by such persons;

(b) maintain and operate effective organisational and administrative arrangements with a view to taking all reasonable steps designed to prevent conflicts of interest as stated in section 29 from adversely affecting the interests of its clients;

(c) take reasonable steps to ensure continuity and regularity in the performance of investment and ancillary services and  activities, by employing appropriate and proportionate systems, resources and procedures·

(d) ensure, when relying on a third party for the performance of investment services or activities or operational functions which are critical for the provision of continuous and satisfactory service to clients and the performance of investment activities on a continuous and satisfactory basis, that it takes reasonable steps to avoid undue additional operational risk. Outsourcing of the above must not be undertaken in such a way as to materially impair the quality of its internal control and the ability of the Commission to monitor the CIF’s compliance with all its obligations;

(e) have robust governance arrangements which include a clear organisational structure with well defined, transparent and consistent lines of responsibility;

(f) have sound administrative and accounting procedures, internal control mechanisms, effective procedures for assessing the risks the CIF undertakes or may undertake, and effective control mechanisms; including appropriate administrative and accounting procedures and safeguard arrangements for information processing systems;

(g) arrange for records to be kept of all services provided and transactions undertaken by it, which shall be sufficient to enable the Commission to monitor compliance with the requirements under this Law, the directives issued pursuant to this Law and the Regulation (EC) No 1287/2006, and in particular to ascertain that the CIF has complied with all its obligations with respect to clients or potential clients;

(h) to apply appropriate client identification procedures, record maintenance and internal reporting as provided by the Prevention and Suppression of Money Laundering Activities Law and by directives issued pursuant to the said Law or/and to section 20 of this Law;

(i) when holding financial instruments belonging to clients, to make adequate arrangements so as to safeguard clients’ ownership rights, especially in the event of the CIF’s insolvency, and to prevent the use of a client’s instruments on own account except with the client’s express consent;

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(j) when holding funds belonging to clients, make adequate arrangements to safeguard the clients’ rights and, except in the case of credit institutions, prevent the use of client funds for its own account.

(3)

The arrangements, processes and mechanisms laid down in subsection (2) must be comprehensive and proportionate to the nature, scale and complexity of the business activities of the CIF, especially when taking into account the nature and range of the investment services and activities it undertakes in terms of the said business activities.

 

Chapter C

Provisions to ensure investor protection

Conduct of business obligations when providing services to clients.

36.-

(1) A CIF must, when providing investment and ancillary services to clients, act honestly, fairly and professionally in accordance with the best interests of its clients and comply, in particular, with the following principles:

(a) All information, including marketing communications, addressed by a CIF to its clients or potential clients shall be fair, clear and not misleading; marketing communications must be clearly identifiable as such;

(b) a CIF must provide to its clients or potential clients appropriate information in a comprehensible form about: :

(i) The CIF and its services;

(ii) financial instruments and proposed investment strategies; this should include appropriate guidance on and warnings of the risks associated with investments in those instruments or in respect of particular investment strategies,

(iii) execution venues,

(iv) costs and associated charges, so that they are reasonably able to understand the nature and risks of the investment service and of the specific type of financial instrument that are being offered and, consequently, to take investment decisions on an informed basis. This information may be provided in a standardised format.

(c) a CIF must, when providing investment advice or portfolio management, obtain the necessary information regarding the client’s or potential client’s knowledge and experience in the investment field relevant to the specific type of product or service, his financial situation and his investment objectives so as to be able to recommend the investment services and financial instruments that are suitable to its situation.

(d) a CIF must, when providing investment services other than those referred to in paragraph (c), ask the client or potential client to provide information regarding his knowledge and experience in the investment field relevant to the specific type of product or service offered or demanded so as to enable the CIF to assess whether the investment service or product envisaged is appropriate for the client; where the CIF considers, on the basis of the information received under this paragraph, that the investment service or financial product is not appropriate for the client or potential client, the investment firm shall warn the client or potential client, this warning may be provided in a standardised format; where the client or potential client elects not to provide the information regarding his knowledge and experience, or where he provides insufficient information regarding his knowledge and experience, the CIF must warn the client or potential client that such a decision will not allow the CIF to determine whether the investment service or financial product envisaged is appropriate for him; this warning may be provided in a standardised format.

(e) when a CIF provides investment services that only consist of the reception and transmission or/and execution of client orders with or without ancillary services, it may provide those investment services to its clients without the need to make the determination provided for in paragraph (d), if all the following conditions are met:

(i) The above services relate to shares admitted to trading on a regulated market or in an equivalent third country market, money market instruments, bonds or other forms of securitised debt (excluding those bonds or securitised debt that embed a derivative), UCITS and other non-complex financial instruments, a third country market shall be considered as equivalent to a regulated market if it complies with requirements equivalent to those laid down in Part X III.

(ii) the service is provided at the initiative of the client or potential client,

(iii) the client or potential client has been clearly informed that in the provision of this service the CIF is not required to assess the appropriateness of the financial instrument or investment service provided or offered and that therefore he does not benefit from the corresponding protection of the relevant conduct of business rules; this warning may be provided in a standardised format,

(iv) the CIF complies with its obligations under section 29.

(f) a CIF must establish a record that includes the document or documents agreed between the firm and the client that set out the rights and obligations of the parties, and the other terms on which the CIF will provide services to the client; the rights and duties of the parties to the contract may be incorporated by reference to other documents or legal texts;

(g) a CIF must provide its clients with adequate reports on the services provided to them; these reports shall include, where applicable, the costs associated with the transactions and services undertaken on behalf of the clients.

(h) where an investment service is offered as part of a financial product which is already subject to provisions of community legislation other than Directive 2004/39/EC or common European standards related to credit institutions and consumer credits with respect to risk assessment of clients or/and information requirements, the provision of this service shall not be additionally subject to the obligations set out in this section

(2) The Commission may, by way of directives define the measures to be applied to ensure that CIFs comply with the principles set out in subsection (1) when providing investment and ancillary services to their clients or potential clients.

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