Get Out! CySEC Bans FX Firms From Accepting Non-EU Clients

Cyprus today finds itself amid further controversy as its regulator sets an immediate ruling in place to prohibit the soliciting

Cypriot regulator CySEC has had its fair share of discourse this year, especially during the banking crisis in March which saw customers of the Cyprus Popular Bank and the Bank of Cyprus have their funds bailed in as part of the restructuring following insolvency.

This caused a tremendous stir among Cyprus based FX brokers and clients alike. The first time that banks have conducted such a means of rescuing themselves from financial oblivion, it set a precedent Europe-wide, leaving other EU countries wondering who is next. The industry settled down and moved on quickly, largely undeterred, however today CySEC has announced that it has implemented a new ruling which may have a potentially dramatic effect on how brokers in Cyprus conduct their business in the future.

Join the iFX EXPO Asia and discover your gateway to the Asian Markets

No More Non-EU Clients?

CySEC’s controversial ruling, which is effective immediately, stipulates that brokers which operate under the CySEC license and as a result comply with MiFID rulings allowing them to attract clients from all over Europe, including Britain, will no longer be able to solicit business from any jurisdiction outside of the European Union, unless a potential client of a CySEC regulated company who resides in a non-EU member state can provide written authorization from the domestic financial markets regulator in the nation which that person is resident that such a person or entity is able to become a client of a CySEC regulated broker.

In accordance with section 79(1) of the Investment Services and Activities and Regulated Markets Laws of 2007, as in force, the law states that CIFs may provide investment and ancillary services and/or perform investment activities within the territory of another member state and/or a third country, provided that such services and/or activities are covered by their authorization, the full detail of which can be read here:

As is to be expected, this is a move that has polarized opinions, and Forex Magnates discussed the matter with some senior industry figures based in Cyprus and representing the wider FX industry, with some highly interesting viewpoints proffered.


When asked by Forex Magnates if a drive toward applications for FCA licenses may occur, Mushegh Tovmasyan, CCO at Alpari UK explained that he believes that it makes sense to be based in a solid financial center such as London, and that CySEC’s responsibility is to protect its reputation in order to secure the nation’s financial sector’s future: “FX business is so tiny compared to the rest of financial industry there” Mr. Tovmasyan explained to Forex Magnates today.

“It is the same situation as in the US, insofar as that the authorities don’t want the FX business to tarnish their brand, which ultimately can damage the reputation of the country itself. Maybe thats the reason”.

“This will obviously be a mess for Cypriot brokers if it comes into effect and if it is actually enforced. Indeed it would be great news for non Cyprus brokers and a race against time for Cypriot ones” continued Mr. Tovmasyan. “Brokers cannot survive on European business alone in my opinion, and certainly not on a simple retail MT4 or equivalent business model”. Alpari ceased its Cyprus operations in December 2012, migrating its client base to the UK, a move which the company’s CEO Daniel Skowronski described at this year’s iFXEXPO in Cyprus as “purely strategic”.

Following the Cyprus crisis, the bailing in of depositors’ funds of up to 60% in some cases has instilled a degree of fear into large companies and private individuals alike, and with reputation of the financial markets requiring bolstering, CySEC is in the process of ensuring a future good name, as pointed out by a speech delivered by  Demetra Kalogirou, Chairman of CySEC at this year’s iFXEXPO in which Ms. Kalogirou pledged her support for the financial services industry as a whole, but absolutely did not wish to answer questions posed by Forex Magnates at the time.

Priority To The Banking Sector

The general view from within is that there is a need to appease the banks as they make up a much bigger market segment than FX despite the level of FX presence in Cyprus, therefore it would rather see off the FX firms in order to help protect its name as a proper regulator.

Suggested articles

Meet BeSquare: the new tech training program for Malaysian graduatesGo to article >>

“You can see from all public company reports where the revenue is coming from, and it’s not Europe, especially during the past two to three years” Mr. Tovmasyan explained. He understands that there may be a very serious matter at the bottom of this decision in that shoring up the reputation of the banks is vital to Cyprus. “The country would risk its bailout if it didn’t protect the financial industry”.

Max Lebedev, CEO of Forex4You believes that this is a double-edged sword, and can be looked at from different perspectives: “I think there two sides of the coin” Mr. Lebedev told Forex Magnates. “Companies should look at this as a potential client base from two categories: non-EU clients from countries with regulators, and non-EU clients from countries without a regulator.”

Prohibitively Impractical

Mr. Lebedev explained this particular point further: “In the second case, clients just won’t be able to get an authorization letter. In first case, I think clients will face serious issues in getting such a letter from a domestic regulator too. Anyway, that action from CySEC will have a substantial negative impact on existing companies, and for newly established entities CySEC regulation will not be attractive at all.”

“How these companies will manage not to lose market share, depends entirely on their business expansion plans. Obviously, they will turn their focus to more “universal” regulations. I assume that action from CySEC is driven by EU, and directly related to recent bank crisis and enforcing the rules of managing the “external” funds in Cyprus” concluded Mr. Lebedev.

A question that is raising its head yet again is whether FX firms will consider a move to London, in order to remove the risk of further bail ins, and to ensure the ability to gain a client base which is international. One particular large institutional FX firm in London today explained to Forex Magnates that: “The move by CySEC, if it goes ahead at all, would be disasterous for a lot of retail brokers based there.  It will also stop anyone wanting to set up in Cyprus in future, instead making London a viable option despite the cost. It is probably overall a cheaper exercise to set up one office in London and pay the costs associated with the regulations here, than to have two offices with two regulatory costs”.

The broker, who requested anonymity, continued: “it will effectively kill the growth of CySEC regulated brokers whilst playing into the hands of the bigger brokers who can afford to be regulated in multiple jurisdictions or to set up with FCA regulations”.

“On the other hand, brokers who wish to still have access to European markets and keep the costs down, plus not be restricted like this may see Malta as an alternative” concluded our source.

A Good Move To Limit Exposure

One particular company which demonstrated its agreement with the proposed ruling is Easy Forex. “It seems like CySEC is doing the right thing by limiting their exposure and clearing up their list of regulated companies. Easy-Forex is not affected at all by this move. Our CySEC regulated company only accepts clients from EU” explained the company’s Chief Marketing Officer Hilik Nissani.

Forex Magnates will follow this closely and provide further perspectives as the industry responds further.



Got a news tip? Let Us Know