The Cyprus Securities and Exchange Commission (CySEC) has just announced that it has reached a settlement with Indication Investments Ltd, fining the firm €160,000 for violating the Investment Services and Activities and Regulated Markets Law.
Cyprus Investment Firm (CIF) Indication Investments Ltd is operating the CySEC-approved domain https://libertex.com and runs the FX retail brand Libertex, stands for Liberty Exchange, which enables the broker to offer its services across Europe.
The CySEC settlement reflects the possible violations of several articles of the Investment Services and Activities and Regulated Markets Law, the regulator states.
More specifically, the fine was for non-compliance with articles 22(1) regarding the conditions for CIF authorization, as well as articles 17(3)(a) and 17(4), which often refers to a CIF’s organizational requirements.
Indication Investments has taken corrective measures
The CySEC has also referenced ESMA’s temporary intervention powers as Indication Investments seemingly violated the leverage limits offered to retail clients, as well as the margin close out rule on a per-account basis. The latter intended to standardize the percentage of margin (at 50% of the minimum required margin) at which providers are required to liquidate CFDs trades.
However, it is important to note that fines are usually issued within six months of an inspection, which dates back to November 2018, so, at the point of the fine, the majority of issues should have already been resolved.
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In a statement issued to Finance Magnates, Indication Investments Ltd. explained that the settlement pertains to a visit from CySEC on 9 November 2018, and stems from possible omissions regarding the company’s reporting and monitoring systems, and from a then short-lived service offering credit to client accounts for trading purposes using the company’s own funds.
Libertex Cyprus further states
In both of these cases, no clients were adversely affected from these possible omissions, and the Company has always acted in good faith since all of our then practices were based on at least 2 expert legal opinions before being implemented. For the provision of the credit facility, the company also obtained an opinion from the French Financial Ombudsman stating that this service was lawful under EU law. Nonetheless, as soon as CySEC voiced concerns, we stopped offering this credit facility and entered into discussions with the regulator that led to this settlement agreement. We strive for full transparency with the regulators and we have communicated our intention to CySEC to always confirm with them any new services offered to our clients.
Our reporting systems and non-real time monitoring practices at the time were according to standard market practices, and in almost every aspect of best execution of clients’ orders, However, and in an effort to lift our company above the rest, following the visit from CySEC, we have developed and implemented a new proprietary best execution monitoring system, offering truly real-time monitoring and comparing all execution metrics to a large number of market participants and trade repositories.
Libertex is committed to adhere to the highest Corporate, Compliance, and Ethical standards, and in the year and a half since the CySEC visit, we have greatly expanded our Compliance team and improved our procedures, working closely with the regulator to ensure the highest standards of compliance and the best service for our clients.
Esma rules take a toll
Several European regulators pushed to come up with country-level permanent restrictions against CFDs and binary options, even as every EU member has the right to implement its own rules tailored to their national markets.
The ESMA rules also mandate negative account protection, ensuring that customers can’t lose more than their trading stake, avoiding a repeat of the debacle following the 2015 Swiss Franc collapse. Finally, the rules forbid bonuses and other incentives, whether monetary or non-monetary, that may have encouraged overtrading in recent years.
For brokers, the biggest blow has been ESMA’s decision to limit how much leverage they can offer to their clients to juice up bets. Regulated firms have been forced to limit the leverage they offer to a maximum of 30:1, with limits of as little as 2:1 on cryptocurrencies. Revenues and profits at XTB, Plus500, IG Group, and similar CFDs brokers have slumped since the rules came in force.