As reported by Finance Magnates earlier in November, the Cypriot financial regulator CySEC has proposed a clampdown on CIF brokers offering bonuses designed to motivate retail clients to trade speculative products such as CFDs, binary options and spot forex. Since then, there has been a lot of back and forth of industry predictions of how the rule changes will affect brokers.
The main concept of the proposed rules implies that brokerages will only be able to offer bonuses if their clients are free to withdraw their deposited funds at any time. This move could seriously change the way that a CIF, and in particular forex and binary options brokers, go about marketing themselves to prospective clients.
One month after CySEC issued a circular informing brokers of a reduction of default leverage to 50x and to halt offering bonuses, foreign exchange broker UFX.com has issued an exclusive announcement to Finance Magnates highlighting the company’s response to the proposed rules.
The broker firstly noted that it believes in robust and proportionate regulatory oversight of the sector in Cyprus in particular and Europe in general. In addition, UFX confirmed that it has operated and will continue to operate to the highest standards in the industry, citing its move to a complete pending bonus system based on the Circular 65 that CySEC announced back in April 2015.
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The company also recognizes that there are shortcomings in the approach to the marketing of trading instruments by certain firms, considering the bold wording CySEC used in Circular 168 as well as ESMA in its recommendations. More specifically, UFX noted: “There is a very clear line which distinguishes mature companies with these respectable intentions from companies wishing to overtrade clients, restrict withdrawals, indirectly increase leverage or encourage trade-outs of its clients.”
UFX added that its initial view is that certain CySEC changes could enhance client outcomes. Regarding leverage, however, the company, while welcoming the idea that inexperienced traders should start with a low default leverage, added that traders should be in a position to increase their leverage when certain criteria are met.
The company believes that the CySEC’s proposals won’t directly apply to firms operating from outside Cyprus, so by restricting leverage for EU based companies, those traders will simply trade with off-shore companies.
“This should lead us to the question of what is the better option, to educate private investors and regulate or to ban and lose control of where retail investors trade CFDs,” the statement noted.
“UFX is very pleased with the direction CySec has taken in tightening the regulatory oversight and is impressed with the approach taken by Ms.Demetra Kalogerou in regards to the analysis of the various risks Brokers and Traders are facing, and coming up with well thought after directives – The result is a body of regulations that benefit the traders, while allowing the regulated brokers to keep operating profitably,” the CIF broker concluded.