The Cyprus Securities and Exchange Commission (CySEC) has partially suspended the Cyprus Investment Firm (CIF) License of several forex brokers that were caught up in promoting their products in the UK.

The UK watchdog today said Hoch Capital Ltd (trading as iTrader and tradeATF), Magnum FX (Cyprus) Ltd (trading as ET Finance), Rodeler Ltd (trading as 24option) and F1Markets Ltd (trading as Investous, StrattonMarkets and Europrime) used fake celebrity endorsements for their products on social media. Its Cypriot counterpart has taken notice and dropped the hammer on all these brands, having partially suspended their licences for one month until they take corrective measures within a set framework; otherwise, additional measures will be taken, such as the imposition of fines and/or even the withdrawal of their licenses.

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The Cypriot watchdogs provided a breakdown and specific details for the regulatory action, saying its decision was taken based on possible violations of local regulations and for not acting honestly when approaching their potential clients . These brands were also flagged for non-compliance with authorization conditions stated in many articles, which mainly concern the appropriateness of their products offered to certain client segments.

The one-size-fits-all circular further reads as follows:

1. Article 25(1) of The Investment Services and Activities and Regulated Markets Law of 2017 (‘the Law’) as the Company does not appear to act honestly, fairly and professionally when providing investment services to clients.
2. Article 25(2)(b) of the Law as the Company does not appear to assess the compatibility of the financial instruments with the needs of the clients to whom it provides investment services and to ensure that financial instruments are offered or recommended only when this is in the interest of the client.
3. Article 25(3) of the Law as the Company does not appear to provide information, including marketing communications, to its clients or potential clients that is fair, clear and not misleading.
4. Article 25(4)(a) of the Law as the Company does not appear to provide appropriate information to clients in good time.
5. Article 25(5) of the Law as the Company does not appear to provide the information referred to in article 25(4) of the Law to the clients in a comprehensible form.

FCA orders brokers to terminate their opertions in the UK

On the UK part, the FCA told these brands that they are no longer allowed to solicit or take on new clients from the country anymore, while relations with the existing clients must be terminated, and they must be allowed to close their positions and withdraw their funds.

The FCA estimates that UK investors have lost hundreds of thousands of pounds in these investments, while none of the aforementioned brokers have any actual presence in the UK. It further accuses their operatives with not providing customers with sufficient information as to the nature of CFDs products, while some were pressured into making highly leveraged-bets in CFDs referenced cryptocurrencies, forex, shares and indices.

Mark Steward, FCA Executive Director of Enforcement and Market Oversight, said: “The FCA has removed passporting rights for these firms which effectively stops them from continuing to provide these types of products in the UK. We welcome the further action taken by the CySEC. The FCA’s investigations into the sector are continuing.”

Following the FCA’s action, the CySEC has fully suspended the regulatory authorisations of Rodeler Ltd and Hoch Capital Ltd and partially suspended the licenses of Magnum FX (Cyprus) Ltd and F1 Markets Ltd.

The CySEC action means that Rodeler Ltd and Hoch Capital Ltd must cease all regulated activities entirely. Magnum FX (Cyprus) Ltd and F1 Markets Ltd, may only provide investment services to their existing non-UK-resident clients, but can’t promote their products any more or take on new clients.

Consob was also worried about Cypriot brokers

This past December, Italy’s regulator went after 24Option and Hoch Capital Ltd which were barred from providing investment services in Italy. The decision also prevents Cypriot intermediaries from soliciting customers or continuing its current relations with Italian clients.

According to Consob, both brands continued to break laws even after Consob sent several complaints to their original regulator, Cysec, about its misconduct. The claims refer to non-compliant practices made by the brand’s operator, including promoting the contracts for difference (CFDs) to non-professional investors.

The Cyprus brokers also violated the EU directive that mandates negative account protection, ensuring that customers can’t lose more than their trading stake. Further, the Consob accuses their staff of exercising pressures on their clients to deposit more funds, though the current rules forbid bonuses and other incentives that may have encouraged overtrading in recent years.

At the time, Consob clarified that it made the latest decision under the article 7-quarter, paragraph 4 of the Consolidated Law on Finance (TUF), as well as article 86 of Mifid2. This legislation allows CONSOB to order investment firms and brokers operating in the country from another EU member state, through the EU passporting regime, to cease their operations after informing the competent authority of the member state.