CySEC Advises Cyprus CIFs to Comply with New Regulations in Spain and Germany

CySEC calls on CIFs to ensure legal and operational compliance with the new regulations.

The Cyprus Security and Exchange Commission (CySEC) today issued several official notes addressing all the regulated financial firms in Cyprus. In two separate circulars, the watchdog asked all Cyprus Investment Firms (CIFs) to comply with new Spanish and German regulations concerning the provision of forex and CFDs instruments to retail clients.

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According to CySEC, brokers that offer forex, contract for difference (CFDs) and other speculative products such as binary options to retail investors in Spain must now comply with the new rules set by the Comision Nacional del Mercado de Valores (CNMV), the financial regulatory body of Spain.

More specially, the Spanish authority requires brokers that offer a leverage ratio greater than 10:1 to explicitly warn investors that it believes that such products are not appropriate for retail investors due to their complexity and the risks involved.

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Operators are also required to ensure that clients are aware of the estimated cost in case they decide to close a position immediately after entering into a transaction. Furthermore, the CNMV expects that CFDs and forex brokers will warn their clients that they can lose more than they originally invested due to leverage losses.

Additionally, the CNMV sets a rule that brokers must obtain from the investor a written text or voice recording that proves that he is aware that the product is especially complex and that it may not be appropriate for retail investors.

Compliance with German laws

The Cypriot watchdog also advised CIFs with operations in Germany to consult with their consultants regarding the necessary legal and operational actions required to ensure compliance with BaFIN’s new regulatory measures.

The German financial regulator BaFin said earlier this month that it is intervening in the marketplace in order to safeguard the interests of retail clients. The regulator issued a General Administrative Act, intended to limit the marketing, distribution and sale of forex and CFDs for brokers that do not introduce negative balance protection.

CySEC noted in its circular that its regulated CFDs providers have three months from the date of publication, May 8, to adjust their business models in accordance with Germany’s new regulation.

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