CySec Outlines Obligatory CIF Conduct, Highlights Illegality of Withholding Withdrawals

Cypriot watchdog organization, has released a regulatory statement on the trading benefits to clients of CIFs rendering account opening and

cysec logoThe Cyprus Securities and Exchange Commission (CySec) has released a regulatory statement on the trading benefits to clients of Cyprus Investment Firms (CIFs), which can have a profound effect on Forex and binary options client acquisition.

The statement details the legality of trading benefits, i.e. giving deposit and account opening bonuses, acceptable only for CIFs whose funds are liquid and free for withdrawal at the client’s digression. Additionally, the report highlights examples or episodes of the contrary in which clients are only permitted to withdraw their funds pending a certain predetermined trading volume quota by CIFs – this is deemed illegal and a violation of CySec law.

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While not being legal in Cyprus since 2012 according to the statement, it is a common practice for many Forex and binary options brokers, including some based on the island, to offer deposit bonuses and also run advertising campaigns based on account opening bonuses but limit the ability of the traders to withdraw funds until enough trading volume is generated to cover the bonus.

Making this practice illegal means that some CIFs will have to drastically change the way they approach client acquisition and retention, otherwise clients can simply open an account or deposit, claim the bonuses and then ask to withdraw them, or they will sue with backing from the regulator.

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CySec Outlines Mandatory Measures for CIFs

According to the regulator’s statement, “Any restrictions on the withdrawal of clients’ funds are not in compliance with the provisions of the Investment Services and Activities and Regulated Markets Law, as in force and the Commission’s Directive DI144-2007-01 of 2012 for the authorization and operating conditions of CIFs.”

These sentiments are echoed in the conduct of client-firm relationships, stipulating that an attempt to foster greater volume via client trades is not considered ‘fair and of good practice to clients.’

Furthermore, the statement explicitly lists obligatory measures below that CIFs must grant to their clients if opting to provide monetary benefits:

  1. Provide accurate, clear and not misleading information, when advertising such a scheme.
  2. Describe in detail to their clients the way the scheme works, as well as its terms and conditions.
  3. Always be able to separate funds belonging to clients from the monetary benefit granted to them.
  4. Monitor on a continuous basis and take all appropriate measures to always be able to meet the terms of the scheme without affecting their capital adequacy.
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