With €17.5 million in the pot, the Cypriot Investors Compensation Fund is there for traders of insolvent firms. The fund has several ways to make up the difference but ultimately the cost is paid by brokers.
Lately, the Cyprus Securities and Exchange Commission (CySEC) has been making the news a lot - to the extent that it has hired a PR agency. After issuing fines and reaching settlements worth over €1.3 million in November, and apparently intending to announce even more, it has also informed binary option brokers that it discourages one of the instrument’s most speculative features.
But it was the decision to activate the Investors Compensation Fund (ICF) that touches on a little discussed, yet immensely important topic for the local industry.
A CySEC license allows Cyprus Investment Firms (CIFs) to operate throughout the European Union. Much like its European counterparts, it carries certain obligations towards clients, one of which, and arguably the most important, pertains to compensation in the case of insolvency.
While a lot has been written about the British Financial Services Compensation Scheme (FSCS) in the aftermath of the Alpari UK bankruptcy, the ICF has not attracted too much media attention.
With clients of certain brokers still waiting for their withdrawals, and European regulators forcing CySEC to act more diligently, a big question for the ICF is whether it can meet clients' demands in the case of a big brokerage failing to meet its client obligations.
Since CySEC took the first steps in what is to be a systemic approach to supervising regulated brokers more actively, clients of regulated CIFs who have been affected with several compliance issues wonder what would it take to trigger a payment from the ICF.
Organizational structure and broker contributions
Xenia Kalogirou, a senior member of Cyprus-based AGP Law Firm, has helped to shed some light on the details of the scheme, explaining how brokers contribute to the fund’s resources.
Brokers that operate as Market Makers pay an initial fee of €22,212, while companies that only provide straight-through processing of client orders pay €13,669. If the broker operates both models, the company pays as a market maker.
In addition, if the brokerage deals with its own account it pays an additional €17,086 fee, while if it manages portfolios it must provide an additional sum totaling €25,629. If the brokerage also underwrites financial instruments and/or places financial instruments on a commitment basis, it has to pay an additional €17,086.
For CIFs offering the service of safekeeping and administration of financial instruments for client accounts, including custodianship and related services such as cash/collateral management, the additional fee is €20,503.
Separately, each CIF is required to pay up to one per mille of the eligible client funds which it holds.
As far as compensation for traders is concerned, maximum levels are much lower than in other regulatory jurisdictions, with a €20,000 ceiling. While this should satisfy most clients’ demands, how CySEC evaluates the conditions under which clients are entitled to compensation remains a mystery, as the fund has rarely been used up until now.
How is an ICF payout procedure triggered?
According to Ms. Kalougirou, there are two ways in which a payout from the ICF can be triggered. The first is based on a CySEC decision, determined either by the board of CySEC or upon a request submitted to it by a covered client or a member of the ICF.
The second way is if a competent supervisory authority or any other person with a legitimate interest, such as the Official Receiver or the liquidator of the bankrupt brokerage, files a case according to the provisions of the Company Law in Cyprus.
What if ICF funds are insufficient?
Finance Magnates understands that the funds currently held at the ICF in Cyprus total close to €17.5 million ($19.3 million). Looking at the figures of some CySEC regulated brokers, it is quite clear that a scenario where client demands might exceed the fund’s resources is not unrealistic.
According to provisions in the law, if the ICF does not hold sufficient finds to meet all client claims, there are several ways for CySEC to fill the gap. The regulator may call on members of the ICF to commit extraordinary additional resources, or borrow funds from banks in Cyprus or abroad and ask the ICF members to pay up a supplementary contribution to fill the gap afterwards.
A third option is conditional on an insurance company having insured the ICF for up to a certain amount in case a policy event is triggered. Finance Magnates understands that at present this seems to be the least likely option, as CySEC has not disclosed whether the fund is insured with a specific company.
Disclaimer: This article and the opinions expressed in it do not constitute a legal opinion.
Lately, the Cyprus Securities and Exchange Commission (CySEC) has been making the news a lot - to the extent that it has hired a PR agency. After issuing fines and reaching settlements worth over €1.3 million in November, and apparently intending to announce even more, it has also informed binary option brokers that it discourages one of the instrument’s most speculative features.
But it was the decision to activate the Investors Compensation Fund (ICF) that touches on a little discussed, yet immensely important topic for the local industry.
A CySEC license allows Cyprus Investment Firms (CIFs) to operate throughout the European Union. Much like its European counterparts, it carries certain obligations towards clients, one of which, and arguably the most important, pertains to compensation in the case of insolvency.
While a lot has been written about the British Financial Services Compensation Scheme (FSCS) in the aftermath of the Alpari UK bankruptcy, the ICF has not attracted too much media attention.
With clients of certain brokers still waiting for their withdrawals, and European regulators forcing CySEC to act more diligently, a big question for the ICF is whether it can meet clients' demands in the case of a big brokerage failing to meet its client obligations.
Since CySEC took the first steps in what is to be a systemic approach to supervising regulated brokers more actively, clients of regulated CIFs who have been affected with several compliance issues wonder what would it take to trigger a payment from the ICF.
Organizational structure and broker contributions
Xenia Kalogirou, a senior member of Cyprus-based AGP Law Firm, has helped to shed some light on the details of the scheme, explaining how brokers contribute to the fund’s resources.
Brokers that operate as Market Makers pay an initial fee of €22,212, while companies that only provide straight-through processing of client orders pay €13,669. If the broker operates both models, the company pays as a market maker.
In addition, if the brokerage deals with its own account it pays an additional €17,086 fee, while if it manages portfolios it must provide an additional sum totaling €25,629. If the brokerage also underwrites financial instruments and/or places financial instruments on a commitment basis, it has to pay an additional €17,086.
For CIFs offering the service of safekeeping and administration of financial instruments for client accounts, including custodianship and related services such as cash/collateral management, the additional fee is €20,503.
Separately, each CIF is required to pay up to one per mille of the eligible client funds which it holds.
As far as compensation for traders is concerned, maximum levels are much lower than in other regulatory jurisdictions, with a €20,000 ceiling. While this should satisfy most clients’ demands, how CySEC evaluates the conditions under which clients are entitled to compensation remains a mystery, as the fund has rarely been used up until now.
How is an ICF payout procedure triggered?
According to Ms. Kalougirou, there are two ways in which a payout from the ICF can be triggered. The first is based on a CySEC decision, determined either by the board of CySEC or upon a request submitted to it by a covered client or a member of the ICF.
The second way is if a competent supervisory authority or any other person with a legitimate interest, such as the Official Receiver or the liquidator of the bankrupt brokerage, files a case according to the provisions of the Company Law in Cyprus.
What if ICF funds are insufficient?
Finance Magnates understands that the funds currently held at the ICF in Cyprus total close to €17.5 million ($19.3 million). Looking at the figures of some CySEC regulated brokers, it is quite clear that a scenario where client demands might exceed the fund’s resources is not unrealistic.
According to provisions in the law, if the ICF does not hold sufficient finds to meet all client claims, there are several ways for CySEC to fill the gap. The regulator may call on members of the ICF to commit extraordinary additional resources, or borrow funds from banks in Cyprus or abroad and ask the ICF members to pay up a supplementary contribution to fill the gap afterwards.
A third option is conditional on an insurance company having insured the ICF for up to a certain amount in case a policy event is triggered. Finance Magnates understands that at present this seems to be the least likely option, as CySEC has not disclosed whether the fund is insured with a specific company.
Disclaimer: This article and the opinions expressed in it do not constitute a legal opinion.
TradeStation and Coincheck Drive Monex's 850% Profit Surge
Network, Learn, Grow | FMAS:24
Network, Learn, Grow | FMAS:24
Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
Don't miss out on this 5-second invite packed with energy and urgency!
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
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Get ready to mark your calendars for FMAS:24, returning this May! Take a quick glimpse of what awaits at the Sandton Convention Centre in Sandton, South Africa from May 20-22, 2024.
Don't miss out on this 5-second invite packed with energy and urgency!
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
📣 Stay updated with the latest in finance and trading!
Follow FMevents across our social media platforms for news, insights, and event updates. Connect with us today:
🔗 LinkedIn: https://www.linkedin.com/showcase/financemagnates-events/
👍 Facebook: https://www.facebook.com/FinanceMagnatesEvents
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Don't miss out on our latest videos, interviews, and event coverage. Subscribe to our YouTube channel for more!
Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
📣 Stay updated with the latest in finance and trading!
Follow FMevents across our social media platforms for news, insights, and event updates. Connect with us today:
🔗 LinkedIn: https://www.linkedin.com/showcase/financemagnates-events/
👍 Facebook: https://www.facebook.com/FinanceMagnatesEvents
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Don't miss out on our latest videos, interviews, and event coverage. Subscribe to our YouTube channel for more!
Here's a sneak peek into the FMAS:24 vibrant atmosphere! Join us at Africa’s premium financial event for a transformative experience that combines the best of finance and technology.
From May 20-22, 2024, the Sandton Convention Centre in Sandton, South Africa, will be the hub for over 3,500 attendees to engage in unparalleled networking opportunities, learn from over 150 industry-leading speakers, and explore innovations from 120+ exhibitors.
Secure your free ticket now 🔗 https://events.financemagnates.com/yQx0l?utm_source=youtube&utm_campaign=fmas-is-back&utm_medium=video&RefId=FMAS24+Video+Ad+%5B1%5D
#fmas24 #fmas #fmevents #financeinafrica #traders #investors #affiliates #forexTraders #investmentOpportunities #B2BNetworking #finTech #Innovations #TradingCommunity #BusinessOpportunities #AfricanBusiness #Johannesburg #southafrica
📣 Stay updated with the latest in finance and trading!
Follow FMevents across our social media platforms for news, insights, and event updates. Connect with us today:
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Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 | Africa's Premium Financial Event
Looking to expand your network in #Africa? Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
📣 Stay updated with the latest in finance and trading!
Follow Finance Magnates for news, insights, and event updates across our social media platforms. Connect with us today:
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Looking to expand your network in #Africa? Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
📣 Stay updated with the latest in finance and trading!
Follow Finance Magnates for news, insights, and event updates across our social media platforms. Connect with us today:
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Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Join 3500+ Attendees at FMAS:24 - Africa's Premium Financial Event
Looking to expand your network in #Africa?
Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
Looking to expand your network in #Africa?
Join 3500+ attendees at FMAS:24, where online trading, fintech, payments, and crypto meet! Connect with industry leaders and innovators for an unmatched networking experience.
20-22 MAY 2024
Sandton Convention Center, Sandton, South Africa
Register now to secure your spot: https://bit.ly/3JbUpCK
#fmas #fmas24 #fmevents #networking #finance #africa
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Where the Prop Trading Industry Goes from Here | Finance Magnates Podcast
Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
This content is provided solely for general informational purposes and should not be construed as financial product advice or an investment recommendation. It has been prepared without considering your personal circumstances.
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Explore the tumultuous world of prop trading in this Finance Magnates podcast episode, featuring insights from Head of Axi Select, Greg Rubin.
We're discussing the challenges and shifts caused by MetaQuotes' pivotal decisions affecting MT4 and MT5 users, and how Axi Select offers a unique, realistic path to professional trading, steering clear of traditional prop firm pitfalls.
Tune in for expert analysis on the future of trading and innovative funding models.
The Axi Select programme is only available to clients of AxiTrader Limited. CFDs carry a high risk of investment loss. In our dealings with you, we will act as a principal counterparty to all of your positions. This content is not available for AU, NZ, EU and UK residents. For more information, refer to our Terms of Service. Standard trading fees apply.
This content is provided solely for general informational purposes and should not be construed as financial product advice or an investment recommendation. It has been prepared without considering your personal circumstances.
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Follow Finance Magnates for news, insights, and event updates across our social media platforms. Connect with us today:
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