BaFin Lashes Out on Cypriot Brokers for Non-Compliance

48 percent of the European brokers are licensed in Cyprus.

Germany’s Federal Financial Supervisory Authority, popularly known as BaFin, said that the CFDs brokers regulated by other European Union countries are not following local German regulations.

Though the European Securities and Markets Authority (ESMA) regulates the overall EU financial markets, the local regulators still have the power to strict or relax the regulations in their jurisdictions.

BaFin highlighted that last year it imposed five restrictions on the CFDs brokers, mostly in the marketing, distribution, and sale of these instruments to retail clients in Germany.

However, many brokers are easily operating in the German markets without compiling with the regulations.

“One still finds providers, especially from other EU countries, seeking to attract clients in Germany with CFD offerings that are actually illegal,” BaFin stated. “All they need is the permission of their home country supervisor and a German-language website.”

Brokers Love Cyprus

The German regulator highlighted that most of the brokers regulated in Cyprus are not following the local regulations.

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“The providers having the most trouble correctly implementing the CFD product intervention measure are evidently the ones from Cyprus,” BaFin added.

Though the brokers regulated by other European countries, including the UK, Luxembourg and even Germany, violated the local Geman compliances, Cypriot providers were responsible for about 50 percent of all detected infringements.

A survey conducted by BaFin found that 48 percent of the CFDs providers are domiciled in Cyprus, while only 29 percent have a local German license.

According to the regulator, the most common violations by the brokers is for not showing mandatory risk warnings to the traders. About 70 percent of the infringements fall under this category.

Furthermore, brokers violate the leverage limitations and bonus restrictions set by the German regulator.

“BaFin makes German providers aware of the infringements identified and initiates administrative enforcement measures if they do not remedy the deficiencies found,” the regulator noted. “BaFin cannot directly take supervisory action when foreign companies utilize the European passport to offer CFDs to retail investors in Germany.”

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