CySEC Forex Brokers and Trading in Cyprus

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CySEC regulated brokers have elicited a mixed response from the Forex markets, and as far as retail traders are concerned, you either love them or you hate them. There are plenty of reasons why CySEC Forex brokers have managed to garner such a reputation in the market, the primary reason being the agency’s brush with controversies related to broker scams and large-scale financial frauds during its early years.

CySEC came into the Forex scene as early as 2001 and started offering a highly conducive regulatory environment for Forex brokers to set up their business in a relatively lenient business setting. The advantages of tax savings and an easy regulatory framework allowed Forex brokers to set up a Forex brokerage in one of the most attractive regions of Europe. Cyprus as a country quickly grew in popularity and CySEC was one of the most preferred destinations for brokers due to the advantageous tax structure and a light CySEC regulatory structure.

The country witnessed an exponential growth in the number of Forex brokers and soon became a breeding ground for scams and financial malpractices that ultimately diminished the country’s efficiency in dealing with broker irregularities. The CySEC was also notorious for letting companies off with no penalties or simple warnings, even for larger financial crimes, as the country did not want to alienate its investors from shutting down shop and taking their business elsewhere. The lack of a strict regulatory regime did affect the CySEC in advertising its potential as a credible regulatory authority.

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The Turning Point For CySEC Regulated Forex Brokers

Cyprus joined the European Union in 2004, and subsequently, all constitutional matters, including CySEC’s regulatory framework, had to be reformed according to existing European guidelines. The MiFID issued derivatives for all EU-based financial regulators to follow a uniform code of conduct to ensure that financial companies adhere to a particular standard of regulation to prevent financial malpractice and maintain the integrity of the markets. The CySEC had already been far behind the EU guidelines on regulatory protocols; therefore, the country had to bring about massive changes to its is regulatory protocols to conform to the EU and MiFID standards.

2012 also witnessed a significant shift in momentum as the CySEC was seen to modify the way it perceived financial companies. The CySEC, under the supervision of the MiFID, started creating several new law and guidelines that enabled CySEC to evolve into one of the most respected and highly reliable regulatory authorities in the world. CySEC no longer catered to the welfare of the companies; instead, the regulatory organization started concentrating on regulating financial companies to prevent any instances of fraud or financial abuse.

The EU merger also means that CySEC regulated brokers are free to render their services throughout the European continent under the European Economic Area (EEA) agreement. Therefore, it provides further incentive for brokers to set up shop in the Cyprus to enjoy better cost-effective brokerage services without having to move to an expensive location to cater to European Forex traders.

The Present Situation On CySEC Forex Broker Regulation

Cyprus has brought together a comprehensive list of CySEC guidelines that are continually tweaked and updated to keep brokers in line. Forex brokers regulated by the CySEC should conform to the following rules to be able to receive a valid CySEC license:

  • CySEC Forex brokers should maintain at least €750,000 in operating capital, which was not required during the early years of CySEC regulation. The new operating capital requirement is enforced in line with the MiFID derivative that requires brokers to be able to hold their clients’ positions without succumbing to market volatility.
  • All CySEC member firms should keep regular financial statements and submit them to the CySEC for review on a periodic basis. Brokers should send in yearly audit reports that are performed through certified independent third-party auditors.
  • Traders’ capital should be kept in high-profile and tier-1 banks in Europe in segregated accounts. No part of trading capital should be mixed with the broker’s operating capital, which further increases the transparency of operations.
  • CySEC brokers should adhere to all new rules and regulations enforced by the CySEC and the MiFID from time to time. In case the CySEC finds any
  • Cyprus FX brokers should protect their traders from broker insolvency or bankruptcy by providing protection under the ICF (Investor Compensation Fund). The ICF compensates clients up to €20,000 if a broker is rendered insolvent, therefore, helping clients to protect a significant portion of their trading capital.

Give Me More Information On The ICF

The ICF is CySEC’s answer to the investor compensation program that protects traders from any event of broker liquidation without any prior notice. If a broker ends up going bankrupt of if a company decides to shut down its services for any reason, traders can claim for compensation to recover a part of their trading capital.

The amount compensated by the ICF is limited to a maximum of €20,000, which is not as huge as the compensation provided by other regulatory agencies. Nevertheless, CySEC does offer this option to enhance trust and confidence among traders while trading with CySEC regulated brokers.

CySEC’s Contribution To The Financial Markets

CySEC is one of the very few premier regulatory authorities that are highly committed to accepting new concepts and implementing advanced regulations for modern financial products. After its entry into the EU, CySEC has improved by leaps and bounds and has totally shaken off its past by being one of the best regulators in the industry. Cyprus is indeed home to some of the most high-quality Forex brokers, and several mainstream Forex companies started their journey by being regulated by the CySEC in the first place.

CySEC does not impose any trading restrictions on traders, and investors are free to choose any financial market without the fear of regulation. CySEC is one of the very first regulators that started regulating binary options brokers and is open to the concept of other financial markets such as spread betting. Ultimately, CySEC offers freedom of trading by allowing traders to indulge in any strategy, which has helped CySEC brokers to provide a tremendous amount of leverage, hedging functionalities, and other rules of trading.

Am I Safe While Trading With A CySEC Regulated Broker?

In its current form, CySEC is certainly a legitimate and reliable regulatory authority that follows all MiFID guidelines while regulating member firms and penalizing brokers that fail to adhere to the rules. CySEC also proactively investigates all instances of broker scams and has several online resources that help traders to report financial irregularities. Even though CySEC is committed to the safety and security of the investor, CySEC does not involve directly in disputes between a broker and its client. All consumer complaints are to be addressed by the broker, the Financial Ombudsman, and the Court, in that order.

Regardless of a shaky history and a past filled with criticism, CySEC continues to be a preferred choice among Forex brokers. The highly competitive nature of the Cyprus retail trading market also ensures that brokers concentrate on offering the most innovative and ground-breaking services that are ultimately beneficial for the trader. Therefore, as a trader, you can be assured of excellent quality service from Forex brokers regulated by the CySEC, but it is your duty to stay away from scams by verifying the authenticity of the broker that you choose.

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