Cyprus – Good food, friendly folk and CySec; A winning combination?

Six years ago I made my first trip to Cyprus. I was expecting the Greek islands featured in travel magazines and sights as seen on postcards on display around the world. What I noticed was a quite barren, small and largely undeveloped island, however; full of friendly inviting faces.

At that time, my colleagues and I flew in for business meetings and knew only of a handful of brokers who had set up shop there including Windsor Brokers which was the very first to establish in Cyprus in 1988, and some big names like FxPro and thought nothing of it.

We ate the most amazing food that has long been a trademark of the region, perused the lists of accompanying drinks, and enjoyed many laughs seemingly oblivious to the fact that this small island was about to become a little giant in the brokerage world.

Fast forward to 2016 and we are in Cyprus (almost fortnightly) and it has become a second home of sorts.

Just as recently as last week we once again found ourselves eating amazing food and as spring gives way to summer, enjoying the array of available beverages, whilst enjoying many laughs and light discussions with friends and associates alike. These days, a mere exit from the plane into the airport terminal is enough to indicate that we are arriving on “Forex Island”.

The island has come a long way whilst keeping its small island charm. There are men in suits filling planes daily from many destinations in Europe and the Middle East.

It has become quite posh. The marina in Limassol hosting top venues and events in salubrious surroundings, its periphery adorned with many developments of some really creative office space which is now popping up all over the place.

Whilst the influx of brokers brought with them jobs, investment, a whole ecosystem and support industry and in turn income all the way down to the average Joe; it did also create a problem for the regulator- CySec.

Who’s got the hardest job? CySec has.

Demetra Kalogerou, Chairman of CySec holds a particularly important position among not only Cyprus’ now comprehensive industry, but as a major regulatory landmark on the global stage. What CySec have done so far and are currently honing is critical to where the industry is going as part of a unified EU.

Driven by her and CySec’s ability to have understood the market quickly and make steps to accommodate not only brokers but the entire system that has grown up around the brokerages in Cyprus as well as be faced with the task of creating a full framework within which to operate in a much shorter time than its peers, one must appreciate the overall contribution it has made to the economy of Cyprus and how to ensure that a healthy regulatory environment is crucial to its success longer term.

CySec is not “unaware” of how to regulate or the consequences of tightening the reins and is not in a state of “trying to figure it out”. They are in fact leading through recognition of the industry including Binary Options and at the same time evolving to keep up and keep the industry clean.

Top regulators?

Stop any trader in the street and ask them to name five regulatory bodies and you’ll most likely get:

• USA
• Australia
• UK
• Cyprus
• and (hesitation)… Japan / Switzerland?

The reality is that the FX industry has had three pillars that span the regulatory world where FX brokers are based; the United States, Australia and the UK. Whilst there are many more regulatory bodies out there of often equal standards, these were the three that were expected by new customers.

Cyprus is now a part of this list. Why? Because the brokers are there. When Cyprus just became the “place” to regulate for commercial and geographical  reasons, clients and the large firms based in other more well-known countries; were hesitant.

Then one by one the large shops followed. The conditions were perfect for it, the regulator was just learning, and you could get setup for a few hundred thousand Euros, whilst being inside the European Union in a nation with a skilled workforce which now fully understands the FX industry, a western business environment, and British common law.

There are now over 180 brokers / service providers in Cyprus. The support industry has also managed to secure itself with specialist providers providing advertising, marketing, liquidity providers, Fintech and even web design with the sole focus on the FX industry.

Business comes in, human resources becomes your most valuable commodity.

Jobs for you, and jobs for you means jobs for everyone!

Jobs = tax revenue and spending.

What’s at stake?

There are two sides to this coin. On one end you have the industry that has grown to such proportion that to kill it overnight would costs thousands their jobs and without knowing the actual figures, which if I were to guestimate, would represent a fairly reasonable portion of the economy.

The other consideration centers around not tightening the regulatory grip enough and to fail at maintaining the reputation as a reputable regulatory authority.

If the regulatory body goes in too aggressively too quickly, then the risk is run of scaring off the brokers or pressuring brokerages to look for alternatives.

As hard as a pill this is too swallow, there are a few bad eggs, however, therefore even the good guys have to adapt to new regulatory oversight which takes time and focus away from growing a business.

No one likes audits, extra documents and additional pressures, even the good guys.

Take too long and you slowly loose authority as a regulatory body. If clients view the jurisdiction as a failure regulatory wise and unable to protect their rights and interests, you also create a problem for the brokers in turn as their own customers will not view them as reputable or “regulated”.

Who is to blame?

The end user is the one to suffer. This is true for many industries. Monies are lost, taken away or indeed misappropriated.

One of the perspectives I learned early in my career was that as a broker, you are dealing with people’s money. You have an extra responsibility as this is not exactly a customer buying an iPhone or a pizza.

Money is again, one of the things that make or break people. It is precious in the sense that it is hard to make and save but can be lost in a split second and it is all gone.

Is CySec to blame for traders’ complaints? On the surface frustration can easily cause the blame to be put solely on CySec as they are meant to protect investors. But let’s not forget the few rotten eggs in the group that are essentially the cause.

A tighter regulatory oversight does indeed prevent many of these rotten eggs getting through the system, however; does not prevent the issues entirely.

Look at Lehman Brothers. No one would have blinked an eye lid putting funds there and then one day, boom. It’s all gone.

Another story, this time under ASIC’s watch, GTL Tradeup pulled a classic by using its parent company (different directors) GTL Trading DMCC as a liquidity provider to send order flow too.

Blink blink and the parent company GTL Trading DMCC took a runner owing GTL Tradeup in Australia the licensed broker 4.35million AUD and clients out of pocket 4.4million AUD.

Both examples are of “bad eggs” in very good jurisdictions that prove that the regulators cannot take sole blame.

There will always be the one or two that see it easier to run than to face the music but these few are not the majority.

Will CySec and Cyprus succeed?

Whilst we are confident that Cyprus and CySec will maintain a well balanced regulatory oversight in line with standards of the EU, our extensive research this year so far has made us even more confident of this.

CySec is leading the way with retail regulation whilst at the same time overseeing other markets that are just as important.

OTC binary options is something that we know is on their minds and radar and whilst many other regulatory bodies around the world are blocking binary options, CySec have taken a more proactive approach once again and decided to build a regulatory framework designed to protect investors and monitor the industry so as to ensure long term stability.