CySec Chairman Demetra Kalogerou addresses the global FX industry at iFXEXPO: Here is the full report

By Demetra Kalogerou, Chairman, CySec at iFXEXPO International, Limassol, Cyprus. By way of background, in March 2016 the Republic of Cyprus successfully completed the economic adjustment program with a very positive assessment on the performance and future prospects of the country. The Cypriot economy returned to growth in 2015 after only three years of economic […]

By Demetra Kalogerou, Chairman, CySec at iFXEXPO International, Limassol, Cyprus.

By way of background, in March 2016 the Republic of Cyprus successfully completed the economic adjustment program with a very positive assessment on the performance and future prospects of the country.

The Cypriot economy returned to growth in 2015 after only three years of economic decline, with positive forecasts for 2016 and a projected between 2 and 2.5% GDP growth rate.

The unemployment rate has also dropped according to the latest statistics and showing the biggest drop in the EU.

Following the bail-in of 2013, many in Cyprus and abroad predicted the end of Cyprus as an international business centre. How wrong they were. This has not happened. Despite the remaining challenges, three years on, Cyprus has maintained its role as a successful regional business and services destination.

The flow of applications submitted to CySEC from Cyprus and abroad to license new regulated entities continues unabated. CySEC now supervises 532 entities, with 136 awaiting examination for licenses.

Today, 213 investment firms are licensed and regulated by CySEC to provide financial services. Out of these, 130 firms provide forex and binary options for retail investors, which are consider sophisticated financial products.

In 2014, CySEC took the unprecedented step of classifying binary options as financial instruments under the MiFID legislation.

This means that unlike in other European and indeed global jurisdictions, the provision of financial binary options is a regulated activity. Only those who are licensed can provide such investment products to investors. This decision had investor protection at its heart and owing to CySEC’s fair, robust and proactive approach to regulation Cyprus has matured into a centre for such financial services.

Also CySEC, attaches great importance to the development of the collective investment industry which has only started at the end of 2014 and until today they are 13 licensed Alternative Investment Fund Managers (AIFM).

From the reported data so far the total funds under management by the authorized AIFMs is approximately €2,3 billion. However, there are still fund managers that have not submitted information, so the total figure will be much higher.

Despite CySEC’s proactivity, there are still challenges Cyprus has to face. The intense and coordinated effort to improve standards in the FX and binary options trading industry in particular has been at the centre of restoring investor trust in Cyprus.

These are risky products. Retail investors should be encouraged not to invest in them if they do not fully comprehend the inherent risks of the product.

However it is important to stress that, CySEC has recently issued a number of Circulars that set a stricter framework for their provision, define acceptable market practices, and clarify potential gray areas in the legislation in order to increase transparency.

Especially, I want to emphasize, on the Circular regarding the specifications of binary platforms, which are providing services to clients in relation to binary options.

The responsibility to ensure products are marketed appropriately and to those investors that they are suitable for lies on the firms’ own shoulders. We must have the support of those industry professionals who provide these products as we continue our drive to weed out those who are looking to violate the law in Cyprus and put the investor at risk.

Recent actions

In this vein, CySEC has fully implemented the Risk Based Supervision Framework (RBSF). Introduced in 2015, the RBSF has formed CySEC’s schedule of supervisory checks for 2016. It allows CySEC to dedicate some of its resources to supervising those regulated entities which pose the greatest risk to the investor, whereby CIFs are classified as high, medium or low risk.

Those CIFs categorized as high risk and medium-to-high risk, on-site inspections have been and will be carried out to ensure that firms are operating in full compliance with European and Cypriot laws. With regard those CIFs categorized as medium-to-high risk, on-site inspections will be carried out in all relevant areas, over a period of 3 years.

For CIFs, of medium-to-low risk and low risk, thematic supervision will be exercised where and when the need may arise. Of course, supervisory investigations will also be carried out according to any new information or complains that may come to the Regulator’s attention.

Following the RBSF’s implementation, CySEC started a process of in-depth inspections based on a predefined set of supervisory criteria in August 2015 for 10 out of 20 investment firms categorized as being of high priority. Market procedures, governance and risk processes, client on boarding and suitability requirements, and AML procedures were all heavily scrutinised and those that were found that they were in violation of the law we imposed penalties.

In addition to the financial penalties imposed, CySEC has also called upon the CIFs to adopt a series of corrective measures to improve their internal procedures, arrangements and practices, aimed at ensuring full compliance with their legal obligations within set deadlines. CySEC has issued circulars that define acceptable market practices and increase transparency and investor protection.

We will continue our inspections and CySEC will not hesitate to take action where necessary. Supervisory onsite checks will be repeated each year on either a thematic or a broad basis with the aim to improving compliance of the overall investment firm sector, which will further safeguard investor protection and ensure the smooth and fair functioning of the market. Let me be clear: those looking to cheat the law have no place in Cyprus.

Upcoming priorities


In terms of our upcoming supervisory priorities, twenty thematic checks on CIFs will be carried out during 2016. The checks will focus a number of issues that continue to undermine investor confidence both in Cyprus and those firms registered here.

These include:

The promotion of financial products and services including individual marketing communications practices and call centers.

The assessment of appropriateness of certain financial products for customers, and more particularly on the implementation of proper procedures by CIFs whilst offering complex financial products, such as forex and binaries.

Nineteen additional on-site checks at CIFs and Administrative Service Providers will take place, particularly focusing on Anti-Money Laundering compliance.

Also, CySEC will prepare and issue new circulars, which will better inform and guide regulated entities as to full implementation and compliance with their legal obligations. These circulars will include the following:

Safeguarding and reporting of the client monies by CIFs, the promotion of financial products and services, the assessment of appropriateness test, tied agents, introducing brokers, call centers and liquidity providers.

Upgrading institutional/legislative framework

At a fundamental supervisory level, CySEC’s continues to prioritize the upgrade of its institutional framework to ensure Cyprus remains a fully harmonized with the latest European directive. MiFID ΙΙ and the Anti Money Laundering Directive (AMLD IV) have already been promoted in Cypriot legislation, whilst the important legislative changes under the legislative package on market abuse (MAD/MAR), the EMIR Regulation, the Regulation on key information documents for packaged retail and insurance-based investment products (known as PRIIPs) will be adopted. CySEC remains committed to ensuring Cyprus is fully in line with the latest European legislation.

MiFID ΙΙ is a very important piece of legislation for CIF. The legislation has several core objectives, including:

  • Increased investor protection
  • Alignment of regulation across the EU in certain areas
  • Increased competition across the financial markets
  • Introduction of reinforced supervisory powers.

In seeking to achieve these objectives, MiFID II contains a broad range of complex provisions.

Investor Compensation Fund

Significant changes will also be made to the regulatory framework including the Law on the Investor Compensation Fund and the relevant Directive in order to reflect market risks.

The framework created via the BRRD provides authorities with more comprehensive and effective arrangements to deal with a failing investment firms, especially the market makers at national level, as well as cooperation arrangements to tackle cross-border investment firm failures.

Upcoming regulatory enhancements are designed to increase market transparency and improve compliance with the framework that is designed to protect investors. This remains CySEC’s number one priority.

Our approach – Conclusion

As I have communicated today, CySEC is committed maintaining open channels of communication with industry professionals and is always prepared to discuss ways to alleviate any obstacles to the smooth functioning of the market.

This commitment is never at the expense ofproper supervision and regulation of the provision of investment services, in full compliance with the necessary European Directives and the national legislation, which are designed for the protection of the investors.

We continue to require your commitment in enhancing the reliability of Cyprus’ financial sector. Our significance transcends far beyond Cypriot waters and we must work in a robust fashion in the interests of the investor, the regulated firms and the industry at large.

CySEC’s regulatory action over the past two years has demonstrated that it takes complaints and feedback from the market extremely seriously and will deploy the necessary resources to combat any wrongdoing.

Therefore, I expect from all of you, as professionals, to follow the relevant laws and regulations issued by CySEC, in order to further enhance the reliability and reputation of the financial sector, but also for the benefit of yourselves and your companies.


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