CySEC proposes various leverage caps for different retail client categories

Maria Nikolova

CySEC is proposing to prohibit the marketing, distribution and sale of leveraged CFDs on crypto assets to retail clients, unless they fall within the upper tier of the positive target market.

The Cyprus Securities and Exchange Commission (CySEC) has earlier today published its proposals for national measures that reflect the product intervention measures introduced by ESMA about a year ago. Such a move has been largely expected as other national competent authorities (NCAs) in the EEA have already taken similar steps.

But CySEC’s announcement provides a surprising twist, as the Cypriot regulator wants to vary leverage caps for CFD trading depending on the type of retail investors. Put otherwise, some retail investors will see even harsher leverage restrictions than the ones introduced by ESMA, whereas others may see the restrictions relaxed.

According to CySEC, the ESMA Decision on CFDs does not distinguish between different subcategories of retails clients. MiFID II does not distinguish between different subcategories of retail clients either, but introduced the notion of target market. CySEC expects CFD providers will not sell such products to clients falling within the negative target market. However, CySEC cannot rule out the possibility that sales of such products might appear in the case of retail clients falling within the grey area of target market (i.e. those not falling neither within the positive target market nor within the negative target market).

CySEC also acknowledges that the term “retail client” encompasses different types of investors, with different levels of knowledge and financial position and the persons falling within the positive target market does not necessarily share the same level of knowledge and financial position.

The Cypriot regulator explains that, in determining the suitability of CFD products during the customer due diligence process, each retail client must be categorised by the firm within a specific target market – either ‘positive’ or ‘negative.’ Retail clients who fall in the ‘grey’ area of target market (fit neither within the positive target market nor within the negative target market) could be vulnerable to being offered leverage that exceeds their knowledge, financial position and risk appetite.

Accordingly, CySEC is proposing to introduce stricter leverage limits for retail clients falling within the ‘grey area’ of the target market, and affording slightly higher leverage limits for retail clients falling within the upper tier of the positive target market.

CySEC is proposing to prohibit the marketing, distribution and sale of leveraged CFDs on crypto assets to retail clients, unless they fall within the upper tier of the positive target market to prevent exposure to excessive risk caused by the extreme volatility of the instrument.

Finally, CySEC plans to adopt permanent National Product Intervention Measures on Binary Options, which will be the same as ESMA’s measures, without any pubic consultation on the subject matter. An official statement will be issued once the measures are formally adopted.

Interested parties may submit their comments to the CySEC Policy Department by email at [email protected] .

The submission of comments should be made no later than 14 June 2019 . The subject of the email should have the following form:

“Consultation Paper (2019 – 02) – [insert the Name of Organisation, Legal or Natural Person submitting the comments or views]”

Read this next

Executive Moves

YourBourse hires 3 executives to transform development procedures

“Valter, Maria, and Sergey bring decades of experience in the FX industry to our company and I’m very excited how they will enable our ambitious growth plans.”

Technology

Baton adds OCC to collateral management network

“For the FCM community, this translates into ensuring money isn’t being left on the table. Our FCM clients are already using the Baton platform to move tens of billions of dollars of collateral every week.”

Retail FX

eToro buys US rival Gatsby to expand zero-fee trading offering

Israeli social trading and multi-asset brokerage company eToro has secured the regulatory nod to acquire no-fee trading app Gatsby as it aims to expand its business in the US.

Executive Moves

Genesis Global snatches CMO Jason Jhonson from metaverse company

The hire of Jhonson follows the announcement that Genesis raised $20 million in fresh funding from US banking giants, Bank of America, BNY Mellon and Citi.

Digital Assets

Celsius subsidiary GK8 integrates with Polygon while looking for new owner

“This integration affords our customers more agility in managing their crypto assets, which is key to creating new revenue streams.”

Digital Assets

BDO Italia audits Tether reserves to release monthly attestation

World’s largest stablecoin issuer, Tether has switched the accounting firm that audits the massive reserves that back its USDT token to BDO Italia, the 5th largest accounting firm in the world.

Retail FX

Libertex bags multi-year sponsorship deal with FC Bayern

Indication Investments Ltd, the operator of FX retail brand Libertex, has secured a lucrative sponsorship deal with German soccer giant FC Bayern.

Institutional FX

PrimeXM reports lower volumes for July as summer lull bites

PrimeXM has reported weaker trading volumes for July 2022, in line with other institutional and retail platforms that saw the activity of their clients dropped compared to a month earlier.

Retail FX

FCA warns of ATFX Global Trading / ATFXcoin

In its latest clampdown against the specific type of ‘clone fraud’, the Financial Conduct Authority (FCA) has warned local investors to watch out for a company called ATFX Global Trading / ATFXcoin.

<