If even Belize will not license firms with a history of malintent, why does Cyprus continue to entertain them? – Op Ed
A comprehensive look at the actions of other jurisdictions with regard to nefarious binary brands and retail B-bookers that have a less than enviable history, and how CySec continues to uphold their licenses as Belize cans the license of Banc de Binary.
IronFX and Banc de Binary.
Two large and infamous names, whose prominence in the media has over the last few years been less than salubrious.
Banc de Binary, the largest brand to which SpotOption provides its binary options platform along with market making services, has been the subject of an $11 million fine and restitution order by the United States Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) for illegally soliciting American customers, as well as standing out as a flagship brand of the nefarious and fraudulent OTC binary options business that governments around the entire world are doing their utmost to extinguish once and for all.
Based in Israel, along with the vast majority of other large binary options brands and all of the platform providers and market makers that enable them, Banc de Binary is licensed by CySec and purveys its services on the basis that it provides a regulated financial product, when in reality there is no financial product whatsoever and no connection to any live market.
It, like all other OTC binary options brands, is the byproduct of the gambling, lead recycling, affiliate marketing model which survives by recycling leads from poker sites to a binary brand under the false pretense that the client is investing, when in actual fact the client deposit goes into the pocket of the binary brand owner.
As a result, France, Belgium, Holland, Denmark, Israel, the US and Germany have outlawed it, and many other governments around the world consider it fraudulent, yet Cyprus continues to let it flourish at the great expense of the good quality companies in Cyprus who conduct their business in a correct and proper fashion, via good quality relationships with prime brokers and liquidity providers and offer today’s advanced ecosystem that has provided Cyprus with the excellent electronic trading facilities that it has today.
Yet the binary brands, especially those with high profile and well documented malintent on their records, remain.
Belize, an offshore jurisdiction which has about as much credibility when it comes to regulation as if the gargoyles on the gates of Buckingham Palace were suddenly enlisted into the Coldstream Guards, has canceled the ‘license’ (note the inverted commas!) of Banc de Binary as the company doesn’t even meet its rudimentary criteria, yet CySec continues to provide Banc de Binary with a bona fide license which empowers it to rip customers off the length and breadth of the globe.
Israel, home to the companies that make the market making facilities and platforms that are used by binary options companies, considers these companies to be a national problem. Israel Securities Authority chairman Shmuel Hauser managed to get it all banned on the domestic market under gambling laws, but he has now embarked on making laws to stop its prevalence internationally, saying that it is his responsibility to put an end to binary options, which is bringing Israel into international disrepute.
The career paths of the platform developers and brand owners are in no way similar to those of the bona fide technology and financial services sectors of London, New York, Chicago or Hong Kong. Instead of a well documented career that has resulted in refined experience and top quality relationships with the very best in the business, founded on internships with blue chip companies, followed by several senior executive positions within technology providers, banks and institutional firms before heading toward leadership with a comprehensive understanding of the industry and the refined business ethic that goes with the very top leaders in the FX industry, binary options is a total contrast, a world of low-brow criminals with no career to speak of other than buying (and in some cases stealing!) leads from gambling sites.
As the world closes in on binary options, the leaders of this back street business have begun to make an attempt toward founding a trade organization as a method of fighting back at the massive and international disdain which is multi-layered, inter-governmental and inescapable, in the foundation of a new unaffiliated trade body called European Brokers Association, or EUBOA, which is a rather awkward acronym to say the least. Currently, these people have convened twice, in secret locations, in Cyprus.
At the meeting were senior members of staff (I will not call them executives) from major binary options firms including SpotOption and TechFinancials. SpotOption, which is the company leading the lobby, has a Cyprus entity which rather tenuously calls itself an ‘exchange’, which is an absolute misuse of the term. None of these companies are exchanges, neither are they OTC derivatives dealers because there are no price feeds whatsoever – it is you against the house.
TRADOLOGIC, one of the largest platform providers in the binary options business, was subject to a similar matter when one of its major shareholders was arrested for money laundering and fraud.
Anyoption, one of the largest brands, is owned and operated by Shay Ben-Asulin, who was charged by the Securities and Exchange Commission in America in 2011 for participating in pump-and-dump schemes and for engaging in a fraudulent scheme to conceal the sales of millions of shares of their companies, netting him and his 7 accomplices $33 million, yet he went on to found a large binary options brand after this, continuing to satisfy his thirst for ripping people off, and yes indeed, it has a CySec license to this day.
To a large extent, CySec has achieved tremendous steps forward, rising up not only from its origins as a fledgling regulator – it is not steeped in history in the same way that America’s National Futures Authority (NFA) or Commodity Futures Trading Commission (CFTC) are. The CFTC is governed by political party senators and has a vast budget which stands it out as the most consumer-focused regulatory authority on earth. Continual monitoring is carried out, firms have to report each day to the NFA and if any irregularity is discovered, an official will set next to the CEO’s desk for three months and ensure that every single aspect of the business has been investigated.
If any irregularities are discovered, the firm is sued in a federal court, customers are restituted and the entire details of the case and its reason for being brought about, decision and (often very heavy) fines are published on the internet for all to see.
America does not need to kowtow to small retail brokerages, however. Its economy is vast and varied. Cyprus has a fine line to tread. Its economy is fantastic and in great condition, but it relies, as a country with a population of only 800,000, on tourism and the FX industry, therefore regulators need to ensure that the rulings are firm and adhered to properly, whilst maintaining a very good environment for the companies themselves and their customers worldwide.
Domestic audience vs international audience
Cyprus has another achilles heel, which is that no customers of Cypriot companies are based in Cyprus. It is an industry center, not a market. This means that CySec has the burden of having to be lobbied constantly by overseas regulators with regard to the companies that it overseas, whereas American authorities have direct jurisdiction over their companies as all of the customers of American electronic trading firms are domestic.
This has presented a great difficulty for CySec in that cross-border jurisdiction is difficult, however the ability for a regulator to deem a company unfit for any market still lies with CySec and in the case of firms such as IronFX, which continues to operate unrestricted despite its widely known treatment of overseas IBs and customers in many regions, particularly China where IronFX had a massive introducing broker network.
Even the Cyprus government is speaking out – something that no government ever does, anywhere.
In the summer of 2016, senior political party leader Andros Kyprianou, who heads the Cypriot party AKEL which is currently in opposition to Nicos Anastasiades’ Democratic Rally party, issued a letter which made reference to relevant posts on electronic media including accusations that IronFX have not been abiding by the regulations as required in order to maintain correct business practice as outlined by the national regulatory authority, CySec.
Yet to this day, despite the ongoing civil law suits by Chinese IBs, outstanding tax liability to the Cyprus tax authorities, government concern and continual reports that IronFX does not act in accordance with financial markets laws in a number of jurisdictions, it continues to maintain its CySec license.
Yes indeed, CySec does not have restitution powers, or the ability to take companies to court in the way that Australian or American authorities can, but CySec does have the power to withdraw licenses, and has not done so with regard to IronFX thus far.
More recently, CySec removed the license of ACFX, which owes a fortune to its customers. FinanceFeeds investigated the company’s operations and found that the entire management team had cut and run, many of them joining LCG, a publicly listed company in London, yet having not settled the outstanding amounts that they have taken from their previous customers at ACFX. The difficulty is that CySec removed the company’s license after the management team had already left and there is no recourse over customer money. Prior to the removal, license suspensions took place, which did not prevent any individual in a senior position upping sticks and moving elsewhere.
Had these individuals been cited and banned from the financial services industry, this would not have been allowed to happen.
The difficulty with all of this is that the high quality firms in Cyprus, of which there are a great many – the establishment of all of the quality services that surround the industry being testimony to that – bridge providers, liquidity providers, technology vendors – all based in Cyprus providing service to good companies – now face an image and public relations issue in that the prevalence of binary options and companies that continue to maintain their license even when they do not abide by the rules is casting a big shadow over the reputation of the regulatory framework.
Cyprus has become a fantastic venue for the FX industry. A comprehensive center for all things FX right the way down from prime brokerage to technology to astute retail brokerages, whose dedicated professionals have worked very hard to continue to further their knowledge and build from the ground up. This is to be applauded as an industry success, however until CySec stops entertaining those who shouldn’t be entertained, the glass ceiling will remain in place.