Inactivity fees account for up to 31% of revenues of some CFD brokers, CySEC review shows

Maria Nikolova

For several Cypriot investment firms, the amount received from inactivity fees for the period from July 2019 to November 2019 ranged from €1 million to €1.4 million.

The Cyprus Securities and Exchange Commission (CySEC) has carried out a review of the circumstances that are considered by Cyprus Investment Firms (CIFs) when applying inactivity fees to clients, with the report revealing some alarming practices.

The review covered a sample of 35 CIFs, with the firms reviewed being mostly providers of CFDs. The reference period for the information provided by CIFs to CySEC was July 2019 – November 2019.

Several CIFs did not provide adequate information about the circumstances under which a client and/or a client’s trading account is considered inactive/dormant. For example, the information found on the Terms and Conditions and/or Client Agreements section/tap of the websites of some CIFs, included references only to the charge of an inactivity fee when the client’s trading account is inactive/dormant, without giving further explanation of the circumstances and the parameters under which a trading account is considered as such. A large number of CIFs had informed potential clients or clients that a trading account is considered inactive when there is no “trading activity”, but did not expressly state what constitutes ‘activity’.

When assessing the trading activity of a client’s trading account, a small number of CIFs linked this activity to the number of trades executed, not the act of trading itself. For example, a client’s trading account was deemed as inactive if the number of trades within a period of 60 days was less than 5 trades per month.

A limited number of CIFs linked “Know-Your-Client” (KYC) documentation requirements with the circumstances under which a client’s trading account was considered inactive. For example, one CIF stated that in the event that KYC documents expired and the client failed to provide updated KYC documents, then his/her account would be considered inactive. In addition, a practice was identified whereby a CIF stated in its Terms & Conditions that in the event of a client deposit not being verified within a timeframe of 15 days, or he/she failed to provide all the information required by the CIF, the CIF could charge an inactivity fee.

In general the CIFs did not clarify the quantitative and qualitative factors taken into consideration for calculating the size of the inactivity fee. CySEC also found that a small number of CIFs applied excessively high inactivity fees (e.g. €100 or more) on a monthly basis, without providing sound reasoning for the imposition of such a fee, nor adequate explanation for its calculation.

CySEC was particular concerned that, for several CIFs, the amount received from inactivity fees for the six-month period from July 2019 to November 2019 was excessively high, ranging from €1 million to €1.4 million.

Furthermore, for a number of CIFs, the amount received from inactivity fees for the six-month period from July 2019 to November 2019 seemed to represent a significant proportion of revenue generated for a six-month period, in limited cases as high as 18% – 31%.

Moreover, a small number of CIFs had charged inactivity fees retroactively. This meant clients were charged at the start of the period over which no activity was identified in the client’s trading account, and not after the period that had to pass for the client, and/or his trading account, to be considered inactive.

CySEC advises all CIFs to consider the issues raised against their policies and arrangements in place in relation to their application of the inactivity fee as well as to the relevant disclosures made to potential clients or clients. If, when reviewing the policies and arrangements in place, CIFs identify any weaknesses – they must take immediate actions to ensure compliance.

The regulator says it will continue the assessment of the CIFs’ policies and arrangements relating to the inactivity fees and will consider taking further actions, such as enforcement investigations.

Read this next

Market News

Unravelling the Yen Surge and BoJ Policy Speculations Impacting USD/JPY

The recent downturn in the USD/JPY pair due to the yen’s strength, driven by speculation about the Bank of Japan’s potential tightening of monetary policy.

Digital Assets

Himalaya Exchange customers seek release of frozen funds from DOJ

FormerFeds, a corporate defense and litigation service provider, has filed a lawsuit against the U.S. Department of Justice (DOJ) on behalf of over three and a half thousand Himalaya Exchange customers.

Digital Assets

Nubank, Circle, and Talos join forces for crypto adoption in Brazil

Nubank, the Brazilian neobank backed by Warren Buffett’s Berkshire Hathaway and Softbank Group Corp, announced new partnerships with cryptocurrency firms Circle and Talos.

Metaverse Gaming NFT

Flare onboards Ankr, Figment, Restake, and NorthStake as validators

Flare, an EVM smart contract platform known for its focus on blockchain data utility, has announced a major step in its development. The platform has onboarded leading infrastructure providers, including Ankr, Figment, Restake, and NorthStake.

Digital Assets

Sui Joins DeFi Leaders, Topping $100M in Bridged USDC

Sui, the groundbreaking Layer 1 blockchain created by the technology experts who led Meta’s Diem blockchain initiative and created the Move smart contract language, continues its explosive ascent in decentralized finance (DeFi). This week, it surpassed $100 million in bridged USDC. 

Digital Assets

Poloniex hit by UK regulator, listed as ‘unauthorised’ exchange

The UK’s Financial Conduct Authority (FCA) has added the cryptocurrency exchange Poloniex to its warning list of non-authorized companies. Poloniex, which is based in Seychelles, has experienced four hacks in the last two months and is affiliated with entrepreneur Justin Sun.

Industry News

Exclusive Markets is Proudly ISO/IEC 27001:2013 Certified by MSECB for Unparalleled Commitment to Information Security

Exclusive Markets, a leading name in the FINTECH sector, proudly announces the attainment of ISO/IEC 27001:2013 Certification by the MSECB. This esteemed certification highlights Exclusive Markets’ persistent commitment to fortifying information security within its cutting-edge trading technology. 

Digital Assets

SEC is discussing ‘technical details’ of Bitcoin EFTs ahead of approval

Discussions between the U.S. Securities and Exchange Commission (SEC) and asset managers seeking to list Bitcoin exchange-traded funds (ETFs) have reportedly advanced to key technical details.

Digital Assets

Versatus Labs Reaches $50 Million Valuation Following $2.3 Million Seed Funding Round

Versatus Labs, a peer-to-peer web services protocol aiming to help Web2 developers transition to Web3, has completed a $2.3 million funding round at a $50 million valuation led by key investors in the Web3 space including NGC Ventures and Republic Crypto. The latest funding round aims to help the company develop the ‘world’s first stateless roll-up’, Versatus LASR. This follows Versatus Labs’ recent pivot from Layer 1 solutions to Ethereum scaling solutions.