Cyprus Regulator Making Waves In The Binary Trading Industry

Looking back over the last 12 months, we have seen the tiny republic of Cyprus making headlines and precedent in the financial markets by being the first European nation to regulate the trading of binary options. The way how the Cypriots bailed out their troubled banking sector of out a crisis also set a new precedent among the European Union (EU) members.

Just when we thought we heard the last of Cyprus grabbing the headlines, the Cyprus Securities Exchange Commission (CySEC) announced a new ruling that essentially curtailed the way how binary options brokers conduct their business.

Controversial Ruling

Under section 79(1) of the Investment Services and Activities and Regulated Markets Laws of 2007, (CIFs) can only provide their services to a non EU member country provided “…provided that such services and/or activities are covered by their authorization”. Effectively, this meant CySEC regulated binary brokers were no longer able to authorize to deal with clients from non EU countries unless the clients can provide written authorization from the local regulatory body where the clients are residing at.

As expected, such a move caused uproar within the binary trading industry as this put CySEC regulated brokers at a considerable disadvantage against non CySEC regulated brokers. According to a senior management official of a Cyprus based CIF,



“Brokers cannot survive on European business alone in my opinion and certainly not on a simple retail MT4 or equivalent business model”.

The CEO of Forex4You Max Lebedev explained that,



“…clients will face serious issues in getting such a letter from a domestic regulator too. Anyway, that action from CySEC will have a substantial negative impact on existing companies, and for newly established entities CySEC regulation will not be attractive at all.”

Backtracking

Following strong objections from stakeholders and from the Association of Cyprus International Investment Firms (ACIIF), CySEC backtracked on their ban for non-EU clients through Circular No: CI144-2013-24 issued by Demetra Kalogerou, Chairwoman of the CySEC. Although the move was welcomed by the industry, given Cyprus track record in the way they handled their banking crisis earlier in the year, many are in the industry are beginning to weigh the benefits of being CySEC regulated.

Exodus of CIFs?

Over the last few months, the industry has started to see a trend of binary brokers setting up operations in countries other than Cyprus. Adding salt to the wound, the sudden closure of iOptions after receiving its CIF authorization from the CySEC is also not helping the situation much. As to the future of CIFs, that remains to be seen.