The island of Cyprus has a long history as a financial hub in the Mediterranean, but it had to reform its “tax haven” posture after applying for EU membership in 1990. Cyprus officially joined the EU in 2004. However, the tax reforms became more attractive for international businesses, and, as a result, the island increased its licensing practices to include a host of companies, including financial services companies. The Cyprus Securities and Exchange Commission (CySEC) was launched in 2001 to have regulatory oversight responsibilities for financial institutions on the island. To date, it has issued 40 licenses to individual forex brokerage firms.
In 2004 after Cyprus became a member of the EU, the private corporation immediately fell within the European MiFID regulations, thereby providing a portal for all Cypriot firms to gain access to all European markets.
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General Information about CySEC and Cyprus
Although successful, Cyprus has had a rocky road over the past two decades. A financial crisis overtook the island in 2012, stemming from Greek debt issues. The island’s second-largest bank was closed. Brokers that had not segregated client deposits offshore in Tier One banks ceased trading. Emergency loans and constraints followed, but Cyprus did survive.
When binary option brokers sought the refuge of Cyprus and the less stringent regulation offered by CySEC, the regulatory body became the first regulator to recognize and regulate binary options as financial instruments. When news broke in March of 2016 of the binary options scandal and the billions in consumer losses, the European Securities and Markets Authority (ESMA) subsequently pressured CySEC to tighten its regulatory regime.
CySEC soon made wide-sweeping reforms in its registration and regulatory areas of responsibility. New rules required the segregation of client deposits and the maintenance of adequate capital reserves to operate a brokerage. New transparency regulations required more reporting. This tougher stance resulted in many fines, suspensions, and, in some cases, the revocation of existing operating licenses.
Although significant progress has been made, there are still complaints within the European community of regulatory agencies that CySEC is not doing enough to police its brokers. Despite its best efforts, the current leadership at CySEC has announced that it will need to take a tougher stance on its licensees.
Forex brokers continue to flock to the island, but bad actors continually flaunt the rules and are known to seek new clients via unethical and illegal means. Aggressive marketing practices are a signal of bad practices. Consumers should be wary of unsolicited advances from unfamiliar CySEC brokers.
Concluding Remarks
Cyprus and CySEC have become a mecca for forex brokers, especially those specializing in CFDs. Although many of these brokers are legitimate and obey the rules laid down by CySEC, ESMA, and other local regulators in the EU, there remain a few bad apples in the group. It is wise to perform due diligence before selecting a Cypriot-based broker and to choose only from the list of best Cypriot brokers provided in the above table.
