Cyprus FX brokers allowed to skirt customer privacy laws

CySEC allows FX brokers to release client names and data to banks, to allow for release of client funds.

LeapRate Exclusive… We reported (exclusively) last week that segregated client fund bank accounts held by Cyprus FX brokers at Laiki Bank and Bank of Cyprus would NOT be subject to the “haircut” (or more correctly, confiscation) of all accounts above €100,000 at those banks — as long as the ultimate beneficiaries of those funds were indeed small investors, each with a less-than-€100,000 interest in the account.

The problem, as with many things, is in the details — the FX brokers would need to release sensitive client data (names, other identifying details, account sizes) to the banks in order to prove their claims, and get the client funds protected and ultimately released. Even if that was done to protect their own clients, the FX brokers could be subject to legal action for contravening very strict privacy laws.

To help solve this issue, LeapRate has learned that Cyprus’ financial regulator CySEC issued a special circular to regulated investment firms, essentially allowing them to release all client information deemed necessary to secure the release of client funds.

So how are the Cyprus FX brokers actually faring through all this? We’ll write separately about this issue shortly, but in brief we have heard about a few, mainly smaller, Cyprus Forex brokers having some problems — both because of confiscated / locked funds, and clients becoming more picky as to with which brokers they trade. But the larger, regulated firms seem to be weathering the storm.

Looking forward, we expect to see some intra-Cyprus industry consolidation. Some of the “affected” firms will, in our view, look to salvage the situation by selling their assets (i.e. clients) to larger firms which can better weather this storm. We especially expect to see consolidation among Cyprus Binary Options brokers. The past two years have seen many new Binary brokers pop up and begin to get regulated by CySEC, and not all of them — especially the newer, smaller ones — will survive.

To download a copy of the special CySEC circular (in English) click here.

For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.


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