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Screenshot of a breaking news alert e-mail from Q2 2017
CySEC threatening FX brokers if they don’t settle quietly and pay large fines.
LeapRate Exclusive — Some very strange pronouncements have been coming lately from Cyprus’ financial regulator CySEC relating to FX brokers. For example yesterday we see CySEC announce a €50,000 fine against eToro, with no real explanation given. (The press release mentioned a very vague “weaknesses concern[ing] the organisation/operation structure of the Company in their early operation days…”).
So what’s really happening here? After doing a little digging, LeapRate has detected a somewhat frightening pattern, whereby Cyprus’ financial regulator CySEC has been systematically approaching various of its licensed FX brokers in the country (and there are many), threatening more serious action if the brokers don’t quietly “settle” and agree to pay large “fines” for unspecified wrongdoing.
The “fines” in question, between €50,000-€250,000, are much larger than previous typical CySEC fines for (mainly) administrative errors made by licensed brokers (in the €10,000-25,000 range).
It seems as though CySEC’s funding has been cut drastically by the government of Cyprus, as the government and several leading local banks try to stave off bankruptcy and get their books in order, as they attempt to attract a European bailout of the country and its banks. To augment its revenue, CySEC seems to be becoming aggressive.
So how does it go? In a typical scenario, CySEC demands a meeting with senior management of a licensed FX broker. The broker is told that they should agree to pay a large fine (say €150,000) — without CySEC specifying any wrongdoing — or else CySEC will send in its people, eventually find administrative things that aren’t 100% in order, which could then result in larger fines and bad press for the broker. After some back-and-forth negotiation, the broker then agrees to a smaller fine (say €75,000), on the condition that it can have input into the press release that goes out (which is required in the case of fine or settlement by Cyprus law). The main reason the broker agrees to the fine is to avoid bad publicity, and as such having input into the wording of the press release is important.
There are more shakedowns in process, so we expect more similar vague announcements in the coming weeks relating to other CySEC regulated FX brokers. Stay tuned…
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