Interest in CIF licenses grows whilst FX brokers shun Cyprus

More companies have obtained licenses as Cyprus Investment Firms (CIFs) since the start of 2014 than in the equivalent period in 2013, but there are only a handful of Forex brokers among them. A check by LeapRate demonstrated  that a total of 26 companies managed to get CIF licenses since the onset of 2014, a number which is 30% higher than the number of companies that obtained CIF status in the equivalent period a year earlier.

Despite this, in the face of the influx of firms willing to enter the Cypriot investment market, the inflow of Forex brokers into the island is continuing to wane following last year’s exodus of brokers from Cyprus in favor of Britain’s Financial Conduct Authority (FCA) regulation and kudos of being situated in the world’s largest financial center.

Since the start of this year, there are only three companies involved in FX trading that secured CIF status: Boursotrade Ltd, Harborx Ltd and Different Choice FBC Ltd.

Of these three, Boursotrade is focused on investment advice, while Harborx Ltd has not yet commenced its operations to full effect. Bearing this in mind, it is clear that just one FX firm has recently entered Cyprus, got its CIF license and started solely providing Forex trading services to new clients, this being  Different Choice FBC Ltd.

This year’s picture is considerably gloomier than in 2013, when for the same period (January 1st – August 31st) 13 Forex brokers received CIF licenses despite the controversial bail-in imposed by the Cypriot government which resulted in many corporations and individual investors being liable for rectifying Cyprus’ unsolvable debt situation by handing over up to 60% of their deposits held with Laiki Bank and Bank of Cyprus .

Moreover, the list in 2013 included some well known brands like Monex Investindo (now Valutrades), Admiral Markets, and AvaTrade. Later on, other big brands like RoboForex also stepped into the Cypriot FX market.

Among possible reasons for the declining enthusiasm of FX brokers in getting CySEC regulation is the tightening of the rules for CIFs, as well as the perceived difficulties in opening commercial bank accounts which have blighted Cyprus based FX firms over the last year .

Some of the most striking restrictions that came into force early this year is the ban on bonuses whose withdrawal is related to trading a certain volume. Then came the new rules for exposure to company directors and shareholders and for attestations of employees.

On this basis, a number of retail Forex brokers have decided to opt for extra licenses in different jurisdictions, including Britain and Australia and retain their CIF license, whilst others chose to drop the CIF status altogether and get regulated in a different EU country. An example for the latter approach has been recently demonstrated by Liquid Markets, now regulated by the Financial Conduct Authority in the UK.

The number of warnings issued by CySec also rose this year. Since the start of the year the count of warnings against investment companies by CySEC has reached 15, while in the same period last year their number was only 4. At the same time, the Cypriot watchdog seems to be more focused on cautioning potential investors about the activities of binary options brokers than about those of Forex brokers.

In the face of numerous sanctions against binary options firms in Cyprus, however, these brokers continue to show appetite for CIF licenses. A plethora of binary options brands including 24xp, Dragon Options, Interactive Options, Novox Capital, KB Option, obtained regulatory permissions to operate in Cyprus in 2014.

Whilst the number of FX brokers willing to register with CySEC is falling, there are other business sectors that obviously grow more interested in receiving such licenses: payment processors, insurance and pension firms, wealth managers, providers of consultancy services to financial firms, as well as technology providers for online trading. This trend will certainly make the Cypriot investment sector more dynamic but perhaps will add to the challenges for CySEC.

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