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During the past year, CySec hasn’t been shy about becoming a stricter regulator and changing its image of a once-lax regulatory body for one of a reputable, don’t-mess-with-us regulator. We have seen a tough tightening of the screws directly targeted at binary options brokers and call centers, which has pushed more than one player out of the market and has caused others to consolidate in order to keep afloat.
The latest Circular issued by the Cyprus Securities and Exchange Commission addresses both a ban on bonuses and mandates the limit of leverage offered to retail traders to up to 1:50, steps that make even the FCA seem lamb-like.
Is the regulator making the right call by yet again putting pressure on regulated financial trading brokerages?
While it is true that these changes will ultimately have a positive impact on the industry in the long term, making it cleaner for both brokers and traders, the immediate result is a spike in the establishment of non-regulated brokerages. The problem with these changes is not their intention, but the fact that they go after regulated brokers who at the very least have the good faith of being regulated, instead of pursuing unregulated brokers who are most certainly the ones causing the most damage.
We’ve seen this in the gaming industry already, where the regulator kept pursuing regulated companies for their misdemeanours, rather than going after non-regulated firms. It wasn’t until the gaming regulators began prosecuting non-regulated companies that the gaming industry became what it is today,
says Nicc Lewis, CMO at Leverate, who has a strong background in the gaming industry.
For now, and since the release of the Circular, brokerages in both the binary and forex sectors, are once again finding themselves re-evaluating their marketing strategies. These changes directly affect the conversion process, making it a lot more difficult, as it is bonuses what attract traders and why traders take their business from one brokerage to another.
Bonuses have always been a fundamental business component for almost all brokers, making the market more competitive on getting clients with attractive bonuses schemes, even sometimes amounting to their total deposits,
shared Constantina Economidou, Head of Compliance at LFS.
The Cypriot regulator, explicitly stated that “it is unlikely that a firm offering such bonuses could demonstrate that it is acting honestly, fairly and professionally and in the best interests of its retail clients”, however, beyond the obvious efforts behind these changes for making the market more transparent and fair for investors, this will drastically affect brokers’ lifetime standards.
We expect these changes to initially cause some small brokerages to break apart if their model so far was mostly based on granting big bonuses for attracting more short-term investors; medium to large brokers to adjust their marketing strategies; and ultimately, end up with a more fair market, with higher standards of customer service, which will be the discerning factor between brokerages, as opposed to the red ocean based on price, bonuses and spreads that we have seen up until now.