Why CySEC is right to ban bonuses and stop pressure selling

LeapRate broke the story of CySEC’s plan to ban bonus schemes provided as enticements to retail traders more than a week ago. When CySEC formally announced their plans yesterday, which also covers leverage limits and withdrawal procedures, initial industry reaction was swift. Although different constituencies had different opinions, one thing was clear – this is going to reshape the FX sector in Cyprus, and beyond.

Over the next few days we will bring our readers the different viewpoints of industry experts on the CySEC bonus ban. Today’s guest post is courtesy of Bart Burggraaf, Managing Partner at MediaGroup Worldwide.

Would you like to have your say on the issue? Do you have an idea for a guest post on a different topic? Want your article to be viewed by the hundreds of thousands of viewers who regularly visit LeapRate and receive our daily email newsletter?  Let us know at guestposts@leaprate.com.

Bart Burggraaf, MediaGroup
Bart Burggraaf, MediaGroup

So you are a small broker and want to grow quickly. What’s a firm to do? You hire a call centre, offer amazing bonuses and try to do everything you can to increase your earnings. You get everyone in the company on KPI based compensation, because more revenue is good for everyone, and things are ticking along just nicely.

Then CySEC comes along and messes it all up.

See, I understand why brokers might go this route and I understand why they might be upset about the recent rules from CySEC. Not being able to outsource your call centre to a cheap locale, reward aggressive sales people or offer bonuses is going to hurt a bit. But think a bit more long term and you can see the bigger picture.

Especially for smaller brokers there is or will be an arms race in bonuses. Not being able to afford that, these brokers make the rules governing bonuses ever more stringent. No bonuses means you have to give less profit away and have to deal with less irate customers. It’s good for everyone and will force brokers to be more careful and targeted about their marketing spend. For call centers and sales compensation which should no longer be based solely on trading volume or registrations, brokers can start to reward sales people on customer satisfaction. More satisfied customers means higher lifetime values which means higher long term profits. The same goes for leverage, yes you will earn more on a client that uses a lot of leverage, but go beyond the short term and you can see that less leverage means less accounts blowing up, which again means higher lifetime value in the long term.

Again, there will be pain in the short term, especially for Binary Brokers which are a story unto themselves, but for regular FX focused brokers the move towards higher quality clients, less bonuses and new traders, less aggressive sales and thus complaints is a good one. If not for shady brokers themselves, at least for the industry and the traders.

And that is the bigger picture.

So now brokers will need a rethink of their strategies. They will actually need a brand, satisfied customers and a great product to differentiate themselves. They can’t get by with cheap affiliate leads that will only work out with the ‘business model’ of being what comes down to a scam. Of course there will still be shady participants going after unknowing new traders, and I’m sure CySEC will continue to try to regulate the pain away. I can’t see any downside to this particular move from CySEC, and I think they are right to take the course they did. Over time, with the current practices, the value of CySEC regulation would have gone further and further down and hopefully these moves save the perceived value of such a license. Because if you think CySEC is bad, try and work with any of the other European regulators. Count your blessings.

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  • Just how bad are the ‘other EU regulators?’ I thought Swiss regulators are pretty robust. FCA is famous, but I do understand they don’t do too many on-site checks and they can be paid off [settle] if you do something naughty. Danish regulator didn’t lift a finger to help Saxo bank clients when they re-quoted their client base that traded any CHF pair post SNB.

    Anyway, i agree that the rules of initially limiting leverage (but not hard capping) at 1:50, banning bonuses, enforcing 1 day withdraw processing times, discourage front-running, etc. A real brokerage shouldn’t have a problem implementing these things….as they are running a proper hybrid or a-book anyway. The bucket shops are the ones that will suffer….

    Surprised they have not banned binary option brokers….or will the new regulations effectively eliminate binary options anyway.


Why CySEC is right to ban bonuses and stop pressure selling


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