Bonuses will only be allowed if funds are free to withdraw whenever the client wishes
This could totally change the retail forex industry, and the way client acquisition and retention is done.
It’s been only a day since CySEC outlined its priorities for 2014 and today we have the first steps taken in the direction of more stringent controls over CIF licensed companies. A statement by the Commission’s Chairwoman Demetra Kalougerou has been released to the press this morning detailing four points that clarify the regulator’s position on Cyprus regulated forex and binary options brokers issuing deposit bonuses to their clients.
The first point of the document outlines that bonuses (or grant trading benefits) are given to clients by companies only in certain conditions. Since in most cases these are tied to the customer depositing a certain amount of money with the CIF regulated broker, CySEC permits these transactions only when the client is able to withdraw any amount of his/her funds at any time he/she desires to do so.
According to the statement this has not always been true – most of the time the client has to generate a certain amount of trading activity before he/she can have access to his/her funds. The latter is especially true for binary options brokerages.
The second point brought up is that such restrictions on withdrawals violates the Investment Services and Regulated Markets Law. In addition making clients conduct trading activity to reach a certain amount of volume to be granted the possibility to withdraw funds is not accepted by CySEC as fair and good practice towards forex and binary options brokers’ clients.
The third section of the document cites that according to sections 18 (2) (j) and 36 (1) CIF regulated entities that hold clients’ funds must safeguard their rights and act honestly fairly and professionally when providing investment services to their clients.
Rounding up the document CySEC Chairwoman Demetra Kalougerou mentions legal cases in which monetary benefits can be disbursed to clients. When advertised, such bonus schemes have to mention the full details surrounding the conditions under which funds are credited. The client is entitled to a detailed description of how the bonus scheme works and has to be able to separate his own deposited money from those credited from a bonus.
Clients have to be able to monitor their compliance with the bonus scheme without affecting their capital adequacy.
We would like to emphasize that this is not a new regulation, and the Commission is simply taking the opportunity to clarify its stance on the matter as the regulatory framework that is already in place. We would read is as a warning sign for companies who are conducting the abovementioned deposit bonus practices until now.
For the full text of the statement visit CySEC’s website.
For more on the global Forex industry see the LeapRate-Dow Jones Forex Industry Report.