Anyone who has become familiar with the over the counter Contract for Difference market in Europe will have noticed that a large percentage of the companies offering CFD’s are regulated by CySec. For those who don’t know CySec stands for Cyprus Securities and Exchange Commission. CySec was established in 2003 and is responsible for supervising and regulating investment services in in the jurisdiction of Cyprus.
Cyprus is a small island country located in the Mediterranean Sea, just east of Greece. Cyprus has been a full member of the European Union since 2004. Being a full member of the European Union means that Cyprus is obligated to comply with European MiFID directives. While this constrains firms operating in Cyprus binding them to comply with the dictates of the European Union it also allows firms regulated by CySec to operate and accept clients from all 27 European Union member states.
CySec’s key responsibilities include supervising the operation of the Cypriot stock exchange, granting operational licences to various investment firms, to impose sanctions and penalties to companies which fall under CySec’s mandate while also regulating all Foreign exchange transactions undertaken in Cyprus. A list of the investment firms that are regulated by CySec can be found on their website.
The reason why many Forex brokerages choose to operate and be regulated by CySec is due to the fact that Cyprus is seen as a favorable jurisdiction for such regulation. In simple terms its easier and more profitable to run a brokerage from Cyprus than it is from other European jurisdictions such as the United Kingdom or France. There are number of reasons for this:
- While the minimum capital requirements exceed the minimums set out by MiFID directives it is still lower than many other jurisdictions within the European Union. Making it considerably easier to open such a brokerage in Cyprus than elsewhere.
- Cyprus is known for its favorable tax laws in particular its corporate tax rate is among the lowest within Europe and the lowest within the European Union (an honor shared with Bulgaria). This has made Cyprus a very popular offshore center.
- Being based and regulated in Cyprus allows for brokerages be regulated under European Law giving the said brokerages a significant amount of legitimacy in the eyes of many. It is certainly more desirable than being based and regulated in a jurisdiction such as Mauritius.
- Throughout the 90’s and early 2000’s Cyprus built up a solid reputation as an offshore center and tax haven. This attracted a lot of talent to the island, meaning that the Island has a populace which is particularly well versed in finance and financial markets. This coupled by the fact that 76% of Cypriots can speak English, 12% French and 5% German, giving brokerages based in Cyprus an excellent talent pool to recruit from.
- Costs of acquiring a licence and setting up an investment firm in Cyprus is also very low with a CySec licence costing only 2,000 Euros plus some additional stamp duty. There is also the option of hiring a company to undertake all the work required to obtain such a licence, is costs around 25,000 Euros.