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Over the past couple of days CySEC has come out with a number of announcements regarding fines charged to a number of CySEC regulated brokerages, with the most notable being the 50,000 Euro fine given to eToro and the 100,000 Euro fine given to the operators of UFX Markets. But today CySEC has made a public statement in which it defends the actions of the past couple of days:
‘CySEC wishes to stress that a settlement agreement DOES NOT in any way give a safe harbor to anyone from his obligations to comply with the relevant legislation. Following a settlement agreement, CySEC carries out new inspections to make sure that compliance has been achieved.
It is noted that the amounts due from settlement agreements are calculated as revenue (income) to the Treasury of the Republic and are not calculated as an income for CySEC.’
This statement seems to be hitting out against people who have made two of the following criticisms of CySEC recent behavior:
- That CySEC has been imposing such fines in a way to make up for a loss of governmental revenue to the body, something which LeapRate appeared to accuse CySEC of.
- That CySEC is offering safe harbor to brokerages which are breaching regulation in return for cash in the form of fines. Meaning that questionable brokerages are operating with their licences intact.
CySEC’s response deals with these criticisms in two ways, firstly regarding the issuing of fines they state that fines issued by CySEC are not calculated as revenue for the organisation and are instead counted as revenues for the government. While Cyprus may be in dire straights I doubt the government has put any pressure on CySEC to clamp down on brokerages for financial reasons.
The letter also responds to accusations that Cyprus is acting as a safe haven for brokerages and thus allowing them to flout MiFID regulations. Again Cyprus denies these accusations stating that the recent organisations which have been fined, will have new inspections undertaken to ensure that they comply fully with the regulations in the relevant respects.
One possibility for the actions undertaken by Cysec in the past couple of days may be governmental pressure. The government of Cyprus is in need of a bailout of around 17 billion Euros, with Germany stating that they want to see some change with how Cyprus is regulated in general. Whether the government is applying more pressure on regulatory bodies now the country is in Europe’s spotlight may be one possibility or it may be simply a case of CySEC toughening up its act.
On the 12th of February 2013, London Capital Group in accordance with London Stock Exchange takeover codes has announced that it is a takeover target for three firms; Cantor Fitzgerald Europe, GAIN Capital (better known as Forex.com UK), CityIndex Ltd. (who operate CityIndex and FinSpreads). The three firms in question have approached the London Capital Group regarding a possible takeover. The announcement has spurred on a flurry of trading in shares of London Capital Group and has seen Slater Investments Ltd. and Legal & General both take on stakes in excess of 1% since the news has been released.
A possible takeover by any of the three entities mentioned could lead to all of the companies gaining a much bigger market presence in the over-the-counter derivative marketplace. London Capital Group already represents one of the bigger CFD & Spread betting providers in the UK providing White Labels for a number of different companies including tradefair as well as running both Capital Spreads and ProSpreads.
Previous to this announcement London Capital Group had a poor 2012 and post a small loss of £200,000. As well as posting poor share performance however since the announcement of a possible takeover the share performance has rallied somewhat. For developments regarding the takeover keep an eye on the regulatory news posted by London Capital Group.
Last month we announced that Banc De Binary had entered into talks with the US regulators regarding the regulation of Binary Options in America. Back then we expressed doubts over whether Banc De Binary could become regulated by the CTFC offering Binary Options in the format they currently offer on their platform and it appears that CTFC replied the same kind of answer that we expected them to give. Back then they announced they wouldn’t be accepting anymore US Clients but in this latest statement their position seems to have taken another change:
“BDB’s representatives issued a press release on January 25, 2013 regarding its operations in the United States. BDB retracts the press release. The release was inaccurate in several respects. BDB has been advised by the CFTC that it is not permitted to market binary options to United States persons. Thus, BDB will not take orders from United States persons. BDB intends to abide by all laws regulations and hopes to obtain permission to do business in the United States. Until then, BDB will not be permitted to offer its products to United States customers. Please check back on our website periodically for updates. Thank you for your patience.”
It appears that Banc De Binary will no longer accept any more orders from customers in the United States, I presume this means that US Clients will only be able to withdraw money from their accounts and will be prevented from placing anymore trades. It appears that the CTFC were pretty resounding with their rejection of Banc De Binary’s inquiry regarding regulation and they have therefore decided to completely exit the US marketplace before they are possibly brought to court like other firms such Instaforex.
In exactly what way the original press statement was inaccurate isn’t really properly answered in Banc De Binary’s further statement and just makes Banc De Binary appear rather foolish. It thus appears that Nadex type offerings are going to be the only type of Binary Options offered in America for the foreseeable future.
I previously mentioned how UFX Markets the trading name of Reliantco Ltd. were fined 100,000 Euros by Cysec, but on the very same day the announcement was withdrawn. However today, the 13th of February 2013 a letter reinstating the 100,000 Euros fine has been released by Cysec, this longer announcement letter goes into greater detail regarding the fine and confirms that this fine is the same as the one issued on the 31st of January. Not details are given to why the original announcement of the fine was withdrawn with the letter stating that:
The settlement reached is the same as that announced on 31 January 2013 and arises from concerns in the application of the Law regarding among others the organisation/operation structure of the Company. The Company has assured the Commission that all steps have been taken so that full compliance of the Company with the requirements of the Law is being achieved. This should be verified by the Commission at its upcoming inspection of the Company.
Due to the nature of compromise between Reliantco Ltd. and Cysec, the company has not had to admit to any breach of regulations and it is Cysec’s official position that the company has been deemed not to have breached any regulations.
According to a representative at Reliantco Ltd. Cysec were concerned with the ‘Company’s disproportionate high growth rate compared to its increase in personnel’ and in response to such concerns Reliantco would ‘In an effort to satisfy CySEC’s requirement the Company shall continue to expand its team of global financial experts at an increasing rate specifically at its Cyprus head office’. This appears to be an omission that Reliantco Ltd. didn’t really have a sufficient presence in the jurisdiction of Cyprus. Many have previously stated the apparent strong links that UFX Markets has to Israel, so now it appears that UFX Markets may have a more permanent base in on the isle of Cyprus.
However, it is disappointing that Cysec failed to clear up what occurred regarding the first issuing of the letter and its subsequent recall. All in all, the whole debacle has undermined the value of Cysec regulation at least in my eyes.
On the 12th of February 2013, it was announced that eToro was to be fined 50,000 Euros by Cysec. However this particular fine issued by Cysec was particularly bizarre in nature, with eToro not being fined for current regulatory breaches but rather for alleged breaches of regulation all the way back in 2010. From the Cysec announcement:
The alleged weaknesses concerned the organisation/operation structure (articles 18 and 36 of the Law) of the Company in their early operation days (2010) and the Company has since then rectified the alleged weaknesses and is now in compliance with the requirements of the Law.
Such a fine appears very odd considering it has been issued in 2013, nearly three years after the wrongdoing was alleged to have taken place. This can either been seen as gross incompetence on the behalf of Cysec, in no world should it take a financial regulator three years to issue a fine for wrongdoing. Alternatively, the new Cysec policy regarding the back fining of companies for breaches of regulation can be seen as a revenue raising method as alleged in this LeapRate article which accuses Cysec of shaking down brokerages in order to be able to fund itself. Alleging that cuts by central government have led to a decrease in funding for the organization. One certainly hopes that this is not the case and Cysec are just taking a tougher attitude towards the derivative providers operating from the island, however this doesn’t appear to be the case.
eToro have made no public remark regarding the fine and I doubt they will make public comment regarding such a back dated fine, especially considering the announcement from Cysec states that eToro are now in full compliance with the requirements of the Law. This fine seems to be the continuation of a bizarre period of actions from Cysec the regulatory authority of Cyprus.
Trading in South Africa is largely dominated by Single-stock futures with the majority of trading activity on the JSE (Johannesburg Stock Exchange) being the trading of these future contracts. In 2007, Single-Stock futures accounted for 80% of all contracts traded on the exchange making South Africa one of the worlds biggest Single-Stock futures market places. However the dominance of Single-Stock futures is increasingly being brought into question with increased demand from consumers for Contracts for Difference.
However there is a caveat currently over the counter instruments such as Contracts for Difference aren’t available over an exchange as in Australia nor are they regulated by South Africa’s financial regulators the Financial Services Board. This introduces the problem of counter party risk in a serious way. This has led many South African traders to be very cautious about which CFD brokerage they trade with and in what size they trade. However there has only been one example where the company defaulted on its obligations though it was a pretty big default to the tune of 167 Million Rand. Which for many makes trading CFD’s a much more risky business than trading the already regulated Single-stock futures market.
The news isn’t all bad for South Africans wishing to trade Contracts for Difference, as number of regulated European brokerages have made the foray into the South African marketplace. Not so long ago well known industry player IG Markets completed their acquisition of South African Contract for difference brokerage Ideal Markets. Ideal Markets now trade IG Markets South Africa with the company operating an office in South Africa. A number of other European regulated brokerages also accept clients from South Africa meaning that traders are able to trade Contracts for difference through a regulated brokerage.
However steps are being made to regulate the South African derivative markets and the proposed Financial Bill of 2011 would take the first steps toward regulating the over-the-counter derivatives market. Though at the time of writing their has been no change regarding the regulation of Contracts for difference which are still an unregulated financial instrument.
UFX Markets has received a lot of bad press at a number of different websites over the past months with a huge number of complaints flooding into various Forex websites in regards to the going on’s at UFX Markets the trading name of Reliantco Investments Limited. This has led many to suspect that a fine may be likely, if you take the reports of these websites seriously. Then on the 31st of January 2013 Cysec finally handed out a 100,000 Euro fine for possible wrong doing at the company.
It is important to stress that UFX Markets wasn’t found guilty of any wrongdoing rather they reached a compromise with Cysec to pay a 100,000 in light of the possible violations. It is important to note that in accordance with Cypriot financial regulation a company which agrees to such a compromise fine isn’t considered to have done any wrong doing. To read the original letter you should visit here.
However there was an interesting twist, on the same day Cysec released a second letter stating that the first letter regarding UFXMarkets was recalled with no explanation, the second befuddling letter can be found here.
The situation is very confusing, it has been speculated that the original letter was an administrative mistake and shouldn’t have been distributed on the Cysec website. The other thing that has been speculated that there was something going on behind the scene’s at Cysec.
Whatever happened it seems to be a very interesting but confusing case. I will of course report on any further developments.
Banc De Binary who recently became the second Cysec regulated Binary Options provider (if you exclude platform provider SpotOption Ltd.) have recently announced that they have entered into talks with the CTFC (Commodities Trading Futures Commission) regarding the regulation of Binary Options in America. They released an official statement which can be found at Forex Magnates.
In the statement they talked about being the first Cysec regulated Binary Options provider (strictly not true TopOption run by Safecap Investments pipped them to that). This Cysec regulation they claim gives an air of legitimacy to the claim that non-exchange traded Binary Options are a legitimate financial instrument. However, it should be noted that Cysec are still currently the only MiFID regulator who recognizes Binary Options as a financial instrument. So it has hardly achieved great acceptance among Europe’s regulatory regime’s.
They also announced that in line with CTFC regulations they would not be accepting anymore American clients, which seems to suggest they currently do have US Customers. Something I can’t see going down well with the CTFC especially since Banc De Binary is currently on the SEC’s PAUSE list. They go onto to state that since their inception in 2009 they operated in full accordance with all federal and state laws regarding banking and compliance. There has simply been no regulation regarding Binary Options.
In fact there has been regulation in place for Binary Options but only exchange traded Binary Options as available on the CBOE and AMEX since 2008. There is no provision for Binary Options as offered currently on Banc De Binary and on the majority of Binary Options platforms.
So what are the chances of Banc De Binary achieving US regulation? I would say that is extremely unlikely if there US platform continues to offer Binary Options as currently offered. Having previously accepted US clients won’t go down to well with the CTFC, so that seems to be something else that will go against them.
It is more likely that Banc De Binary could achieve CTFC regulation if they offered a real exchange Binary Options business like the one currently offered by CTFC regulated Nadex who are ultimately operated by IG Group. If they did start up such an offering and transferred existing US customers to this kind of platform. It shall be interesting to see what happens.
Update 13th Feb 2013: Banc De Binary Retract Original Press Statement, Full Story Can Be Found Here.
Early this week it was announced that Banc De Binary gained Cysec regulation, having launched a new headquarters in Limassol, Cyprus. This Cypriot office will serve as Banc De Binary’s European and Middle Eastern headquarters and according to the company represents a multi-million pound investment in the country.
Banc De Binary was established in 2009 and was one of the first providers to adopt the SpotOption platform for the provision of Binary Options to it’s clients. It’s listed headquarters are New York but this new office and regulation in Cyprus allows Banc De Binary to operate throughout the European union on the basis of MiFID’s outward service directive. Banc De Binary follows in the footsteps of their platform provider SpotOption who became the first Binary Options provider to become regulated by Cysec. This was all after Cysec changed its opinion on Binary Options concluding that they were in fact a type of financial instrument and therefore covered under MiFID.
This decision made Cysec the first MiFID member to treat Binary options as a financial instrument and has garnered a degree of criticism among those who feel that Binary Options are closer to a form of gaming than they are to a type of Over-the-counter financial instrument. In fact a number of Binary Options websites most notably OneTwoTrade have sought gambling regulation instead of financial regulation.
The licence offers an additional layer of transparency, accountability and security to individuals who are clients of Banc De Binary, whose accounts will now be backed by the Investor Compensation fund in full accordance with MiFID regulation. If the company was to collapse etc. amounts up to 20,000 Euros would be refunded to clients.
Obviously those at Banc De Binary are very excited about these events and this is reflected in Banc De Binary’s CEO Oren Laurent’s positive attitude about the prospect of financial regulation. (see 3-5:00 in following video).
It is estimated that the regulation of Binary Options will bring an extra 1,200 jobs to Cyprus over the coming year, as well as contributing much needed tax revenue to the country during a tough economic period for the small Island country.