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CySEC clarifies the limits imposed on bonuses
Article by financemagnates:
Cyprus financial regulator CySEC has issued an information circular, providing what it calls “additional guidance” to CIF licensed brokers on the types of bonus incentives which are no longer permissible to be offered to retail clients.
In its original announcement on November 30 regarding new rules governing the offer of bonuses and trading leverage (which was exclusively revealed by LeapRate the prior week), CySEC was fairly general in its treatment of bonus payments. At the time, CySEC did not state whether all types of bonus and trading incentives were to be banned, just offering that regulated brokers…
However in its current circular (see full text below), CySEC was indeed much more specific in listing the specific types of bonuses no longer allowed. And, it was a fairly exhaustive list, covering (virtually) all the incentive schemes brokers have tried to get retail clients to deposit and trade.
Among the specific techniques now clearly banned by CySEC include trading competitions, special interest rates for clients who trade a specific volume, volume bonuses, referral “bring-a-friend” payments based on the referred client trading a certain volume, and of course straight-up deposit bonuses.
In a somewhat sarcastic tone, CySEC suggested in its circular that any brokers looking to reward its clients should just offer them lower spreads.
Non-exhaustive list of examples of bonuses offered
1. Welcome / Deposit Bonus / Re-deposit bonus – An amount of money or a percentage on the initial or/and additional deposit of the client, which cannot be withdrawn until a target volume has been reached. It can also be connected to a specific period of time. Grant of additional margin based on the initial deposit of the client (‘cushion’/’margin support’).
2. Volume Bonus – An amount of money based on the trades the client executes, which cannot be withdrawn until a target volume has been reached.
3. Refer a friend – An amount of money or percentage of the referred “friend’s” initial deposit, which cannot be withdrawn until a target volume has been reached.
4. Verification / Webinars – An amount of money that is granted when the client verifies his personal information (e.g. telephone number, documents etc) or/and when the client attends a relevant educational webinar offered by the Company.
5. Gifts / Gadgets – A gift (e.g. mobile phone, iPad etc) that is granted to the client based on his deposits in a period of time.
6. Tournaments / Competitions – Trading contests in which the first client to reach a specific target volume or the client with the highest profit and/or volume in a period of time, wins a gift or an amount of money.
7. Trial / Protected / Risk-free Accounts – A number of trades or/and trades within a period of time that are riskfree or/and have a restricted risk, by returning to the client the full or a part of the money lost. This amount cannot be withdrawn until a target volume has been reached.
8. Cash Rebates – An amount of money which is returned to the client based on the trading volume the client reached within a period of time.
9. Interest Rate – Grant of an interest rate on the net deposited amount, available to active clients (e.g. at least one trade in the last three months). The interest is granted on an annual basis and is withdrawable without any conditions.
10. Similar bonuses schemes as the above.
As we can see, a number of bonuses that are not directly tied to trading are still considered to be soliciting. CySEC is not taking any chances here and pretty much every trick in the book has been included in the circular. Welcome and deposit bonuses are joined by trading volumes based bonuses, referrals, verification/webinar promotions, gifts and gadgets, tournaments, trials, risk-free accounts, cash rebates and bonus interest rates.
A number of Cypriot brokers have been relying on all of the bonuses that are listed above in order to attract clients. The move is encouraging, however the key to the success of CySEC’s operation would be the appropriate enforcement actions.
As mentioned earlier, companies that wish to provide their clients with additional incentives are advised by the regulator to offer lower spreads. Contingent on enforcement, the competition resulting from such a move could clean up the Cypriot industry. Many brokers that up to now have been relying on misleading advertisements could be forced to dramatically restructure their businesses.