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#1 13-07-2020 20:31:16

johnedward
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From: Paris - France
Registered: 21-12-2009
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A new trend: why are brokers going back to the CySEC?

A new trend: why are brokers going back to the CySEC?


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Cyprus is a hub for forex brokers. However, over the past few years, the country has lost some of its major brokerage firms. But lately, are we witnessing a return to the CySEC (Cypriot Commission for Stock Exchange Operations) jurisdiction?

In recent weeks, a few brokers have requested licenses from CySEC. This raised the following question: is this part of a larger trend of brokers seeking a license from CySEC?

ESMA drove brokers out of Europe

2 years ago, Europe's forex sector - and the UK's - underwent a major upheaval, with the implementation of leverage restrictions, which led brokers and clients abroad.

In the summer of 2018, the ESMA (European Financial Markets Authority) implemented its temporary product intervention measures. It thus introduced restrictions on forex trading leverage, as well as that of other traded assets.

Binary options have been banned, marketing practices have been restricted and other conditions have been put in place. These measures, which have since been made permanent to some extent across the EU, have resulted in traders and brokers migrating out of Europe in search of more favourable trading conditions. So why do brokers favour Cyprus?

Is Brexit driving this new trend?

With Brexit, many brokers are trying to obtain licenses both in the United Kingdom (FCA), and in EU countries, under the ESMA, to ensure that their activities are not disrupted after leaving the UK.

Pepperstone, an Australian trading firm, has announced that it is in the process of obtaining a license as part of its Brexit plan. Currently, the broker is regulated by the FCA and the group currently offers its services in Europe via this license which, thanks to the transition period from Brexit, is still applicable in Europe.

GAIN Capital, also revealed that it is seeking a CySEC license as part of its EU expansion plan, as well as the ongoing Brexit planning. The company is also already regulated by the FCA.

If Brexit is undoubtedly part of this trend, this is by no means the main reason for the growing interest in CySEC licenses. In fact, the increase in the number of brokers trying to obtain EU licenses has been a trend in recent years, although it is "more of a regular trickle than a sudden rush". This is also due to limitations imposed by other regulations.
Why CySEC?

As to why Cyprus is the chosen destination, there are several reasons for this. Cyprus has a relatively cheap and well-trained worker base, as currency trading is a major industry there, it is much easier and cheaper to set up and staff an office there than in the UK or Australia.

Some brokerage firms can provide support for after-hours clients in Asia, as it is easier for an Aussie broker to have staff in Cyprus than to have the local team work at night in Australia.

Lifestyle could also play a role. Some forex business owners move to Cyprus for good weather and a laid-back lifestyle which can be the perfect antidote for stressful jobs.

The typical scenario today for a medium-sized broker is a branch regulated by the EU or the United Kingdom, an offshore regulated branch (Vanuatu or the Seychelles), and a self-regulated branch (Saint Vincent and the Grenadines - until regulations are introduced, or the Marshall Islands). Banks and payment service providers are generally based in Singapore, Germany or the UK.

Customers return to primary jurisdictions

The trend will return in primary jurisdictions simply because the infrastructure is there and traders will realise that this is where their money is safe.

With the Brexit deadline fast approaching, and Australia's ASIC preparing to set up its own set of trading intervention measures, it will be interesting to see which other players will head towards Cyprus, and how the growing popularity of this jurisdiction will change the landscape there.

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