CySEC issues new directive on conflicts of interest caused by payment policies

Article by Leaprat

Cyprus financial regulator CySEC has issued a directive regarding remuneration policies and practices at CIF licensed companies, which include the many regulated retail forex and binary options brokers on the island.

While not directing an outright ban on such practices, CySEC stated that certain types of remuneration seem to create a conflict of interest with clients, and as such are not in line with the conduct of CySEC’s stated business rules. These include:

Remunerations as a percentage of the total volume of transactions, or the value of transactions, or the value of clients’ deposits.
Remuneration based on retention of clients e.g. based on a predefined percentage of cancellation of withdrawal requests that an employee manages to achieve.
Remunerations based on the number of potential clients who have actually become clients.
Remunerations as a percentage of the net revenue accruing to the CIF in respect to clients’ transactions (closed P&L of clients).
Fixed remunerations based on the number of new clients attracted.

CySEC stated that all CIFs are now requested to review their remuneration policies and practices and ensure that they comply with all the above mentioned rules. CIFs are required to take immediate corrective actions where necessary. And, all CIFs must submit to CySEC a confirmation by all board members as to their compliance with the rules of remuneration as laid out by CySEC.

All confirmations regarding remuneration policies must be made to CySEC by September 16, 2016.

The full text of the CySEC circular on remuneration follows, and can be found here.