The Cyprus Securities and Exchange Comission otherwise known as CySEC, has made a significant u-turn on rules regarding the solicitation of individuals in third countries. In late July 2013, the regulator released a circular calling for Cyproit Investment Firms to immediately cease soliciting business from outside the European Union. The original circular was released after CySEC received complaints that a number of regulated firms were soliciting business in jurisdictions where there was already an established regulator.
The initial move by CySEC was met with a degree of hostility and the Association of Cyprus International Investment Firms lobbied strongly against the ruling. The new circular released on the 23rd of August stated that MiFID did not regulate the provision of Investment Services in third party states and that the issue was left up to the discretion of each member state.
Cypriot Investment firms do not get off the hook completely with the new circular only giving firms time and operating space to bring themselves in line with the new regulatory mandate. According to the new circular, CySEC will allow for CIF’s (Cyprus Investment Firms) to provide certain investment services in third countries provided that firms can verify that the provision of said investment services are permitted within the third countries legislative framework. If firms are able to verify that they are acting lawfully within the territories of a third country CySEC will then grant the firm permission to offer Investment services to residents of the said third country.
It appears that firms will be required to demonstrate that they are entitled to offer their services to residents of every third party country they currently operate in. This process could take a while with many CySEC regulated brokerages having a diverse client base, therefore giving firm’s time and operating space is only fair. If firms breach the terms of this circular and continue to provide investment services in third countries without permission they may face action from CySEC itself.
Whether this ruling weakens Cyprus’s position as a prime location for Forex brokers remains to be seen, though it appears that brokerages may come away largely unscathed. The full ruling (English Translation) from CySEC can be read here.