How Does the CySEC Regulation Work & Protect Traders?
With the rise of financial brokers, you are probably overwhelmed with many Forex brokerage companies that are offering you their services. This can make beginners confused since they don’t know what and how to choose.
There are some qualities you need to look for when you are choosing your trading broker. This includes their license and where they carry out their business. Among many regulatory authorities, the Cyprus securities and exchange commission (CySEC) is definitely one of the licenses you shall be looking for.
In this review, we will dive deeper into what the CySEC license is, why it is important, and what it means when a broker has a CySEC license.
What Is The CySEC License?
CySEC, or The Cyprus Securities and Exchange Commission, is the regulatory body for the financial industry in Cyprus. Over the years, it has become a major financial regulator since Cyprus joined the EU.
Upon its accession to the EU, Cyprus financial institutions have adopted European standards and regulations. They quickly became the facilitator for all financial brokerage companies to operate in Europe.
The CySEC license is one of the most important proofs that a broker is legit and is not doing any money laundering or other illicit activities. This is possible because CySEC closely monitors the activities and the reports of the financial institutions registered and makes sure that all the EU standards are followed.
It is a considerable asset that can empower the broker’s position in the market, and brokers seek to get this license in order to attract as many traders as possible.
How CySEC Regulation Protects Its Traders
CySEC regulations are not implemented with the aim to hinder any financial services. On the contrary, it is found to set clear expectations between the broker and the traders and to protect the traders’ money from any fraudulent activities.
Negative balance protection
Zero balance protection is an important mechanism that ensures the traders do not lose more money than what they invested if the trade goes in an unfavorable way.
CySEC regulated brokers are obliged to incorporate a negative balance protection mechanism. So, if a trader holds a losing position in the market, it will protect the trader from running into the negative, and will automatically close the position once it reaches zero.
Leverage can be a great help for Forex traders when it comes to increasing their profits. However, it can also be quite dangerous for Forex traders as it increases the risks of trading.
Due to the local regulations, CySEC Forex brokers may offer 1:30 leverage. Since there are many brokers that operate with a CySEC license, it shall not be a surprise when a broker offers maximum leverage of 1:30.
There are some instances when brokers are able to offer traders higher leverage. For example, for professional trading accounts, the leverage can be higher.
The EU regulations adopted by the Cyprus regulatory authority dictate that brokers shall provide reports regarding their activities, which promotes transparency in the Forex trading market.
EU authorities also control the way registered companies acquire and process information, and if they suspect any abnormal activities, they can penalize any registered company to make sure everyone is equally following the regulations.
CySEC brokers are required to verify the identity of all of their traders, that is why you might be asked to submit an ID proof document and a utility bill once you register in a CySEC regulated broker. This is dictated by the KYC policy.
This makes the CySEC safe since the verification rules out the possibility of fake identities or having multiple accounts for one entity. This is used to promote equal trading conditions for every trader.
How Safe Is A CySEC Licensed Broker?
It is safe to deal with a broker that is regulated by the Cyprus financial regulator because the Cyprus financial regulator takes serious steps before allowing any financial institution to operate under its license.
- A thorough examination of the application submitted by a new broker, before granting the business conduction license
- Monitor and observe all the activities of companies registered under the license
- Inspect reports of all brokerage companies, investment firms, and all the entities enlisted under the Cyprus security and exchange commission
- Penalize any business that violates the framework of conduct provided by the CySEC and EU regulations
- The careful introduction of new financial and trading tools and assets, such as the cryptocurrencies
CySEC As A Prominent License
Cyprus CySEC is fairly considered one of the top licenses a broker can get in order to carry out investing and brokerage activities.
CySEC has gained popularity in Europe following Brexit. As the UK left the EU, local brokers in the country had to get licenses from European regulators in order to stay in the EU market. Because of the favorable conditions of business doing in Cyprus, it has become one of the top destinations for brokerages from the UK.
The recent enhancements on the Cyprus securities & exchange commission license have limited the offering of bonuses and cash rewards that are not tied to any trading activity, due to the false advertisements accompanied by these campaigns.
CySEC regulation, however, suggests that brokers can offer smaller spread margins instead of offering a lot of bonuses and promotions, which seems more in the benefit for the traders.
The Criticism Around CySEC
Since it was founded in 2001, CySEC has been criticized frequently which made the regulators frequently change their policies to protect the investors and to promote more transparent business conduction.
Also, the CySEC has been criticized for the slow response to any misbehavior. Many have claimed that the CySEC regulators should be stricter when it comes to regulating local FX brokerages to make sure that the highest safety standards are met.
In addition, the low fees of registration have raised the question of how serious is the regulatory body, since this has resulted in weak penalties if any company breaches the framework.
It seemed like the CySEC security favored the brokers more than the investors since most of the control mechanisms were facilitating the work of the brokers, without real effective measurements that guarantee the investors from losing their money if a broker goes bankrupt.
However, things have changed over the past few years, making CySEC a lot more trustworthy brokerage.
Staying Safe Against Broker Scams
Being regulated by CySEC means having sufficient proof that a broker is legally conducting its business under the light of a specific framework, and is probably the first thing a trader is looking for prior to registering with any broker.
When registering with any CySEC Forex broker, a trader can check the broker’s license number and the tracking number provided by the Cyprus Securities and exchange commission register, which helps the trader identify the legality of that broker.
Being regulated by the CySEC can be perceived as a guarantee that the trader is dealing with a legal broker, and that the broker’s conduct and activities are being supervised by the CySEC regulations under the framework of the EU.
FAQs About The CySEC License
What is a CySEC regulated broker?
It means that the broker is being observed and monitored by the regulators of the financial institutions in Cyprus, which are – as an EU state – governed by the EU regulation.
This means that any suspect of misconduct by the broker will result in penalties and disciplinary procedures to guarantee the money of the traders.
How legit is CySEC?
As part of the European Union, CySEC is regulated under the EU framework, which promotes transparent and legal conduction of business among all the European states, making it a very legitimate license to conduct any financial service in Europe.
How much does a CySEC license cost?
There are CySEC fees that are paid as governmental application fees of 4,000 Euro + 19% Vat, in addition to the minimum capital of (125,000 Euro – 730,000 Euro), depending on the type of account the broker is going to establish.
The minimum capital required is 125,000 Euro if the broker is planning to hold the clients’ funds, but not trade on its own.
While the minimum capital is 730,000 Euro if the broker wants to deal by itself, or what is called “Market Maker”
When are the limitations for CySEC brokers?
CySEC regulated binary options brokers from giving a lot of bonuses and promotions that are not associated with any trading activities, in order to fight the misleading advertising campaigns that used to be abused by some brokers.
CySEC also limits the leverage ratio to 1:50 on the Forex market, and 1:2 for trading on cryptocurrency, the limitation is an attempt to minimize the risks associated with being exposed to high-value trade positions.
Do CySEC brokers offer bonuses?
Despite the Cyprus securities and exchange banning many bonuses, there are some bonuses that can still be offered, such as (Welcome bonus – deposit bonus – Volume bonus – Referral bonus – Verification bonus – Webinars bonus – Gifts – Tournaments – Cash rebates – interest rates)
However, Cyprus sec suggests the broker offer a smaller spread range to compensate for the lack of bonuses due to the extended ban.
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