Unregulated Forex Becomes Criminal Offence

Discussion in 'Forex Brokers' started by cysecgov, Dec 6, 2009.

  1. cysecgov


    The explosion of the Forex Market worldwide has created a sort of awkward situation for the Island of Cyprus. Before its acceptance in the EU in 2004, Cyprus was an Offshore Company Tax Haven, because of these tax peculiarities as well as its strategic positioning between three continents, Cyprus experienced a built up of unregulated forex brokers establishing their operations on the island while still being registered in also other offshore tax-heaven jurisdictions such as BVI, Seychelles, Costa Rica, Belize, Mauritius, etc. Since these companies were not and still are not regulated by any well-recognized authority, being just a shell companies, they simply do not comply with any anti-money laundering law, because of this one can only characterize them as cowboy companies.

    It is because of these companies amongst others that Cyprus was blacklisted as a money laundering country. But, since 2004 Cyprus has joined the European Union had to comply with European Union law and European Parliament Directives, which it did in large part but not completely. This part compliance has removed Cyprus from the blacklist. The efforts of the Cyprus Republic to regulate its market where serious, in 2003 CySEC was established. CySEC (Cyprus Securities and Exchange Commission ) is a regulatory body – (www.cysec.gov.cy) which amongst others also regulates FOREX. As per its announcement of the 17th June 2009 (full version located at: http://www.cysec.gov.cy/Downloads/E...F/Announcement 06.17.2009 regarding FOREX.pdf) CySEC defines what is considered to be a FOREX company and what are the requirements to operate one, are: “the persons which provide the abovementioned activity of foreign exchange spot trading have the obligation to submit an application to the Commission in order to be granted CIF(Cyprus Investment Firm) authorization.”

    Cyprus wants now to safeguard the good name it has fought so hard to establish, it is for this reason that on the 6th of November 2009 a small announcement of only a few lines was dropped as bomb in the forex industry. It simply stated: “The Cyprus Securities and Exchange Commission (‘the Commission’), in continuance with its announcement dated 17 June 2009, wishes to announce the following:

    Persons that conduct foreign exchange trading transactions, which do not aim to the physical delivery of the agreed foreign exchange or are not materially settled in cash, should, within one month from the date of the present announcement:

    1. submit an application to the Commission for the granting of a Cyprus Investment Firm authorisation, or

    2. cease to provide the above service.

    The Commission, upon the lapse of the one month notice, intends to take measures against the persons that did not comply with the above as they will be in violation with the provisions of section 4 of the Investment Services and Activities and Regulated Markets Law”.
    (see full version at: http://www.cysec.gov.cy/Downloads/E...1.06.2009 regarding foreign exchange trading (2).pdf)

    This short statement simply announces to all unregulated companies which are operated from Cyprus – having headquarters in Cyprus, accepting correspondence and money in Cyprus and providing forex services to the internet community, (The short list of these companies is – Prime4X, Forex4You, FXOpen, TadawulFX, IkoFX, eTorro, BroCo and so on) to simply disappear.

    This deadline is simply too small for these unregulated companies to go through the process of regulation, it is therefore natural to say that they are not welcome anymore in the Republic of Cyprus and they should either shut down completely or find another country to operate. If they don’t they will be prosecuted at the full letter of the law.

    In accordance with Part XVII of the Investment Services and Activities and Regulated Markets Law of 2007 (Law 144(I)/2007) - 140.-(1) A person who is in violation of or does not comply with subsection (1) or (3) of section 4 or section 139, is guilty of a criminal offence, punishable, in the event of conviction, by a term of imprisonment not exceeding five years or by a fine, not exceeding three hundred and fifty thousand euro (ˆ350.000) or both.

    This means that nobody will be able to work with these companies, neither Cypriot employee, banks or money transferring organizations; it does not take a genius to understand that if anyone is carrying deposits with these companies will simply not be able to withdraw them and is in very high risk in losing his or her funds forever. This means that these companies become a criminal business.

    My best advice therefore is unless a company is regulated, especially if it operates from Cyprus it is not worth to work with. It does not matter how much money in bonus they give you when they will simply not be able to wire it to you, they will disappear one day in Cyberspace like so many others have done before.

    Dec 07, 2009
    Source: PR Log
  2. cysecgov, your thread and the information it contains is much appreciated, thank you

    understandably Cyprus does not want to be regarded as "a money laundering country" and
    everyone congratulates those involved who have established the CySEC and made additional
    changes to those regulations that will eliminate criminal activity

    and thanks for the warning:
    "anyone carrying deposits with these companies will simply not be able to withdraw them
    and is in very high risk in losing his or her funds forever."

    which leads me to ask, do you know, does the CySEC have any plans to introduce an
    'insurance/bond' required of 'investment service' companies including fx brokers that would
    guarantee client funds from loss in the event that a company were to fail ?
  3. SPF99


  4. Loukas



    As far as I know, all brokers registered in Cyprus (Cyprus Investment Firms in local lingo) are required to participate in the Investors Compensation Fund setup by the Cyprus Securities and Exchange Commission (CYSEC). This includes all FX brokers registered as Cyprus Investment Firms with the CYSEC.

    Each firm contributes to the fund depending on the number of clients and their account balances. The fund is administered independantly from any firm, by the CYSEC which is a governmental organization.

    The investor's compensation fund provides for a compensation of up to 20.000€ for each client, if their funds are lost due to bankruptcy of their broker.

    In simple words, the first 20.000€ deposited in any Cyprus broker registered with the CYSEC are safeguarded through a fund administered by the Cyprus CYSEC. This is as safe as it gets for a client.

    For more details see the document below from the CYSEC, and search for the word "Compensation"

    http://www.cysec.gov.cy/Downloads/LawsRegulations/L 144(I)-2007_EN.pdf

    Finally, since 2004 Cyprus has enforced the regulations provided by MiFID, which is the European wide directive regulating the operations of the financial markets in Europe. Investing with a broker in Cyprus is as safe as with any broker in Europe, such as in the UK, etc.
  5. thanks for the info Loukas

    i know the UK's FSA is the 'person of last resort' to the maximum of £40K ? after all other
    means of recouping client funds have failed

    in Canada it's an opt-in with the Investment Industry Regulatory Organization of Canada
    (IIROC), formerly Investment Dealers Association of Canada (IDA) to a max of C$1 million
    haven't contacted IIROC to ask them to explain - they insure against a broker's 'insolvency'
    only, i'm wondering if they cover a Refco type fraud