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CySEC declares bonuses unfair and unnecessarily

On March 16, 2017, CySEC (Cyprus Securities and Exchange Commission) released a Circular (C194) called “Offering bonuses to retail investors”. This circular reiterated CySEC’s standpoint on bonuses and other trading benefits offered in the CFD and Binary Options Markets, as unfair and not necessarily in the best interest of the clients as required by the legislative framework. Therefore, such bonuses and trading benefits are not permissible to be offered by Cyprus Investment Firms.

In Section 3(I) (a) of the Circular – Offering bonuses, CySEC ruled that:

“ CIFs  must  avoid  the  practice  of  offering  bonuses that  are  designed  to  incentivize retail  clients  to  trade  in  complex  speculative  products  such  as  CFDs,  binary  options  and  rolling  spot  forex  as  it  is  unlikely  that  a  firm  offering  such  bonuses  could  demonstrate  that  it  is  acting  honestly,  fairly  and  professionally  and  in  the  best  interests  of  its  retail  clients [article 36(1) of the Investment Services and Activities and Regulated Markets Law, ‘the  Law’]. ”

In conjunction, Section 6, answer 1, point 3 in ESMA’s document on ‘Questions and Answers, relating to the provision of CFDs and other speculative products to retail investors under MiFID’, dated October 11, 2016 (‘the Document’), stated that:

«...ESMA is of the opinion that it is unlikely that a firm offering bonuses that are designed  to  incentivize retail  clients to  trade  in  complex  speculative  products  such  as  CFDs,  binary  options and rolling spot forex could demonstrate to its NCA that it is acting honestly, fairly  and  professionally  and  in  the  best  interests  of  its  retail  clients,  taking  into  account  that  the  nature  of  the  products  means  that  they  are  not  appropriate  for  a  majority  of  retail  clients.  NCAs should therefore monitor that the practice of offering such bonuses is avoided in relation to these products...»

In recent past, CySEC has undertaken a number of thematic reviews, which have provided evidence that a number of bonuses offered to retail investors do not seem to be consistent with article 36 of the Law regarding the conduct of business obligations. 

Whilst not an exhaustive list, examples of such bonuses offered when opening a trading account, or related to subsequent transactions, are included in Appendix 1.

If a CIF wishes to reward its clients, it can offer to them for example lower spreads instead of a return of an amount, as the example 8 in Appendix 1 (cash rebates).  In this case, the CIF is not considered that is violating the article 36(1) of the Law. 5. The protection of clients’ interests is of utmost importance to CySEC. In the context of conducting thematic reviews, CySEC will monitor closely the compliance of CIFs with the provisions of this Circular, Circular C168 and the Document.

In case of infringement, CySEC will take strict supervisory actions as provided in the Law.