In 2004, Cyprus became a member of the European Union, necessitating revision of the country’s entire constitutional structure, including CySEC’s regulatory framework.
MiFID provided guidelines for all EU-based financial regulators to adopt a consistent code of conduct to guarantee that financial organizations follow a certain level of regulation to combat financial misconduct and keep the markets honest.
As a result, the CySEC had to make significant revisions to its regulatory processes to bring them up to par with EU and MiFID norms, which were already well behind the CySEC.
CySEC licensed brokers are now able to provide their services throughout the European continent as part of the European Economic Area (EEA) accord, as a result of the EU’s unification. As a result, it serves as an additional incentive for brokers to locate in Cyprus in order to take advantage of more affordable brokerage services while still serving European Forex traders.
How Does FX Broker Regulation Work In Cyprus?
In order to keep brokers in line, Cyprus has compiled a comprehensive set of CySEC recommendations that are constantly modified and updated. To get a CySEC license, forex brokers authorized by CySEC must meet the guidelines.
Forex brokers regulated by CySEC are obliged to have operational capital of at least €750,000, which was not the case prior to CySEC regulation. According to the MiFID derivative, which requires FX brokers to be able to retain their customers’ holdings during market volatility, the new operational capital requirement is implemented. All CySEC member companies are required to submit their financial statements to the CySEC on a regular basis for assessment. An impartial third-party auditor should do an audit on a yearly basis and communicate the results to the broker.
CySEC brokers must abide by all CySEC and MiFID requirements, including any new ones. Traders should be protected against broker bankruptcy or insolvency by the ICF if the CySEC identifies any Cyprus FX brokers (Investor Compensation Fund). Customers who lose all of their trading money because a broker goes bankrupt are compensated up to €20,000 by the ICF.
For contemporary financial products, CySEC is one of the few regulatory agencies that are willing to embrace innovative ideas and put them into practice. CySEC has come a long way since joining the EU, and it’s now regarded as one of the industry’s top regulators. Some of the best Forex brokers can be found in Cyprus, and some well-known Forex firms got their start thanks to CySEC regulation.
With no trading limits placed by CySEC, investors are free to invest in whatever financial market they choose. One of the first authorities to start regulating binary options brokers was CySEC, which is receptive to the idea of other financial markets, such as spread betting, as well. This flexibility of trading is what has let CySEC brokers supply huge amounts of leverage, hedging functionality, and other trading regulations as a result of CySEC.
Contrary to popular belief, CySEC remains a top option among Forex brokers despite its chequered background. Because of the fierce competition in the Cyprus retail trading sector, brokers must focus on providing traders with cutting-edge, ground-breaking services. As a result, traders who use Forex brokers registered by CySEC may rest assured that they will get high-quality service, but it is your responsibility to avoid fraud by double-checking the legitimacy of the broker you pick.
Why Do Forex Brokers Choose Cyprus?
Cyprus today boasts over 40 businesses based on the island since receiving its first FX trading license in 1988.
Many foreign currency (forex) brokers have chosen Cyprus as their base of operations, an island country more renowned for its Mediterranean beaches and sunbathing vacationers than anything else.
Moreover, Cyprus has developed into one of Europe’s most important financial hubs, and as such, it has attracted a specialized workforce of consultants, compliance specialists, and risk managers, all crucial staff for a forex trading firm. Cyprus is one of the world’s 100 largest financial centers.
The capital adequacy standards in all European member states are the same as a result of MiFID II. It’s a requirement for each prospective broker-dealer to have €730,000 in the capital. Forex brokers in Cyprus, on the other hand, stand to gain financially from a variety of other factors.
- Cheaper Fees – Compared to other European authorities, our application processing fees and recurring yearly fees are much lower. Cyprus now has an advantage in the global market.
- If you’d want to have your application processed faster, CySEC has provided a fast-track option on occasion. While CySEC analyzes a broker’s application, the expenses start piling up since the office needs to be functioning with essential staff members on hand. Faster is better for the broker in terms of getting to market.
- Cyprus has Europe’s lowest corporate income tax rate of 12.5 percent, making it a great place for businesses.
- A shareholder who wishes to pay dividends has no tax to pay on the revenue they earn while doing so in Cyprus.
- Cheap Cost of Living – Cyprus has a reputation for having a low cost of living for at least the previous five years.
To summarize, opening a brokerage in Cyprus has many logical and financially sound benefits.