On 16 March 2017 the Cyprus Securities and Exchange Commission (“CySEC”) issued circular C194 giving additional guidance to regulate Cyprus investment firms on the types incentives which CySEC considers to be inappropriate to be offered to retail clients. The latest circular is a follow-up to circular C168, dated 30 November 2016, which set out the guiding principle that, “CIFs must avoid the practice of offering bonuses that are designed to incentivise 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 [as required by article 36(1) of the Investment Services and Activities and Regulated Markets Law].”
The latest circular includes the following list of incentives identified during recent reviews which CySEC considers to be inappropriate. It stresses that this is not an exhaustive list.
- Welcome, deposit or re-deposit bonus – an uplift (lump-sum or percentage) on the amount deposited by the client, which cannot be withdrawn until a target volume has been reached, or allowance of additional margin based on the amount of the client’s deposit.
- Volume bonus – an amount of money based on the trades the client executes, which cannot be withdrawn until a target volume has been reached.
- Referral bonus – a fixed sum or a percentage of the referred “friend’s” initial deposit, which cannot be withdrawn until a target volume has been reached.
- Verification or webinar bonus – a monetary bonus granted when the client verifies his or her personal information such as telephone number or identity documents, or when the client attends a webinar offered by the company.
- Gifts such as electronic devices awarded to clients based on deposits in a specified period.
- Competitions – for example in which the first client to reach a specific target volume, or the client with the highest profit or volume in a specified period of time, wins a prize.
- Trial accounts – allowing a number of trades on a risk-free or limited-risk basis by wholly or partially indemnifying the client against loss, subject to achieving a specified target volume.
- Cash rebates awarded to the client based on the trading volume attained within a specified period.
- Interest on deposit – crediting the client with interest on the net deposited amount, subject to a specified activity level.
CySEC will monitor regulated firms’ compliance in this area and will take action if it discovers any infringement