CySEC Warns Brokers About Providing Investment Advice, High-Pressure Sales

One of the main regulators for the European retail Forex Forex Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Foreign exchange or forex is the act of converting one nation’s currency into another nation’s currency (that possesses a different currency); for example, the converting of British Pounds into US Dollars, and vice versa. The exchange of currencies can be done over a physical counter, such as at a Bureau de Change, or over the internet via broker platforms, where currency speculation takes place, known as forex trading.The foreign exchange market, by its very nature, is the world’s largest tradi Read this Term and CFDs trading industry, the Cyprus Securities and Exchange Commission (CySEC CySEC The Cyprus Securities and Exchange Commission (CySEC) is a financial regulatory authority of Cyprus. CySEC is one of the key watchdog authorities for brokerages in Europe, whose financial regulations and operations comply with the European MiFID financial harmonization law.Founded in 2001, CySEC is instrumental in providing licensing and registration for forex brokers and previously binary options providers.CySEC is responsible for a variety of different functions, which includes the supervision The Cyprus Securities and Exchange Commission (CySEC) is a financial regulatory authority of Cyprus. CySEC is one of the key watchdog authorities for brokerages in Europe, whose financial regulations and operations comply with the European MiFID financial harmonization law.Founded in 2001, CySEC is instrumental in providing licensing and registration for forex brokers and previously binary options providers.CySEC is responsible for a variety of different functions, which includes the supervision Read this Term), has issued a major announcement which will affect some forex and binary options brokerages. The proposed circular which was issued this morning by the main overseer of the financial industry in Cyprus is outlining that major changes are needed when it comes to the practices of some companies.

The business model of a number of firms has been relying on aggressive sales tactics, an issue which CySEC has taken into account when issuing a proposed circular which will affect some forex and binary options brokerages. According to CySEC's announcement, Cyprus Investment Firms (CIFs) will have to adhere to certain guidelines when their client relations departments are in contact with the customers.

What Are Broker Support Staff Allowed to Do?

The regulator is highlighting that persons from the client support staff of brokerages can only provide information and/or resolve client inquiries and questions related to:

• the brokerage and its services, the financial instruments that it offers and proposed investment strategies, which include risk warnings and appropriate guidance
• risks associated with investments and particular investment strategies, execution venues and costs and associated charges
• technical questions regarding the broker's platforms and website(s)
• account opening process.

CySEC has also issued a detailed list of points which guide CIFs to instruct their staff to avoid investment advice in relation to financial instruments. The companies will be required to distribute a sales script to their employees that guides them about the regulatory framework.

Brokerages which are regulated by CySEC will not have the right to conduct what is known in the telemarketing industry as 'high-pressure sales tactics'. Employees of CIFs are going to be forbidden to do frequent or repeated telephone calls to clients and use aggressive language. Brokers will have to make sure their staff are not employing pressure when speaking to a client, soliciting to deposit funds or investing or making certain trades.

Real Names of Client Support Staff

Brokerages which are regulated by CySEC need to make sure that the names that are used by their employees are their own real names. Apparently staff members will also be liable for their conduct, as the brokerages are mandated to monitor the performance of their employees and sanction staff members if they don't adhere to the regulatory framework.

In addition, the brokerages will need to maintain a high degree of knowledge and expertise of their staff in order to adhere to the CySEC's regulatory requirements. The watchdog has established a certification process which is in accordance with a directive issued by the regulator last year.

Advisable NOT to Outsource

Stopping short of outright forbidding outsourcing of any client support activities, CySEC has outlined that CIFs are advised not to outsource the service. The companies are not limited on whether to provide their services from within their head office or from another European Union member country. The outsourcing of services to outside of the EU is of not fully forbidden, but prohibitive.

An additional capital requirement for companies which are willing to outsource client support to third parties totals at least €1,000,000. CySEC will act on a case by case basis to assess what extra capital requirements brokers might need to maintain in order to comply with regulations.

Finally, companies are required to maintain accurate and adequate records of client communications, a point which will serve to make CySEC's life easier when aiming to identify misconduct.