The Law Firm of G. Vrikis & Associates LLC would like to bring to your attention the resent decision and publication by the Cyprus Securities and Exchange Commission ("CySEC").
CySEC's dedicated Supervisory Action Plan concerning the FX trading and Binary Option industry intensified supervisory and enforcement efforts between 2015 and 2018, which raised concerns relating to the investors' protection and resulted in the imposition of fines and licences withdrawals. CySEC's analysis revealed that on average, 87% of client accounts made a loss over that period. Similar findings were reported by other National Authorities of the European Economic Area in relation to the provision of investment services in Binary Options.
Numerous series of audits and investigations conducted from CySEC, in relation to CIFs providing investment services in binary options, revealed serious misconduct from some of the providers, resulting in the imposition of administrative sanctions both to the CIFs and to directors employed by them. As a result, CySEC revoked the authorization of CIFs and referred the cases to the Attorney – General, for possible further action.
To avoid the resurface of the risks identified, CySEC aligned with European Securities and Markets Authority's (ESMA) decision and in the 7th of July 2019 imposed national measures, known as the Cyprus National Product Invention Measures ("NPIMs"), rendering the ESMA temporary intervention measures permanent in relation to the marketing, distribution or sale of Binary Options, in or from Cyprus, pursuant to Article 42 of Regulation (EU) No 600/2014 ("MiFIR") and by virtue of DIRECTIVE D1 87-08.
Following the implementation of the ESMA measures, CySEC prioritised the effective Decision on Binary Options to ensure that no binary options are marketed, distributed or sold from or in Cyprus. CySEC monitors the investor categorisation and onboarding processes to safeguard that CIFs do not allow clients to reclassify as elective professional investors.
As a result, the marketing, distribution and sale of Binary Options to retail clients is permanently prohibited from or in Cyprus, irrespective of whether these are traded OTC or on a Trading Venue, pursuant to article 42 of MiFIR.
The binary options excluded from the ESMA Decision on Binary Options and from NPIMs, include:
- a binary option for which the lower of the two predetermined fixed amount is at least equal to the total payment made by a retail client for the binary option, including any commissions, transactions fees and other related costs; and,
- a binary option that meets cumulatively the following three (3) conditions:
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- the term from issuance to maturity is at least ninety (90) calendar days;
- a prospectus drawn up and approved in accordance with the Prospectus Directive (2003/71/EC) or in accordance with the Prospectus Regulation (EU 2017/1129) is available to the public; and
- the binary options does not expose the provided to market risk throughout the term of the binary option and the provided or any of its group entities do not make a profit or loss from the binary option, other than previously disclosed commissions, transactions fees or other related charges.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.