CySec informs on offering bonuses to retail investors 

The Cyprus Securities and Exchange Commission (CySec) has issued a Circular to provide additional guidance on the types of bonus incentives not permissible to be offered to retail clients by Cyprus Investment Firms (CIFs).

This current Circular is following the Circular C168, issued on November 30, 2016, regarding the updated version of ESMA’s Q&A document for the provision of CFDs and other speculative products to retail investors under MiFID (Circular).

Below is the CySec’s Circular as it is published today:

Following Circular C168, issued on November 30, 2016, regarding the updated version of ESMA’s Q&A document for the provision of CFDs and other speculative products to retail investors under MiFID (‘the Circular’), the Cyprus Securities and Exchange Commission (‘the CySEC’) is providing, with this circular, additional guidance on the types of bonus incentives not permissible to be offered to retail clients by Cyprus Investment Firms (‘the CIFs’):

1. 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 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 [article 36(1) of the Investment Services and Activities and Regulated Markets Law, ‘the Law’].”

2. 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 incentivise 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…»

3. 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.

4. 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

Source: CySec – CySec additional guidance on bonuses

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