Do not invest more money than you can afford to lose.
The Cyprus Securities and Exchange Commission (CySEC), one of the main regulators of forex and binary options brokers in the EU, has published a circular reminding and clarifying their obligations for safeguarding client funds.
The CySEC starts off by reminding the Cyprus Investment Firms (CIFs) – as the forex and binary options brokers are officially referred to – that they are obliged to “make adequate arrangements to safeguard the clients’ rights and, except in the case of credit institutions, prevent the use of client funds for its own account”. The regulator is explicit in its requirement that client accounts are segregated from those of the CIF and that client are transferred to another person only after a written consent from the client.
Furthermore, the CySEC reminds the brokers that they can transfer funds from client accounts to other parties like an exchange, a clearing house, a liquidity provider/market maker, or an intermediate broker, only if those entities are licensed/regulated in their home country and the transfer is done for the purpose of providing client collateral for a transaction (for example, an initial margin requirement for a contingent liability investment). In that case the CIF must also notify the client of the transfer and require that funds be kept in a separate account in the client’s name.
“CIFs remain ultimately responsible for the funds of their clients, irrespective of transferring them to another person,” the CySEC noted.
The brokers are also required to exercise all due skill, care and diligence in the appointment and periodic review of the person responsible for the handling of client funds and make sure that there are at least two people within the company with combined signatory powers.
The regulator also demands that CIFs report information on clients’ funds to the CySEC on the following dates:
Two of the reports, on June 30 and December 31, are to be verified by an external auditor.
According to CySEC, this circular enters into force on the notification date of this circular. As far as the existing accounts are concerned, CIFs must comply within three months from the notification date of this circular.
