Spain has had enough of the practices of Cypriot brokers, warns CySEC

In a circular to its regulated investment firms (CIFs), CySEC drew the attention of companies providing investment services in Spain to a statement recently issued by the Financial Regulator.

Last year the CNMV issued a circular that took on an aggressive tone threatening some European brokers that they could cease their activities in Spain because the watchdog was fed up with their unfair practices. The guidelines mainly concern companies that offer foreign exchange, contracts for difference (CFDs) and other speculative products to retail investors in Spain.

At the time, the Spanish regulator said it was primarily investigating Cyprus-based CFD brokers and targeting those who use overly aggressive tactics and practices.

In addition, the tightening of the CNMV includes activities related to the acquisition of private customers, including information provided through marketing channels.

“Some companies based in other EU countries that market products in Spain under the so-called European passport have been identified with certain inappropriate, common practices (mainly companies trading under the freedom to provide services, i.e. without an establishment or establishment in Spain) ”, said the CNMV.

This public statement related to practices such as the marketing of investment services and customer acquisition by unauthorized third parties. The watchdog clarifies that paying to unregulated affiliates and introducing brokers is not permitted and that marketing activities can only be carried out by authorized agents or their tied agents.

In addition, the CNMV found that, in many cases, this acquisition activity is carried out aggressively by people without appropriate knowledge and skills.

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In addition, the Spanish authority warned these brokers against using their European license as a proxy for promoting their offshore brands’ CFD products, which are mainly located in other countries and are not approved to operate in the EU.

CySEC reminds brokers to report subsidiaries

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“The inclusion of these references to third country companies, which sometimes contain information suggesting greater leverage that non-EU law allows for transactions in these high risk products, is believed to constitute an illegal marketing activity for Services offered by companies are not authorized to operate in Spain and ultimately a circumvention of the restrictions imposed in Spain on the marketing of these products to private customers, ”the statement continued.

In addition, the CNMV circular contains rules on the procedures and controls institutions should comply with. It also advises on the content and format of advertising messages, taking into account the criteria that the regulatory authority has applied in its supervisory measures.

In conclusion, the watchdog made it clear that it would continue to support the introduction of ESMA’s restrictions on risky products at European level in order to improve investor protection.

« CySEC expects all CIFs providing investment services in Spain to take appropriate and urgent measures as necessary to comply with the content of the CNMV’s public statement and the relevant requirements contained therein, » said the Cypriot authority.

Cypriot CIFs have to notify CySEC when providing their services in third countries. Before they can ship their product in a particular country, they must first obtain appropriate approval from the country’s regulatory authorities.

How these brokers managed to keep their market share outside Europe depended entirely on their business models. Some focused on more « universal » regulations. However, this was more complicated because additional sub-strategies are required for dealing with non-EU customers from countries with regulators and non-EU customers from countries without a regulator.

Spain has had enough of the practices of Cypriot brokers, warns CySEC
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