Spain will say NO to Forex and CFD brokers from Cyprus and UK?

Spanish financial regulator CNMV is fed up with unfair practices foreign brokers. For now, detailed inspections have been announced, but ultimately it may end with a ban on conducting business even for brokers from the European Union. Most objections are to companies based in Cyprus.

Spanish Forex market i CFD instruments it does not differ significantly from its counterparts in other European Union countries. Only licensed brokers can operate there. The problem is that by obtaining a license in any country of the European Union, you can provide financial services in all other countries of the European community. It is enough to obtain the so-called A "license passport" that allows you to operate throughout the EU. And, of course, many brokers take advantage of this facility.

The problem is that many, if not most, brokers are based in Cyprus and operate a license FCA from Great Britain. Due to Brexit, however, these licenses will not be recognized from December 31, 2020, when the EU's financial ties with the UK enter a new phase and international agreements will cease to apply. The passport, however, is to remain, but it is not yet known in what form.

Cyprus brokers in the pinch

Spain, however, prefers to protect itself. It has already set up a special commission chaired by President Sebastián Albelli to check the practices of licensed foreign brokers who offer their services in Spain.

The censored list includes mainly Cyprus-based brokers with the most aggressive advertising and marketing practices. And there are a lot of them, because the commission estimated that there are about 3,5 thousand people operating in her country. companies that operate on the basis of "License passport". There are only 200 domestic companies.

What will the regulator primarily check:

• encouraging retail clients to register as professional clients. Thanks to this, brokers can provide "professional" clients with greater freedom, especially greater financial leverage,
• encouraging customers to transfer accounts to affiliated entities. Since the intervention ESMA in 2018, many EU-licensed brokers set up foreign subsidiaries operating under the same brand. The brokers have an EU license, which is to guarantee reliability to clients, also after opening an account with an offshore broker. In this way, the broker can use tactics that are illegal in the EU, such as offering deposit or volume bonuses. It also allows - or perhaps most of all - to use greater financial leverage than in the EU. An additional benefit is that the broker does not have to maintain capital against the client's account balance as required by the EU.
• Misleading ads such as zero commissions and fees, when in fact commissions and fees are hidden in other transaction costs,
• Affiliate programs that encourage high-volume trading.

There is already a list of "suspects"

The Spanish regulator is not toying with unnecessary diplomacy and has already stated that it has a list of companies that it will monitor closely. He also emphasizes that if the current findings are confirmed, foreign brokers must take into account a complete ban on operating in this country.

This is without doubt an unprecedented announcement. For example, while the UK regulator FCA banned seven Cyprus brokers from operating in the UK, this was not a ban that would apply to all brokers in a given country. In Spain, they do not rule out collective liability, so this is undoubtedly the last warning for brokers bending the rules. Will it work? Time will tell…