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CySEC circular on marketing of complex investment products

The Cyprus Securities and Exchange Commission (“CySEC”) has recently issued a circular to Cyprus Investment Firms (“CIFs”) that it regulates reminding them of their obligations regarding marketing of and trading in complex products such as foreign exchange and binary options.

It stresses that CIFs that trade in complex products for their clients, whether on an advised or non-advised basis, must at all times have in place adequate procedures, policies and arrangements to ensure compliance with the following requirements, deriving from the Investment Services and Activities and Regulated Markets Law and CySEC Directive DI144-2007-02 of 2012:

  •          CIFs must apply a high level of due diligence to evaluate the complex products they offer and must satisfy themselves that they are appropriate for their clients before distributing them.
  •          The information used to advertise or disseminate such products must be fair, clear and not misleading. A clear and specific warning on the risk characteristics of the product must always be provided. Sales persons, including service providers used to communicate with clients, are not permitted to exert pressure on clients to invest or trade.
  •          All staff must be adequately trained, possess the skills, knowledge and expertise necessary to assess the needs and circumstances of the client, and have sufficient expertise in financial markets to understand the financial instruments to be sold and to determine when the features of the product match the needs and circumstances of the client.
  •          All transactions relating to any complex product must satisfy the CIF’s best execution obligations.
  •          The CIF’s compliance department must keep these issues under constant close scrutiny.
  •          CIFs must always act in the best interests of their clients and within the provisions of the relevant laws.

CySEC has also posted a statement on its website warning investors of the risks involved with complex products, advising them against investing in a product unless they fully understand all its features and the risks involved, against being pressured into investing, and to ensure that any firm they deal with is authorized to provide investment services in their country.