June 16, AtoZForex – Today, the Cypriot financial regulator published a CySEC Forex Brokers Remuneration policies and Practices circular. In the directive, Demetra Kalogerou, CySEC’s chair reminds all Cyprus Investment Firms (CIFs) to review their remuneration policies and practices. Additionally, every CIF must submit to CySEC a confirmation by all board members presenting their agreement with the circular.
CySEC Forex Brokers Remuneration policies circular
In the letter to CIFs, it is highlighted that the regulated entities should ‘consider the conduct of business and conflicts of interest risks that may arise and take reasonable measures to avoid or manage them appropriately and efficiently.’ Furthermore, Demetra Kalogerou requests CIFs to design their remuneration policies in a way ‘so as to create incentives that may lead the person to favor their own interests, or the CIF’s interests, to the potential detriment of clients’.
Additionally, the directive requires CIFs to control the compliance with remuneration policies and practices. The compliance function should be including both the design and review process of the remuneration policies, including the practices as well as their periodic evaluation. Following the circular, the head of CySEC demands CIFs to stay fully responsible for ‘discharging all of their obligations under the Law and the Directives pursuant to, when outsourcing functions to service providers.
Examples of remunerations that create conflicts of interests
As CySEC issues CIF's remuneration policies directive, it also reports that certain types of remunerations seem to create conflicts of interests. These include:
i. Remunerations as a percentage of the total volume of transactions, or the value of transactions, or the value of clients’ deposits.
ii. Remuneration based on retention of clients e.g. based on a predefined percentage of cancellation of withdrawal requests that an employee manages to achieve.
iii. Remunerations based on the number of potential clients who have actually become clients.
iv. Remunerations as a percentage of the net revenue accruing to the CIF in respect to clients’ transactions (closed P&L of clients).
v. Fixed remunerations based on the number of new clients attracted.
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