The Cyprus Securities and Exchange Commission’s (CySEC) hefty fine of a forex firm for not complying with financial regulations has been welcomed by the industry as showing the regulator has teeth.
The CEO of Limassol forex firm PFX Financial Professionals was slapped with €350,000 fine and a 10-year ban on trading, another senior director received a three-year ban for “negligence and non-compliance” with investment rules.
There was no mention whether the CEO and director defrauded their investors, if they took the money and ran or if it was simply a case of non-compliance with trading regulations.
In the past, several forex brokers facing financial trouble or poor placement of clients’ funds have allowed for their license to lapse and accepted slap-on-the-wrist fines.
A leading financial consultant said the CySEC fine is an encouraging development for the future of the sector.
“Although Cyprus’ reputation has taken more severe hits from press coverage of cases in which there appears to be a Cyprus link, the country’s investment sector is also tarnished from time to time from cases of companies who willfully or not, do not comply with regulations.”
He argued it is encouraging that Cyprus has a regulatory body which is taking measures to keep the sector in order, keeping any institutions or financial professionals who do not comply with the regulatory framework away.
He said the financial industry is huge, and that there is always the possibility that some participants will not be operating within the regulatory framework.
“The penalties imposed can be perceived as proportionate and dissuasive sanctions, acting as a warning to companies to conform with regulations of the market.”
He noted that such decisions boost the confidence of investors, which in turn reflects on the jurisdiction, making it more respectable.
The consultant called on investors, particularly retail investors to keep their eyes open when placing their money with investment companies, always requesting to see proof that the company and its officials are regulated by the proper authorities.
CySEC Chair Demetra Kalogirou said: “There is no place in Cyprus for individuals who wish to conduct business without adhering to the rules and regulations in place to protect investors and uphold the standards of a robust financial market.”
A source close to CySEC said that the board wanted to send out a harsh message to forex firms and other companies that they cannot get away with negligence and non-compliance with the rules.
The first notice against now-defunct PFX was in November 2016, when CySEC issued an initial suspension, pending clarification from the forex trader, in October 2018 the company was forced out of business.
Last week, CySEC issued its final punishment, saying it was banning CEO Evgenios Martinides and its executive director Yaroslav Martynenko from the financial services sector over their omission and negligence while in office.
CySEC’s withdrawal of the company’s license is a result of the investigation into PFX which found that its non-compliance with the Investment Services and Activities and Regulated Markets Law of 2007 was due to the “fault, willful omission and negligence” of the company’s executive directors.
Specifically, breaches in compliance included inadequately addressing concerns with the conduct of business obligations when providing investment services to clients and failing to properly submit financial accounts and other information required by CySEC in a complete and accurate manner.
The parent company, FX Financial Professionals Ltd, operated the retail forex broker FXFINPRO at website fxfinpro.com, while the company also operated the portfolio management company FINPRO Investments at finproinvest.com.
Retail investors who lost their money placed with the company will be able to claim part of their cash, some three and a half years after the Limassol-based forex broker’s license was suspended by the regulator.
According to a source close to the CySEC, duped investors can claim up to €20,000 each from the compensation fund.