EU FX brokers may need to open a branch to serve Czech retail clients
Cyprus financial regulator CySEC has sent a note to CIF license holders in the country, including Retail FX brokers, that serving retail clients based in the Czech Republic may now require the opening of a physical Czech branch office.
Basic EU license passport rules allow for licensed financial services companies in one EU country to “passport” that license via a basic registration procedure, and provide services to both professional and retail clients in the other EU countries. However the rules are open to some interpretation by the individual country financial regulators, as to what exactly is required to provide such services, especially when it comes to retail traders and investors.
In the case of the Czech Republic, the Czech National Bank (CNB) which acts as the financial market supervisor in addition to its central bank duties has decided to interpret a new Czech parliament act as to require a physical branch in the country for licensed providers from other EU countries – if those services are provided on a permanent basis. One-off or temporary services (somewhat ill-defined) would not trigger the requirement for a Czech branch.
The move was made as the CNB decided that it didn’t really have a way of enforcing actions against bad actors when those firms weren’t physically located in the country.
The rule of course applies not only to Cyprus FX brokers, but those licensed in any other EU country. However from a pure numbers perspective the vast majority of EU licensed FX and CFD brokers which provide services globally are based and licensed in Cyprus.
The full note issued today by CySEC reads as follows:
TO : Cyprus Investment Firms
FROM : Cyprus Securities and Exchange Commission
DATE : 24 March 2021
CIRCULAR No : C435
SUBJECT : Requirements of the Czech National Bank (the ‘CNB’) regarding the provision of investment services and/or the performance of investment activities in the territory of Czech Republic
The Cyprus Securities and Exchange Commission (the ‘CySEC’) hereby draws the attention of the Cyprus Investment Firms (the ‘CIFs’), which intend to provide investment and/or ancillary services and/or perform investment activities in the territory of Czech Republic, to CNB’s regulatory rules regarding the persons that are allowed to provide such services. More specifically:
1. On 24 March 2020, the Czech Parliament adopted the Act No. 119/2020 Coll., which amended Act No. 256/2004 Coll., (hereinafter the “amended Act”), being the Czech national law transposing MiFID II. Under Section 25 of the amended Act, Investment firms established in other EEA Member States providing cross-border services to retail clients and professional clients on request under MiFID II passport are allowed to provide services under the freedom to provide services (i.e. without establishing a branch), with respect to Article 57 TFEU, only on a temporary or occasional basis.
2. Pursuant to Section 25 of the Amended Act, if non-Czech investment firms are presumed to provide investment services to retail and professional-onrequest clients on a permanent basis, such firms will be under a strict obligation to establish a branch in the Czech Republic, and may only provide investment services under Article 35 of MiFID II (establishment of branch).
3. CIFs may visit CNB’s website https://www.cnb.cz/en/supervision-financial-market/legislation/investment-firms-and-investment-intermediaries/laws-and-regulations/ to read more information on the aforementioned provisions.
CySEC herewith advises CIFs to consult with their legal consultants regarding the necessary actions/measures required to ensure compliance with CNB’s new regulatory requirements prior to submitting notifications pursuant to article 35 (freedom to provide investment services/activities) of the Law 87(I)/2017 and reiterates the duty of CIFs to fully comply with the provisions laid down in this Circular.
Yours sincerely,
Demetra Kalogerou
Chairman of the Cyprus Securities and Exchange Commission