Cyprus financial regulator CySEC has just issued one of the largest fines ever handed out to a Retail FX and CFDs broker, announcing a €740,000 fine to CIF holder Exelcius Prime Ltd.

Exelcius Prime had its CySEC license suspended back in 2022. The company previously operated the 1Market online trading brand, at websites 1market.eu and 1market.hu targeting the Hungarian market.

Based on our records, this marks the second largest fine ever issued by CySEC to a CFDs broker. The largest such fine, of €1 million, was imposed on Tradewell operator Itrade Global (CY) Ltd in early 2023. In a typical year CySEC issues a total of €2-3 million in fines to CIF licensed entities.

The Chairman of CySEC, Dr George Theocharides, said:

“CIFs are urged to ensure that they fully comply with the provisions of the Law and must act within the framework of their operating license. CySEC attributes great importance, among others, to the responsibility that CIFs have in terms of the knowledge and skills of individuals in key positions to ensure the effective operation, supervision and governance of the CIF, as well as the interests of the CIF and its clients. CIFs must act fairly, honestly and professionally as a measure to enhance investor confidence in the market. A strong commitment of CySEC is the responsible growth of the investment sector, which is based on strict supervision to ensure the protection of investors.”

Particularly, CySEC imposed to the Company:

1. A fine of €45.000 for violation of section 5(1) of the Law, as the Company provided the service of provision of investment advice as a regular occupation, without this being mentioned in the authorisation granted by CySEC.

2. A fine of €60.000 for violation of section 22(1) of the Law, as the Company did not comply at all times with the conditions set out in section 9 of the Law for granting an authorisation, and particularly:

i. Section 9(3) of the Law, as not all members of the board of directors committed sufficient time to perform their functions in the Company.

ii. Section 9(8) of the Law, as the overall composition of the board of directors did not reflect an adequate collective range of experiences.

iii. Section 9(16) of the Law, as the business of the Company was not directed by at least two persons, meeting the requirements of the Law.

3. A fine of €240.000 for violation of section 22(1) of the Law, as the Company did not comply continuously with the conditions set out in section 17 of the Law for granting an authorisation, regarding the organisational requirements, and particularly:

i. Section 17(2) of the Law, as the Company did not establish adequate policies and procedures sufficient to ensure its compliance with its obligations under the Law.

ii. Section 17(3)(d) of the Law, as the Company did not review the financial instruments it offered to clients to assess whether the financial instrument remained consistent with the needs of the identified target-market and whether the intended distribution strategy remained appropriate.

iii. Section 17(5)(a) of the Law, as the Company did not effectively monitor the function of clients’ service and did not manage the risks associated with outsourcing.

iv. Sections 17(6) and 17(7)(a) of the Law, as the Company did not provide a number of records to CySEC.

4. A fine of €120.000 for violation of section 24(1) of the Law, as the Company did not take all appropriate steps to identify and to prevent or manage conflicts of interest between its employees and its clients.

5. A fine of €110.000 for violation of section 25(1) of the Law, as the Company did not act honestly, fairly and professionally when providing investment services to clients, in accordance with the best interests of its clients, taking into account the practices of the persons that communicated with the clients.

6. A fine of €25.000 for violation of section 25(2)(b) of the Law, as the Company did not take into account the identified target-market of end clients and collect information in regards to the assessment of the compatibility of the product with the needs of its clients to whom it provided investment services, to ensure that its financial instruments were only offered or recommended when they were in the best interests of each client.

7. A fine of €100.000 for violation of section 25(3)(a) of the Law, as the Company did not ensure that all information addressed to clients or potential clients was fair, clear and not misleading, taking into account the practices of the persons that communicated with the clients.

8. A fine of €20.000 for violation of section 26(3)(b) of the Law, as the Company did not assess, on the basis of the information received pursuant to section 26(3)(a) of the Law, whether the investment service or product envisaged was appropriate for the client.

9. A fine of €20.000 for violation of section 36(2)(a) of the Law, as the Company established a branch in the Czech Republic before providing all the required information to CySEC.

In imposing the fine to Exelcius Prime, CySEC said that it took into account a series of factors including:

• The maximum amount of the administrative fine provided for in the Law for these kind of violations.
• The seriousness attributed to the fact that CIFs must act within the framework of their operating license.
• The weight given to the requirement that it is a CIF’s responsibility:
  • to ensure that its board of directors devotes sufficient time and has overall sufficient knowledge, in order to ensure the effective supervision of the CIF and the interests of both itself and its clients.
  • that at least two persons actually manage the business activity of the CIF, which strengthens its governance, strategic planning and effective operation.
  • to apply appropriate policies and procedures in the context of its operation.
  • to ensure that the financial instruments distributed to the identified target-market of end customers continue to be consistent with the needs of the target-market, which acts in the best interest of its customers.
  • to take measures to avoid aggravation of the operational risk when delegating important operational functions to third parties, so as not to impair the quality of its internal control and to ensure the orderly functioning of the market and the protection of investors.
  • for keeping records of all the services provided, the activities, and transactions carried out by the CIF. In terms of keeping records of telephone conversations with clients, which enhances investor protection and improves market surveillance.
  • to comply with the requirements for the avoidance of conflicts of interest, in particular the design and implementation of remuneration policies and practices for all persons who could affect the service provided, to ensure the protection of the interests of its clients.
  • not to offer CFDs products to clients who fall into the negative target market, thus ensuring their protection and interests.
• The need for the CIF to properly treat its clients and categorize them appropriately, especially since professional clients receive lower protection than retail clients.
• The seriousness attached to the correct professional behaviour of CIFs towards their clients, the safeguarding of the interests and rights of a CIF’s clients and in particular the need to collect and evaluate data regarding the experience and knowledge of its clients, which gives the ability to the CIF to better assess whether an investment service or financial instrument is compatible for a client and to warn them accordingly, so that they are able to make informed decisions. Based on the CIF’s actions at the material time, it did not ensure the protection of the clients’ interests.