CySEC warning on the risks of investing in complex products

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risks of investing in complex products

CySEC, the financial markets regulator in Cyprus which is a popular jurisdiction for many online retail forex and binary options brokerages has issued a warning on 19 June in order to urgently draw the attention of investors to the risks of investing in complex products.

CySEC was forced to issue this public warning because it says that it has come to its attention that retail investors are finding themselves involved in trading in complex financial products via several Cyprus Investment Firms that offer investment services abroad.

According to CySEC, this raises serious concerns in that inexperienced retail investors are potentially being tempted to invest in complex financial products which may not be suitable for their individual needs and without being in a position to fully understand and appreciate the inherent risks. As a result, these investors may end up incurring losses they cannot afford.

The Cypriot watchdog points out that investors often do not understand how these complex products work. Furthermore, it remarks that complex products are often aggressively advertised and marketed using enticing slogans and promises of returns far in excess of deposit account returns that are currently available elsewhere. As a result the regulator says that the marketing techniques used may turn out to be misleading, or to mean something different to what the investors may have understood.

Therefore CySEC emphasizes to all investors the following four points:

(a) If they do not understand the key features of the product being offered, or the key risks involved, they should not invest. Fees and commissions are usually built into the structure of the products and are therefore not readily apparent.

(b) They should not accept to be pressurized into investing and should actively resist any acts of aggressive marketing directed towards them.

(c) Investors are reminded to always check if the company with which they are in contact or intend to cooperate with is authorized to provide investment services in their country. The public can do this by visiting the website of the national supervisory Authority. If the company is not authorized or regulated, it is more likely that it does not comply with investor protection rules and investors that cooperate with the said company may not have access to complaint procedures or compensation schemes.

(d) Also, especially taking into consideration the fact that investment may take place through online platforms without face-to-face contact, investors are urged to be cautious on whether the investment products they intent to invest in are suitable for them.

In the public warning CySEC also mentions that it has issued a relevant  Circular (No. C073) addressed to all the investment firms in its jurisdiction, which draws the attention of Investment Firms on the need to have in place adequate procedures, policies and arrangements to ensure, among others, that are in compliance, at all times, with the requirements of the relevant legislations.

Finally, the Cypriot watchdog urges investors to always check if a company is authorized to provide investment services prior to opening an account. To do so, investors are directed to CySEC’s website at the following link http://www.cysec.gov.cy/en-GB/entities/investmentfirms/cypriot/ (for the CySEC authorised – CIFs)

or to http://www.cysec.gov.cy/enGB/entities/investment-firms/member-states/

(for companies from EU member-states offering cross-border services in Cyprus)

or to www.cysec.gov.cy/licence_members_21_en.aspx (for companies from other EU member-states that offer their services though a branch).

CySEC also points out that the list of all national supervisory Authorities and their websites are available on ESMA’s website at http://www.esma.europa.eu/bos .

1 COMMENT

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