Online trading in Europe revolutionized the way people invest. The popularity and liquidity (every day, more than 5.5 billion US dollars are transacted online) also attract rogue operators with illegal practices. The Cyprus Securities and Exchange Commission (CySEC), among major regulators, recently issued a circular (C181) relating to sales and marketing practices, outsourcing of third party services, the provision of investment advice and the competence / compliance of sales staff.
The new rules (and in some cases more stringent enforcement of existing rules) are intended to eliminate the overly aggressive and misleading sales tactics which have become prevalent in the industry. Such measures imposed to all regulated CIFs are: the clarification issued by ESMA in October 2016, suspending bonuses promotions based on trading volumes and limiting leverage to 1:50 for average traders except advanced ones.
All these provisions enter an intensive and lasting legislative effort of the national and regional regulatory authorities, turned into a mutual global cooperation. It aims at increasing investor protection in the financial sector and expelling the brokers that prevent maturation of the industry from the online trading regulated area.
Online Trading in Europe – Overview.
Currently, the estimated number of specialized companies worldwide is 100,000, accounting for both regulated and unregulated brokerages. After the United States, the most important jurisdictions are located in Australia and regarding Europe – Cyprus and the UK.
Over one third (approximately 34.1%) of global trading is generated by UK, which benefits from the complex, but coherent legislation of the strictest regulator – the Financial Conduct Authority (FCA). Also, the fair legislation promoted by CySEC attracted 90% of financial companies, recording a total of more than 220 active companies. They boast over 50,000 jobs with an average salary / month of 2,000 Euro and 100 million Euro / month in the local economy. Both the Cypriot state, and the local financial authority CySEC have major benefits from this activity, generating income taxes of approximately 2 billion a year.
The problem is that the regulated companies which operate in accordance with the directives and legislation represent only a small percentage of all existing companies. They are outnumbered by unregulated or regulated investment firms that do not meet the requirements of regulatory bodies:
The Agony and the Ecstasy
I believe that regulators will push all online trading companies to stop doing business in their countries using the European passport, instead they will require local licensed presence that can abide by the rules, so they can control brokerages better. Regulatory authorities will introduce a number of changes that will force honest brokers to differentiate their business from unauthorized companies:
In recent years a rigorous regulatory activity changed online trading from a dishonest and fragmented theater of operations into a fully-fledged industry. This transformation involves some sacrifices. Traders seeking fulminant income as well as the enthusiasts of the complex mechanism of trading, they both learnt the lesson: sometimes you need to be careful of what you’re wishing for, as you may encounter losses during the process. A market has many players and it is ruled by demand.
Now the regulatory bodies are finally answering their request: they are trying to create a serious, secure and transparent trading ecosystem. All brokers that are not compliant will be eliminated. Wild West gets to be civilized, or it disappears.