Changes to Forex License Requirements in Cyprus

Starting on June, 21 2021, capital requirements will slightly change for all CySEC licensed Cyprus Investment Firms (CIF). Exceptions exist, however, the majority of CIFs licensed by CySEC are forex and CFD brokers. The changes in capital are outlined in the table below:

Why Did Capital Requirements Change in Cyprus? – The Answer Can Be Found With MiFID II

To understand the motivation behind this change, we must first understand that the regulation of financial services in Europe happens under the auspice of the Markets in Financial Instruments Directive II, often abbreviated as MiFID II. As a response to the financial crisis of 2008, MiFID II was established to provide a blanket regulatory framework for financial institutions within the European Union.

This specific change to capital requirements is a bit complicated. MiFID II itself launched what is known as the IFRD package. IFRD is a combination of 2 major pieces of legislative framework: the Investment Firms Regulation (EU) 2019/2033 (IFR) and the Investment Firms Directive (EU) 2019/2034 (IFD). Because it is quite a lot to spell out, one can simply refer to both directives as IFRD.

Why Did the IFRD Cause Capital Requirements to Change in Cyprus?

It’s worth noting that this change impacts the EU as a whole, it just so happens that Cyprus is the most common jurisdiction to obtain forex broker licensing within Europe. Nevertheless, jurisdictions such as Malta and Bulgaria are now subject to these changes, too.

The impetus behind the decision was to drill down and offer more specific regulation to different financial institutions. It was the belief of the architects of MiFID that certain financial institutions should have more specific capital requirements where in the past a blanket figure was set (see the previous figure in the table). In other words, as MiFID II evolves it is now taking financial services firms like forex & CFD brokers into greater consideration instead of applying blanket legislation to all institutions that fall under the umbrella of finance.

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