The Cyprus Securities and Exchange Commission (CySEC) proposed a tiered risk-based approach to leverage as a permanent national measure for investor protection. As the latest product intervention measures by ESMA are due to lapse for the final time in July 2019, CySEC proposes to permanently introduce national rules. While the majority of the measures replicate those of the Pan-European regulator, this is not the case with leverage restrictions.
Unlike most national financial regulators who have simply copied ESMA’s temporary CFD intervention measures to turn them into permanent rules, CySEC came up with a different idea regarding leverage. More specifically, CySEC proposes each retail client of a forex broker to undergo a customer due diligence process in order to be categorized as falling within the “grey”, positive, or upper tier of positive target market. Depending on the categorization, each retail client will be able to use different maximum leverage levels.
The Cypriot regulator intends to introduce stricter leverage limits for retail clients falling within the ‘grey area’ (1:20), and providing slightly higher leverage ratios than ESMA’s for those falling within the upper tier of the positive target market (1:50). In order to classify for the upper ties, clients are required to have either a gross annual income exceeding €40 000 or net liquid assets of at least €200,000.