CySEC Cleans Up Non-Transparent Inactivity Fees Charged by Brokers to CIF

Source: Finance Magnates 2020-07-08

The Cyprus Securities and Exchange Commission (‘CySEC’) announced today it has carried out a review of the circumstances that are considered by Cyprus Investment Firms (the ‘CIFs’) when applying inactivity fees to clients (‘the Review’) to ensure compliance with the provisions of Article 25(1) of the Investment Services and Activities and Regulated Markets Law (‘the Law’).

The Review also included an assessment of the ex-ante information disclosed by CIFs to potential clients or clients regarding inactive clients and/or clients’ trading accounts and the relevant fees in order to ensure compliance with the provisions of paragraphs (3)(a) and 4(a) of Article 25 of the Law, according to CySEC.

The Review has shown that almost all CIFs that apply inactivity fees, have set out the circumstances under which a client and/or his trading account may be considered as inactive.

Additionally, it has indicated that a number of CIFs has taken steps to ensure that the ex-ante disclosures made to potential clients or clients regarding the inactivity fees are fair, clear and not misleading and, are provided in good time.

Samples of inactivity fees include:

With regard to the size of the inactivity fees applied by the CIFs to all types of clients, it was observed that in general the CIFs did not clarify the quantitative and qualitative factors (e.g. maintenance/administrative costs) taken into consideration for calculating the size of the inactivity fee. It was further identified that a small number of CIFs applied excessively high inactivity fees (e.g. €100 or more) on a monthly basis, without providing sound reasoning for the imposition of such a fee, nor adequate explanation for its calculation.

Taking into consideration the nature of inactivity fees, the factors that may be considered for charging such fees and the size of CIFs, the following results raised concerns: For several CIFs, the amount received from inactivity fees for the six-month period from July 2019 to November 2019 was excessively high, ranging from €1 million to €1,4 million. Additionally, for a number of CIFs, the amount received from inactivity fees for the six month period from July 2019 to November 2019 seemed to represent a significant proportion of revenue2 generated for a six-month period, in limited cases as high as 18% – 31%.

Next steps

CySec said that all CIFs should consider the issues raised in this circular against their policies and arrangements in place in relation to their application of the inactivity fee as well as to the relevant disclosures made to potential clients or clients. If, when reviewing the policies and arrangements in place, CIFs identify any weaknesses – they must take immediate actions to ensure compliance.

CySEC

inactivity fees

CySEC Cleans Up Non-Transparent Inactivity Fees Charged by Brokers to CIF

Subscribe to Our Newsletter!

Subscribe to Our Newsletter!