When it comes to choosing a binary options broker to trade with, we would always recommend traders to first look at regulated brokers – not least because of the higher level of protection that they will get. For example, one of the main benefits that traders receive when they deal with CySEC regulated brokers is access to the Investor Compensation Fund scheme. Under the Cypriot Investment Services and Activities and Regulated Markets Law of 2007, all Cypriot Investment Firms (CIFs) are required to be a member of the fund and contribute to the Fund yearly.
The Investor Compensation Fund (ICF) is a fund that was created under the Cyprus Investment Firms (IF) Law 2002. Its main purpose was to compensate covered parties under the fund from the claims that arise as a result of a member firm being unable to meet its obligations. However, it should be noted that not everyone is covered under the scheme. Institutions such as banks, credit cooperatives, insurance companies, State agencies, Investment firms and professional traders are not entitled to compensation under this scheme.
Requirements For Initiating A Claim
Under the scheme, covered parties can file a claim for compensation with the fund if:
- CySEC has determined that the broker is unable to meet its obligations due to the broker’s financial circumstances.
- The court has issued a ruling which suspends the ability of investors to make a claim against the broker.
The first requirement is also regarded as being met when:
- The broker informs CySEC that it is unable to meet its obligations towards its clients.
- The broker files for bankruptcy.
- CySEC revokes or suspends the broker’s CIF license due to the broker’s inability to meet its obligations in the near future and has no prospects of improving its circumstances.
Once the process to compensate the investors has been initiated, the decision will be published in the national newspapers by the ICF to invite covered parties to submit their claims against the broker to the ICF. The publication will also detail the manner of the claim submission, the address to submit the claim to and the deadline for the submission of the claim. The deadline for the submission of claims may be extended by the ICF by up to 3 months only under exceptional circumstances if the party:
- Can prove that he or she was out of the country for at least half the period covered by the deadline for claim submission.
- Has confirmation from a doctor that they are suffering from a serious illness which prevented the covered party from submitting his claim in a timely manner.
- Was incarcerated during half the period covered by the deadline.
The administrative committee for the ICF will then vet the claims to see if they meet the requirements for compensation. Once the claim has been ascertained as valid, the next step undertaken by the administrative committee will be to determine the amount of the compensation. Traders should note that the maximum amount which they can be compensated by the ICF is only up to 20,000 euros. The amount is based on per client basis and not on account to account basis. So regardless of the number of accounts which a trader has with a broker, his compensation will only be 20,000 euros at the most.
Conclusion
As mentioned earlier, professional traders are not covered under the ICF and as such should ensure that they are not classified by their brokers as being professional traders. If this is the case, they can request their broker to change their trading status to that of a retail trader. Additionally as a precaution since the maximum compensation is limited to 20,000 euros, it is recommended that traders keep their trading balance under this threshold at all times.