The Cyprus banking system is on the verge of collapse. Cyprus is dominated by 3 main banks which are all on the verge of insolvency based on their heavy exposure to crippled Greek financial system. Failure of the banks could threaten Cyprus membership in the Euro Zone. Their are 3 main institutions taking the lead in offering a bailout plan: The International Monetary Fund (IMF), European Central Bank (E.C.B.) and the European Commission. Their initial plan of 10 billion EUR was rejected by the Cypriot parliament because it required 5.8 billion EUR contribution through a tax on banking deposits. Understandably, Cypriot citizens balked at the idea of helping to finance the bailout of the banks when the banks caused the crisis in the first place. Further complicating the issue is the mass amount of deposits by Russian citizens in the troubled banks.
A recent counterproposal by Cyprus officials to raise the 5.8 billion was rejected by the European troika. The plan consisted of a government takeover of pension funds of state run companies coupled with the issuance of government bonds. How they would take over the pension funds and the addition of more debt was cause for the dismissal of this plan.
There are other players involved in the effort to rescue the banks. Russia is in negotiations for a plan to offer a substantial loan in return to a sweet deal on the vast natural gas reserves that Cyprus possesses. Even The Church of Cyprus has entered the picture by offering it's vast portfolio of properties as collateral for a new series of government bonds.
How will Cyprus Bailout affect Binary Options Regulation?
Negotiations on all fronts continue and a solution to the crises will probably be found. If talks do break down and Cyprus is forced to sever its relationship with the Euro Zone, what effect will this have on Binary Options brokers, many of which are incorporated in Cyprus.
There two separate issues to discuss. The first is related to the actual deposits that Binary Options brokers have in Cyprus banks. Ultimately a bailout for a protection for depositors will be probably be found, thus protecting the brokers. The second issue relates to the CySEC regulation and its inclusion of other EU member nations. CySEC regulated brokers such as Banc De Binary say that the regulation applies to all EU member countries. If the crises leads to exclusion of Cyprus from the EU then the authority of the CySEC regulation may lose its relevance to other EU countries. In either case this may expedite the process of Binary brokers trying to gain separate licenses to operate in each country, much like in gaming or regional licenses in Forex.
We don't know how or when this crisis will be resolved or whether it will have any effect on Binary Option brokers or the industry as a whole. We will continue to monitor the situation and give you updates as they occur. To receive email updates please register to TradeOpus by using the form on the right side of the page (and get a free trading guide as well).