The Cyprus Securities and Exchange Commission (CySec) on Wednesday warned investors and the public about various risks that could arise during the current period due to the extremely low-interest rates in banks.
In an announcement, it said that during periods of historically-low or even negative interest rates in the banking sector, investors should be extremely cautious, as various individuals may offer products and services using fake representations and promising high returns.
“Through different ways and tricks, individuals and/or real or bogus or other non-regulated entities will likely try to attract the interest of retail investors, in order to entice it into dangerous or/and illegal investing schemes, such as Ponzi schemes,” CySec said.
It called on the public to do their due diligence and to check whether any company they have investment dealings with are regulated by CySec. If they do not, they would be at risk of having no recourse subsequently.
The public can check whether a company is regulated to provide investment services in Cyprus by visiting CySec’s website for CySec-regulated entities or for firms from other EU Member States that provide investment services cross-border or through a branch.
It added that it was important for the public to ensure that a firm’s contact information matches the information listed on CySec’s website, in order to ensure that they are actually dealing with the real, regulated entity.
“In periods of extremely low or even negative interest rates in the banking sector, various entities respond to the public’s demand for higher returns by offering complex investment products. Investors often do not fully understand the way these products work and the risks they entail, and as a result, they may endure sizable losses,” the regulator said.
Moreover, it added, complex investment products are often marketed in an aggressive way, and they are advertised with attractive slogans and promises for higher returns compared to deposit accounts, which are usually offered by banks.
“The marketing techniques used are frequently misleading and illegal,” said CySec.
Investors are urged to be cautious against promises of “high”, “guaranteed”, “with risk hedging” or “absolute” returns as such promises often prove to be misleading.
Also, investors should always keep in mind the risk-return relationship, according to which the investments that provide higher returns usually involve higher or additional risks.
CySec also warned about the risks connected to the sale, ownership, exchange or trade of virtual currencies and urged the public to obtain investment advice from professional investment advisors in licensed investment firms, before deciding to invest.
In addition, the regulator said there have been cases of people who fraudulently presented themselves as CySec officials, soliciting investors for fees, in order to supposedly recover the damage that the investor may have suffered in the framework of their cooperation with CySec-regulated entities.
Complaints related to investor fraud can be reported to CySec or to the police, it added.