FINMA Regulatory Alerts: Avoid TradingBanks

Make no mistake about it – The regulators are our friends! Regulatory agencies across the globe do more than just police the investment landscape. They are also sworn to protect and educate consumers as to the risks involved, how to minimize those risks, and what entities pose the greatest risks and should be avoided at all costs. The foreign exchange industry is just one aspect of the entire investment spectrum where regulators ply their trade, but it has commanded a great deal of attention over the last few years, starting as far back as 2013.

Regulatory agencies in their various markets of jurisdiction have performed a yeoman’s task in cleaning up the forex market from its wild and woolly days that began in the late nineties. Unscrupulous brokers have been shut down. Fraudsters have been put behind bars, and the level of crime in the industry has receded to what could be termed by law enforcement officials as manageable. As a result, our retail forex trading industry has grown by leaps and bounds, expanding in scope into new markets and gaining new clients of every nationality.

Technology has been the primary enabler for this global success story, but there is also, unfortunately, a dark side to this story, as well. Cyber-crime is presently accelerating at unheard of rates, especially in those markets where the newness of it all can cloak the crooks in an air of apparent respectability. Add to this equation a sluggish global economy, a more attentive regulatory establishment, and financial pressure on the forex brokerage community, and you then have a situation where fraudsters must become more aggressive to achieve their own financial objectives at our expense.

Where and when did the financial pressure on forex brokers originate?

Financial pressure originates for forex brokers from both within and without our trading environment. It is a given that currency prices can swing chaotically, the reason why trading in this genre is classified as high risk and risk disclaimers appear on most every webpage of a broker’s website. This high-risk nature, however, causes an inordinately high casualty rate among beginners, estimated to be as high as 70%. With such a high attrition rate, brokers must continually be in high gear when it comes to finding and persuading new clients to join their firm.

This internal financial pressure, so to speak, is persistent and can only be dealt with by developing a large, loyal, and successful customer base. External financial pressure came in 2013 in the form of a crisis on the island of Cyprus. The two largest banks on the island failed due to heavier than prudent bets on Greek bonds that were significantly devalued. The financial collapse of these two banks impacted a host of forex brokers that had set up their operating back offices in this popular EU financial center. Brokers that had not segregated deposits in offshore banks were severely punished. Without new capital, many were forced to close their doors or be acquired.

Many other brokers have been hanging on by their fingernails from that point forward, hoping that a major turnaround would transpire. It has not. Consequently, marketing campaigns and bonus promotions have gotten more strident. And then the Swiss Franc Debacle occurred in early 2015. When the Swiss central bank lifted its peg to the Euro, brokers and traders were caught off guard. Billions were lost. Bankruptcies made the news in every market. Lately, a slowing global economy has disrupted capital flows across foreign borders, thus adding even more pressure for brokers to over perform with less resources and with tighter operating margins.

This chain of events has also created a fertile breeding ground for all types of forex fraud, including rate-fixing schemes within our largest financial institutions. Regulators have been distracted at the highest levels in order to assess billions in dollars of fines and prosecute the perpetrators of these global scandals. While the “cats” have been away, the “mice” have been active at lower levels.

Regulators have begun to fight back on many fronts.

Forex industry headlines have been rife this year with announcements and alerts from the likes of the FCA, CySEC, and the CFTC, but has anyone noticed the renewed vigor of FINMA?

FINMA is the Financial Market Supervisory Authority, and, per its website, “is Switzerland’s independent financial-markets regulator. Its mandate is to supervise banks, insurance companies, exchanges, securities dealers, collective investment schemes, and their asset managers and fund management companies. It also regulates distributors and insurance intermediaries. It is charged with protecting creditors, investors and policyholders. FINMA is responsible for ensuring that Switzerland’s financial markets function effectively.”

Swiss banking authorities tend to keep a low profile in the news, but its regulatory arm has not been shy in publishing warning alerts for potential threats in the forex arena. Its most recent warning has delt with:

TradingBanks: This firm operates from a web address of http://www.tradingbanks.com, but it claims to have a contact address in Beliz, although formerly operating as a BVI concern. It does not purport to have an office in Switzerland, but it does publish a Swiss telephone number under its “Contact Us” webpage. This broker has no license or authorization to solicit Swiss citizens for its services.

In order for FINMA to blacklist a broker, it must first receive a complaint from a consumer and then perform its own investigation. Cross-border solicitation of new customers without the proper authorization has become commonplace in the forex industry of late. Its occurrence may represent heightened financial pressure to obtain new trading clients, and, although much of it may be well intentioned, the potential for fraud in our industry is severely increased whenever you deal with a broker in another legal jurisdiction. If that jurisdiction is also on the low end of the scale when it comes to regulatory oversight, then you are best advised to consider choosing another broker. Attempting to press your legal rights in a foreign land is a nightmare waiting to happen and rarely succeeds.

What similar actions is the FCA pursuing in the European forex market arena?

Like its FINMA brother in arms, the FCA has also been publishing alerts right and left, a sure fire indicator that fraud risk levels in the foreign exchange space are on the rise. It, too, publishes a “Warning List” of companies that may pose increased risk to the investment community. When we visited its warning webpage, there were 3,519 entries on the file, 15 in March alone. Not all of these were potential forex offenders, but a few recent entries had already made it to forex industry headlines of late.

As with FINMA, many of these warnings pertain to firms that do not have the proper authorizations, but quite a few represent a new type of fraud that is fast becoming prevalent – website “clone” firms. These fraudulent brokers produce look-alike websites that cleverly appear to be that of an authorized broker in every detail. Contact info, phone numbers, and links redirect potential clients to the criminal’s server where personal information can be compromised or, worse yet, deposits can be received, which will never to be seen again.

Here is a quick summary of recent forex related alerts from the FCA:

1)    MT Capital Partners trading as Justrader: The following website addresses, http://mtcapitalpartners.com and http://www.justrader.com, are no longer active, which is a good thing. Neither brand name had the proper credentials to operate in the UK, and they may have already been shut down. Crooks, however, tend to shut down in one place and quickly re-appear somewhere else, only to perpetrate the same fraud again and again using similar tactics;

2)    Golden Green FX: This firm is not authorized by the FCA, but has been targeting potential customers in the UK;

3)    MarketCT: This website broker has attempted to clone “Capital Markets Trading UK LLP”, a genuine UK authorized brokerage firm. As noted by the FCA, “The practice of corporate cloning – fraudsters using the details of authorized firms to convince people that they work for a genuine, authorized company, keeps gaining momentum in the Forex industry.”

4)    LondonFX: The most recent “clone” warning from the FCA is for this firm. It has identified LondonFX as “an unauthorized Forex broker, targeting Chinese and English-speaking clientele, while misusing the details of an investment firm”, Ikon Capital Limited, a legitimate forex broker regulated by the FCA.

The FCA urges everyone to check with its list of registered entities and its warning list of potential threats before deciding to go with a particular broker. You should also pay attention to the contact information on the FCA site for the broker. It is advised that when cold called by any broker, that you check the phone number given with the one on the FCA’s site and then call the official number to verify any proposed offer. It is also a matter of fact that, if you deal with an un-authorized broker, you will not receive protection from the UK national investor compensation program, another reason to check closely.

Concluding Remarks

As we said, the regulators are your friends. They go out of their way to inform, educate, and protect consumers from potential fraud in the foreign exchange industry. With respect to FINMA and the FCA, here are two links, one for each agency that will connect you with their alert/warning webpage:

https://www.finma.ch/en/finma-public/warnungen/#Order=4

https://www.fca.org.uk/news

Both agencies will also warn you that if a potential firm that you are considering is not on these lists, it does not necessarily mean that they are legitimate. There are other lists of registered entities that will offer more guidance, but outright fraud, as with the sudden appearance of “clone” firms, is more difficult to detect. Always report bad experiences to your local regulator. It will investigate and publish a warning, if it finds evidence to support such a release. Stay Vigilant!

Chris Lee

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