Unregulated brokers will have their IP addresses blocked by Polish authorities – View from within

Last week, FinanceFeeds reported that KNF, the Polish financial services regulatory authority had stated its proposals for the implementation of new measures for investor protection

Poland’s financial regulator published details about its plans to change the way it supervises the financial market. The project is focusing on the FX industry but its provisions can be extended to other market segments monitored by the regulator.

Under the proposals, the KNF would gain the right to run a special register to which the domain names listed on the KNF Public Alerts List would be added. Entering a domain name into the restricted domain register would result in the blocking of access to these pages by Internet service providers. The registry will enable ISPs to automatically obtain information about the domains added to the list.

There are amendments to the Act on Trading in Financial Instruments proposed too. The regulator proposes heavier fines for companies that operate a financial instruments business without proper authorization.

FinanceFeeds analysis on the new proposals

FinanceFeeds considers the blocking of IP addresses by national authorities to be the only effective means of keeping those who contravene the advertising and marketing rules in specific countries or operate  companies which profit from the losses of their clients from gaining any presence.

Many nations, especially those in Northern and Western Europe, have recently invoked prohibitions on advertising campaigns for certain OTC derivatives such as binary options and in other cases any form of retail OTC derivative.

Many regions – including in North America, where the NFA strictly prohibits the solicitation of customers by overseas firms and in particular binary options companies who are not legally allowed to operate in the US, have been unable to stem the flow of unauthorized binary options firms.

We know for certain that there are various binary options market makers which are makin 75% of their revenues via illicit dealings with American customers. A simple IP block on their services, plus a blocking of their payment service provider – many of which operate in an illegitimate manner, would instantly remove this problem.

Last week’s extremely vitriolic diatribe by CySec Chairman Demetra Kalogerou during a private meeting with shareholders and compliance officers of CySec regulated electronic trading firms is another case in point. Ms. Kalogerou pointed the finger in exasperation at the entire Cyprus FX industry, one point being the activities being conducted outside Cyprus via partners or overseas entities of Cyprus Investment Firms.

A simple IP block would end this should enough concern arise and if rules and practices are not followed, rather than endless bureaucracy and a tug of war between civil regulators with no cross-border jurisdiction and no ability to prosecute transgressors.

View from Within: Marcin Nowogórski, a trading industry executive based in Poland working closely with PFSOFT, Comparic and FxCuffs Foundation gives his perspective.

With regard to the proposals for new piece of legislation in Poland initiated by our financial supervisor, the KNF, that will modify the current law on transacting financial instruments, I welcome this move as it is finally addressing the real source of most problems we have now with OTC trading industry in Poland, the unauthorized brokers.

Companies that do not meet our regulatory requirements, often regulated somewhere outside European Union, very often use unlawful practices and missell their products to unaware people.

The most important provision in the new law would allow KNF to create and manage a list of unauthorized brokers and their websites, and then Internet service providers (ISPs) would be obliged to block those websites on territory of Poland. This way we should be able to get rid of the worst type of investment abuse from our local market.

The regulator’s action is clearly reactionary, but this time it’s aimed at the heart of one of the biggest problems our trading community currently faces. Previously, new regulations were being imposed only on brokers who are already supervised by KNF, therefore keeping pretty good standards for most of the time. This way KNF was not able to impact companies that operate from abroad, especially from outside of EU.

Of course, there are still some issues with regulated OTC market to be solved, but that’s the problem on a completely different level.

I am concerned with one of provisions that increases penalty for unauthorized investment services. It’s very typical for Poland’s authorities to fight problems only with ‘good wishes put on paper’, while only real actions, even when penalty is not that bad, have potential to make difference.

In my opinion, we should wait and see how enforcing of this new law will work in practice, as life teaches that theory and practice are two different stories.

What else can make things different in Poland is education. There is still too little of investment education especially in regards to retail OTC market (leveraged FOREX and CFDs) and how those instruments work.

The KNF itself treats OTC instruments as very risky but mainly because ‘many people lost money’. That sounds like complete misunderstanding, and also discrimination in regards to other types of instruments (mostly exchange traded products), where ‘many people lost money’ too.

In the meantime, mainstream media got it all wrong confusing FX with CFDs on stocks, and focusing only on cases of spectacular losses, while naming trading as gambling. They obviously do this because of their agenda, but such approach does a lot of bad in terms of educating the society.

Not long ago other Poland’s agency, the Office for Competition and Consumer Protection (UOKIK), issued a warning that consumers should be very careful with FOREX. Well, of course they should! For example, same rule applies when they are crossing the street.

As I see it, now they are going after brokers who are unregulated in Poland as earlier they were out of the KNF’s range. Therefore, all restrictions were affecting only legally operating brokers.

Another change will be a higher penalty for unauthorized investment services when a victim will lose money on such activity. The main idea is to increase level of protection for non-professional market participants.