“My view is that we are at an important time – a squeezing if you like – which may promote consolidation and perhaps even a couple of exits in their various forms” says GO Markets CEO Christopher Gore, as he looks very closely at how the regulatory structure and maintaining the correct methodology is critical to commercial sustainability in retail FX
The higher quality entities within the retail FX industry have become polarized in terms of location during the course of the establishment and maturity of the now highly advanced retail sector of the electronic trading business that serves global clients.
Two opposing ends of the world, Britain and Australia, have become recognized as the bastion of business acumen, along with the regions with the most developed talent base, technological infrastructure, research and development and regulatory aplomb.
Australia’s retail FX sector has evolved tremendously since the beginning of this decade, largely down to the will of the companies in the Antipodes to further their remit on an ongoing basis and make their contribution to the refinement of retail FX, but also due to the Australian Securities and Investments Commission (ASIC)’s very modern, comprehensive understanding of how to set forth a regulatory framework for an electronic financial services industry that serves global clients.
Gone are the days of the gray-suited compliance officer with a brief case containing paperwork, and well and truly here is the age of software-dependent reporting, analysis of execution via computerized methodology and the requirement for regulatory officials to understand the full topography of an electronic trading system.
Australia has done this very well indeed, and today, speaking to Christopher Gore, CEO of GO Markets, one of Australia’s most prominent retail FX firms that was a pioneer in the region, this aspect was expanded on in detail.
In terms of background, Mr Gore, an astute, eloquent professional, can trace his industry experience prior to becoming CEO of GO Markets through leadership at global institutions.
“My interest in the financial markets began in the early 2000’s, which led me to take a role at a software provider that specialised in charting and analysis” said Mr Gore.
“It was at this time I took a keen interest in some of the more innovative products around, and as a result in 2004, IG Group gave me an opportunity as a Sales Trader” he explained.
“From there I was given further opportunities as an Analyst and Commentator. After a brief hiatus, I moved over to GO Markets in 2009. I’ve worn a number of different hats over the years at GO Markets, from Analyst in the early days, to some of the more operational aspects of our business. As a Responsible Manager of the licence, the move into regulatory compliance area of the business was a natural fit and this experience was key in my appointment as CEO earlier this year” explained Mr Gore.
Mr Gore, during the course of his career thus far, became particularly interested in compliance within the electronic trading business, in particular with regard to how it has now become the cornerstone of the business, with regulators and compliance officers having now become technologically advanced to ensure alignment.
Additionally, he has a keen interest in the method by which new ground-up regulatory directives in this business along with compliance procedures that are now being implemented that are specific to electronic markets , such as MiFID II, are cornerstones of the business, not a byproduct, and are instrumental to its future-proofing and further development.
On this point, European, American and Australian regulators have, over the past few years, taken a very close look at how to completely reform the means by which electronic financial products and market access is made available to retail clients. This, Mr Gore agrees, is a very good thing and serves to create a sustainable future for the industry and its client base, however in some cases, there have been retail firms that have exited regulated markets.
This has created a new wave of registrations in offshore regions with very loose regulatory structures, from which retail firms can approach a global client base but without having to stick rigidly to a set of regulations.
On this point, Mr Gore’s perspective is clear. “Naturally, low-cost (offshore) jurisdictions are of concern in many respects. From a consumer point of view, it’s important to consider the regulatory framework of the jurisdiction in which your provider is licensed or operates” he said.
“Protection for consumers can be vastly different in each jurisdiction, and some regulated environments may be less onerous, therefore, prone to see more negative outcomes for traders. On balance, offshore operations do seem to find trouble of a more serious nature than your well-reputed jurisdictions” explained Mr Gore.
FinanceFeeds considers that the firms that are seeking to move away from regulated markets onto Vanuatu or to the Virgin Islands, along with the number of FX industry specific consultants and lawyers that are promoting or facilitating this move is problematic as it allows them to do reputational damage by onboarding retail clients from all regions, and then having very little responsibility toward adhering to a correct and accepted means of doing business, whereas genuine firms with reporting responsibilities are constantly under the microscope yet they are the ones with the will to uphold the standard and adhere to MiFID II, the Global FX Code and ASIC’s continued development of the retail margin FX regulatory structure
Thus, ASIC has kept a very keen eye on margin FX over recent years, and has not been afraid to show its mettle several times in either refusing new licenses, or closing down and winding up companies that it considers to be transgressors.
On this subject, Mr Gore explained “While jurisdictions such as Australia and the United Kingdom are well regarded from a regulatory point of view, locally I think we’re still only part way through the regulatory transformation.”
“My view is that we are at an important time – a squeezing if you like – which may promote consolidation and perhaps even a couple of exits in their various forms. Earlier this week we saw the ASICs reporting rules finalized which was highly anticipated by industry. It was good to participate in the consultation process, and to their credit, they asked the industry for our feedback and took on board our suggestions” – Christopher Gore, CEO, GO Markets
The regulatory curve after critical events
“The regulatory curve has clearly steepened as a result of critical events in recent years such as the GTL default” said Mr Gore.
“The by-product of this is of course increased regulatory surveillance, enforcement outcomes, and more generally, a much higher barrier to entry. These events have shaped, and will continue to shape, the industry in Australia as we know it. All of these factors are in some way culture changing, where licence preservation becomes one of the most critical parts of a business and key to achieving your commercial objectives. A solid compliance framework promotes longevity” he explained.
It does certainly appear that after the GTL Trading episode, ASIC clamped down very harshly. It became very clear that almost all license applications for retail FX firms were stopped by ASIC with rumors that some were taking more than a year to process, whilst applications for AFS licenses from other financial services businesses in other sectors were being processed without delay. It is an interesting point whether this was an overly cautious move, or one to preserve Australia’s standing.
Australia used to be a region in which a $30,000 license could be sold for as much as $250,000 in cash due to demand and desire for incoming firms not to wait out the application process, and this is currently a very gray area.
“I do hear occasionally about the ‘going rate’ of financial services licences. I guess this is a ‘grey market’ of sorts that’s a product of an apparent slowing, or halt, of new licences. Still, I would say that while a license may fetch a pretty penny, there are no quick wins and I would imagine an extensive list of regulatory hurdles to jump once you get your hands on it” stated Mr Gore.
Indeed, FinanceFeeds is aware of instances in mainland China in which false ASIC licenses have been marketed to firms, at very high premiums, which, when discovered by ASIC, became a reason for further concern over issuing new genuine licenses, as denoted in our research on this matter recently.
Enhanced Disclosure Initiatives and Transparency
Transparency is a matter of great priority for regulators when reviewing compliance procedures for OTC firms.
As the financial product is issued by the FX or CFD provider, the CFD provider must state prices at which other persons have reasonable expectations that they will be able to regularly affect prices.
Best execution, which covers every aspect of how a trade is handled by a provider, is a moot point at the moment, with many regulators, the most recent being Europe’s ESMA, looking closely at how to report best execution and setting out what has been construed by many as a very ambiguous set of parameters, ranging from whether it was in the customer’s favor to internalize the trade, or to send it to one or another liquidity provider whilst being able to prove that the liquidity provider it is sent to is not giving the broker preferential terms to send it there.
Another aspect is persistent positive slippage (that is, slippage in favour of the client) which may result in fewer orders being filled and the CFD provider either increasing spreads or only partially filling orders. While there is a strong possibility that asymmetric slippage would infringe on the likelihood of the issue being tested by a court is remote, hence these are very difficult parameters to measure from a compliance pespective.
Mr Gore’s view on this is “One of the more positive industry trends is enhanced disclosure initiatives. From execution policies to conduct codes, there’s more information out there to help the consumer make an informed decision. Essentially, I think this is another key area where a provider’s compliance and commercial objectives work hand in hand.”
In conclusion, Mr Gore summised “Naturally, we’ve got an active interest in technology and innovation. These are, of course, essential in processing new and interesting ideas, and are in the end promotors of healthy competition. We’ve just released our GO Plus+ account which is a result of some of the things we’re doing behind the scenes in terms of pricing technology.”
“For us, it’s all about adapting to changes in consumer preferences and continually improving on our product range. We’ve just released our low-cost account and we’ve got a couple of new releases coming up, so I’m confident that our efforts won’t go unnoticed.”
Featured photograph: St Flinders Station, Melbourne, Victoria.