Canada’s chief watchdog hits Celox.live with a regulatory warning

abdelaziz Fathi

Canada’s mega regulator, the Investment Industry Regulatory Organization (IIROC), today warned Canadian investors not to be fooled by Celox.live.

The company has been targeting citizens of Canada’s provinces via commercial ads on classified websites, but Celox.live is not allowed to, since it is not registered to trade in or advertise on, securities or exchange contracts in the province.

“Celox.live falsely claims to be an IIROC-regulated online trading broker and uses IIROC’s and its legitimate dealer members’ information on forms and contracts to entice investors. The company is an offshore, unregulated entity,” the regulator said.

The IIROC also warns of the substantial potential for fraud at this time, saying that crooks often try to capitalize on high-profile news events to lure investors into financial cons.

“IIROC-regulated investment firms and individuals must meet our high standards and deal fairly, honestly and in good faith with Canadian investors. We urge Canadian investors to exercise caution when dealing with non-IIROC-regulated firms. Investors can verify an investment firm’s registration on IIROC’s website,” it added.

Of note, IIROC enjoys a unique structure as it regularly updates FX margin trading requirements subject to FX volatility.

While IIROC rarely uses this power, but the watchdog intervenes, particularly in situations where no other domestic regulator has the power to act (such as where a firm is proposing to offer a foreign-produced highly-leveraged product to retail clients).

The chief regulatory body in Canada has recently proposed a regulatory framework that provides clarity for derivatives activities. Among other things, all highly leveraged products offered to retail clients must be approved in advance by IIROC. Brokers must obtain prior approval for their leveraged products either when releasing new instruments or introducing any changes to the current offerings.

CFD sellers also have their rights restricted with regard to the level of promotion of CFD contracts in order to eliminate existing regulatory arbitrage situations. Further, an additional risk warning is now required, clearly indicating the level of risk to which CFD buyers would be exposed. The risk disclosure statement provided must be approved by IIROC.

The self-regulatory organization has also revised the “institutional client” definition. The new approach aims to avoid drawbacks of the current classification methodology where all individual clients are considered retail, regardless of their investment knowledge or assets they have under administration.

While a retail client can be a wealthy individual or a small business, both are often knowledgeable and, therefore, less likely to make uneducated investments. As such, the predominant distinction between retail and institutional clients will be their financial assets. Specifically, individuals and firms may be eligible to reclassify as a professional client whenever their capitals exceed $5 million and $25 million, respectively.

The updated rules harmonize Canada’s regulations with product approval requirements introduced in Europe by ESMA, which banned offering binary options and restricted leverage on CFDs.

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