CySec closes the door after the horse has bolted – ACFX license suspended further long after management have run for the hills

Delayed withdrawals across the world and a management team that has long since departed from the company. CySec’s response? To extend the suspension of ACFX’s license. Whilst CySec has made massive steps forward of late, this particular move is as useful as a chocolate teapot. Here is why


In so many critically important ways, Cypriot financial markets regulatory authority CySec has made tremendous progress during the past year in terms of its responsibility to continue to foster a top quality business environment for Cyprus as the largest retail FX brokerage center in the world and continue to attract platform developers, liquidity providers, integration specialists and ancillary service vendors to nestle alongside the 180 brokerages on the island and ensure longevity of the industry whilst setting out a framework which supports brokerages, strengthens their mettle and protects consumers.

Noble indeed, and considering the rapidity at which Cyprus became a comprehensive center for international FX businesses and all of the top quality service providers that are required in order to operate a full and comprehensive trading ecosystem, CySec has done an admirable job of fostering a good business environment whilst demonstrating an increased intolerance for commercial misbehavior.

There is still some ground to make up, however, if Cyprus wishes to match established and well recognized financial markets centers such as Australia or North America, two regions in which the regulators have criminal prosecution and restitution powers, a case in point being last week’s decision to extend the suspension of ACFX’s Cyprus Investment Firm (CIF) license.

Commercial difficulties at ACFX became apparent in April this year, and following the initial suspension of the firm’s license by CySec, FinanceFeeds conducted an investigation into the company’s internal affairs and structure.

CySec acted quickly in bringing into effect the initial license suspension, however our investigation noted that several global clients were unable to withdraw their funds, and introducing brokers were not being paid.

FinanceFeeds interviewed staff and former senior management, which led to our discovery that the entire management team had departed en masse, subsequently to be hired by British spread betting company LCG just after LCG let 20 staff go.

A litany of complaints surrounding this matter now adorn public forums, indicating that the tardiness with regard to withdrawals is no longer limited to Chinese introducing brokers and their clients, but is now widespread across many region in which ACFX conducted its business.

During this investigation, FinanceFeeds contacted several clients who allege that they have been affected by this, as well as made investigations into the operational structure at ACFX by contacting existing and former employees of the company.

One particular trader that we spoke to is an experienced trader who holds accounts with several brokerages in various regions, including Australia, Cyprus, UK and Belize and explained to FinanceFeeds that he has never had any issues until now.

“Things got slow with withdrawals when I won large amounts (some hundreds of thousands USD) off another Cyprus broker in August 2015, then again in January 2016. This coincided with China Black Monday and the oil price drop plus commodity currency drops. There were reports of this happening on greater scale with much bigger traders than me” said the trader

“Anyway all along I had an account manager at ACFX, Rasha Gad. It was apparently a surprise to all when on 7th April ACFX’s license got suspended by Cysec. The first thing I know is that all my trades turned “Close Only” on the Metatrader trading platform, as I was trying to roll over some of my positions at that time. I generally rolled over positions every day, but I did not use ACFX account to scalp – with very rare exceptions” he explained.

“My balance, once I had everything closed was almost $84,000, which was a significant proportion of my trading capital (and personal wealth)”

FinanceFeeds conducted some research and found the withdrawal delays in China were due to so-called instances of ‘riskless arbitrage’ which had started in approximately March. Further research showed delays in withdrawals from time to time in August 2015.

Another trader explained “My account with ACFX had been losing as I needed to to hedge various exposures in Australian Dollars and New Zealand Dollars and Turkish Lira from other investments. I also traded Euro, Swiss Francs, Yen, US Dollar and various crosses between all the mentioned currencies, long and short. I also traded just under a contract of Spot WTI Oil. I was not hedged here, it was an outright long. My account had been designated swap free since early to mid 2015.”

On July 9, FinanceFeeds received further reports from traders, one particular client of ACFX stating “I am client of ACFX, with a large sum in an account with them that I cannot withdraw, as my withdraw request is falling on deaf ears, along with thousands of others I’d say. I have written to Cysec with no response other than they are still investigating the situation.”

This has prevailed, and last month, a client on the Indian Subcontinent explained to FinanceFeeds “I am waiting for a withdrawal of $1379. I have made several requests to withdraw via email and the company did not answer. My initial deposit was made by Webmoney, and therefore in order to withdraw, ACFX stated that I needed to send an email to them to be able to receive funds back to my Webmoney wallet, but nothing has materialized.”

Many other customers, also based in the Indian subcontinent, which appears to be a region in which the company has a number of clients with account balances under $2,000, have approached FinanceFeeds in order to explain that they have been unable to receive withdrawals, many of whom have also supplied their account numbers and balance amounts.

Exodus of staff and senior management

Just after CySec suspended ACFX’s license, the company’s Chief Marketing Officer left the company, and Petar Gazivoda, the company’s CEO, has made himself unavailable and not replied to any calls to the company’s office or requests for contact via email contact with the company’s office to staff members that are still with the company.

In asking for comment from ACFX, FinanceFeeds approached Przemyslaw Czerka, the company’s Sales Manager, who replied:

“Glad to receive your message. However I won’t be able to comment at this moment as the company is still working with CySEC on this matter. Thank you and keep in touch. Best Regards, Przemyslaw.”

Andreas Michaelides, Head of Investment Research at ACFS (Atlas Captial Financial Services), replied to our investigation ” Thank you for reaching out to me.  Unfortunately, I am not in a position to comment.  Therefore, dutybound I will pass this message onto the company’s senior management. Kind regards Andreas.”

Former employees have come forward and explained to FinanceFeeds that there are not many members of staff remaining at the company, and that “The whole management team have now left, not just the Chief Marketing Officer.”

Another former employee explained “The management left a while ago, and regular staff have not been kept in the loop even before the suspension of the license by CySec. It is probably only Petar (CEO) who could say something relevant.”

It was just a matter of weeks after this that we discovered that the management team had been hire by LCG, meaning that there is indeed no likelihood of those in positions of power at ACFX returning to the firm to process withdrawals and pay IBs.

FinanceFeeds handed its research over to CySec, and asked for comment, which was not forthcoming, however the public forums would be researchable by regulatory officials at CySec, and our research would have been substantial enough for CySec to realize that a mere suspension of license is not enough to resolve a problem that is now that of a company whose management team have all left and which is a mere shell compared to its pre-April 2016 fully operational stance.

To a large extent, CySec has achieved tremendous steps forward, rising up not only from its origins as a fledgling regulator – it is not steeped in history in the same way that America’s National Futures Authority (NFA) or Commodity Futures Trading Commission (CFTC) are. The CFTC is governed by political party senators and has a vast budget which stands it out as the most consumer-focused regulatory authority on earth. Continual monitoring is carried out, firms have to report each day to the NFA and if any irregularity is discovered, an official will set next to the CEO’s desk for three months and ensure that every single aspect of the business has been investigated.

If any irregularities are discovered, the firm is sued in a federal court, customers are restituted and the entire details of the case and its reason for being brought about, decision and (often very heavy) fines are published on the internet for all to see.

America does not need to kowtow to small retail brokerages, however. Its economy is vast and varied. Cyprus has a fine line to tread. Its economy is fantastic and in great condition, but it relies, as a country with a population of only 800,000, on tourism and the FX industry, therefore regulators need to ensure that the rulings are firm and adhered to properly, whilst maintaining a very good environment for the companies themselves and their customers worldwide.

Domestic audience vs international audience

Cyprus has another achilles heel, which is that no customers of Cypriot companies are based in Cyprus. It is an industry center, not a market. This means that CySec has the burden of having to be lobbied constantly by overseas regulators with regard to the companies that it overseas, whereas American authorities have direct jurisdiction over their companies as all of the customers of American electronic trading firms are domestic.

This has presented a great difficulty for CySec in that cross-border jurisdiction is difficult, however the ability for a regulator to deem a company unfit for any market still lies with CySec and in the case of firms such as IronFX, which continues to operate unrestricted despite its widely known treatment of overseas IBs and customers in many regions, particularly China where IronFX had a massive introducing broker network.

Even the Cyprus government is speaking out – something that no government ever does, anywhere, however in order to be able to fully back customers and IBs across the world when a company folds and its management makes for the hills, a regulator must be able to attain restitution orders and to file lawsuits against management which does not uphold its responsibilities.

Taking a leaf out of Australia’s book would be a potentially good move for CySec, especially bearing in mind that a vast proportion of the economy in Cyprus is made up of retail FX firms and their supporting suppliers.

ASIC has over the past few yars devised two very important methodologies very early on- one was the implementation of First Derivatives’ real time surveillance system that continuously checks the activities of all firms with an ASIC license and has proven completely infallible, and the other being its ability to take companies to civil or criminal trial as well as actually wind their operations up – not just remove or suspend their license, but to send the bailiffs in and actually close the company down. “Fair go mate, you’re a doner” as they say.

This has gained Greg Medcalf, Australia’s regulatory leader, tremendous respect and has engendered a very good environment for Australia’s top quality and highly respected companies, including giants such as Invast Global, whose Pure Prime service was launched recently, with Geoff Last’s 39 years of experience in the industry being a huge benefit, and AxiCorp with Rajesh Yohannan now at the helm, whom I spoke to in great detail yesterday, his enthusiastic and upbeat parlance pointing to a great future for the firm in Australia under his leadership, poised to expand globally.

Australia has protected its markets from abuse, takes a very dim view of margin FX firms that do not abide by the law, and has actually closed down several firms and disqualified their directors from ever operating a financial markets business, and in some cases sent them to jail. Yes, a financial markets regulator that sends con-men to jail.

By going down this route, situations in which management flees from a company and only a few months later an impotent suspension of license is issued would be prevented, and those responsible held to book and ultimately the vast majority of bona fide Cyprus-based firms would benefit because they would be viewed with absolute confidence by retail customers and potential partners such as IBs across the world.

All in all, the information is available to be able to track down those who contributed to the failure of ACFX and make them face their responsibilities, however CySec’s limited remit in this respect is to issue a further suspension of license, and warn that it may remove the license, however removing the license of a company whose management are long gone, and which owes a fortune to customers who have little or no recourse is rather like asking a supermarket for a refund on sub-standard food products 3 months after having eaten them all and disposed of the receipts and packaging.

In a word, futile.

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