This day in history: August 5, 2011 – FXCM UK fined $140,000 by CFTC for acting as RFED counterparty to US clients

Five years ago, when the ink of President Barack Obama’s signature on the Dodd-Frank Wall Street Reform Act was still fresh and the method by which FX trading is conducted in North America today was at the very beginning of its inauguration as the new rulings intended to protect customers in the wake of large corporate demises such as those of MF Global, America’s regulatory authorities were fully engaged in writing an entirely new set of comprehensive parameters that encompassed market infrastructure, trade reporting, execution and capitalization of brokerages.

The  Commodity Futures Trading Commission (CFTC) and National Futures Association (NFA) began looking closely at their own new rules, eager to implement them and make a public impact, one facet of which was to place emphasis on the newly invoked rule in which brokerages in the United States could only onboard US citizens, and US citizens could only use US based brokerages.

On this day, August 5, in 2011, the CFTC fined the British division of FXCM $140,000 for what the regulatory authority considered to be an 11-day delay in that occurred in 2010 in the repatriation of accounts held by U.S. residents.

In accordance with CFTC registration requirements that became effective on October 18, 2010 in which all brokerages in the US must only deal with US clients, and vice versa, FXCM UK had to shut down or repatriate accounts held by U.S. residents back to FXCM’s U.S. entity, Forex Capital Markets LLC.

At the same time, the Financial Services Authority (now the Financial Conduct Authority), FXCM UK’s regulator, required individual consent from each account holder before the company could initiate a transfer.

In seeking to comply with the FSA requirement and prevent disruption to clients’ open positions, FXCM UK missed the CFTC’s deadline for completing the process as it sought to properly notify affected clients and conduct transfers in a timely and orderly fashion, resulting in FXCM UK not being in compliance with the CFTC’s requirement for 11 days between Oct. 18, 2010 and Oct. 29, 2010.

At the time, FXCM CEO Drew Niv made a commercial statement on the matter, explaining “FXCM worked toward the most optimal solution to minimize client impact and ensure a smooth transition of accounts. We worked diligently to communicate, educate and repatriate U.S. residents, and although we regret the brief non-compliance with the new U.S. regulation, we are pleased that we were able to provide our clients with a seamless migration.”

Photograph: FXCM’s global headquarters, New York. Copyright FinanceFeeds