All eyes on Estonia’s regulator after fining Admiral Markets AS

As reported last week, the Estonian financial watchdog – Finantsinspektsioon – fined Admiral Markets AS 32,000 euros for breaching its legal obligations in providing investment services. The trading platform will contest the decision as “not all market-specific circumstances have been taken into account”.

The regulator argued that the methodology used for calculating the spot price of crude oil was changed unilaterally and without warning, and at the same time fees for depositing certain securities overnight were raised. The alleged lack of transparency and unplanned expenses for clients raised eyebrows at Finantsinspektsioon.

“They must clearly avoid passing on risks unexpectedly and non-transparently to their clients”, said Chair of the Finantsinspektsioon Management Board Kilvar Kessler on how a professional market participant must manage and hedge risks and bear the consequent costs.

The alleged misdemeanor – of not making every possible effort to act in the best interests of their clients before changing the conditions for the financial instruments – will result in a €32,000 fine.

Admiral Markets AS issued a statement arguing that the “international financial platforms were not ready to reflect negative prices and calculate credit limits” amid the negative oil price event in April 2020. So, in the eyes of the company, Admiral Markets “acted in the best interests of its customers and ensured that customers could continue to trade in global financial markets.”

“We have always been committed to ensuring that the interests of our customers around the world are protected. In this situation, we stood up to reduce the potential impact on our customers. The goal of Admiral Markets is always to be a quality leader, to offer the best service, and open communication with its customers and cooperation partners. We informed our customers early on of possible anomalies in the financial markets and asked them to be vigilant”, said CEO Sergei Bogatenkov.

Moment of truth for Finantsinspektsioon: Will the regulator shoot blanks?

The decision to find fault with Admiral Markets AS’ methodology and deposit fee changes comes weeks after the recent trading disruption in capital markets caused by the r/WallStreetBets retail trading movement.

The newfound trading democracy caused unexpected turmoil as brokers were unable to keep up with unprecedented demand for a number of stocks, but especially Gamestop. Neo broker Robinhood was the number one victim of conspiracy theories on what drove financial services firms to restrict the trading of these instruments, but IG Group and many more also suffered a backlash.

Regulators across the world have started investigating the trading disruptions after a number of complaints in several countries, including Germany and the US. Estonia’s Finantsinspektsioon made no announcement regarding the event, but in many ways it can be compared to what happened with oil prices in April 2020 and brokers’ preemptive action.

Now that Estonia’s financial watchdog decided to fine Admiral Markets AS, the trading industry can only expect a cascade of fines against other brokers who made similar decisions to preserve stable trading conditions amid unprecedented events like the negative oil prices and the meme stocks phenomenon.

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