IronFX is aggressively targeting IBs and traders across the world with non-withdrawable 100% bonuses, and time-specific, forceful marketing campaigns, alluding to the B-book model that created their notoriety. Why is this allowed when the firm owes global customers their withdrawals, and considering CySec’s instruction to desist from bonuses?
Congruous with the evolution of retail FX trading via MetaTrader 4 brokers which aim their services at small-ticket customer around the world to a much higher level of sophistication than even just five years ago has been the necessity for regulatory authorities in regions populous with electronic trading companies to develop their frameworks to encourage good and sustainable business whilst keeping pace the with technological methodologies of today’s retail FX industry.
Intercontinental regulatory structures have been subject to a back to the drawing board approach, giving rise to the federal Dodd-Frank Act in North America and MiFID in Europe, administered by the pan-European regulatory authority ESMA.
These directives cover multiple facets, including exact specifications by which end to end trading systems must be constructed, including execution model and the means by which post trade reporting is conducted and client assets handled, right through to the means by which retail financial products that can be traded electronically are allowed to be promoted.
And therein lies the problem.
MiFID II is scheduled to be implemented in January 2018, and currently, firms across the European Union, which largely means Cyprus’ 154 retail FX brokerages and Britain’s established and highly respected giants which will still conduct a substantial amount of business in respected mainland European jurisdictions – largely France and Germany – post Brexit, hence their need to be MiFID II compliant.
For Britain’s stalwarts, this will present no difficulty whatsoever as they are hewn-from-granite, evergreen giants which develop their own enterprise trading systems and are 30 years established, with senior management whose career in the FX industry spans interbank leadership, technological development and a depth of understanding largely outclassing their mainland EU rivals.
However, in Cyprus, things are somewhat different.
Whilst Cyprus grew itself as the number one global ‘hub’ for retail FX, meaning that it has no domestic clients but its 154 brokerages have flocked to the island for reasons of a skilled workforce, excellent commercial framework including management consultancies, lawyers, platform developers, market connectivity firms, liquidity provision and marketing specialists – effectively the entire structure of the retail FX industry, there is still some evidence of a giant elephant in the room.
Cyprus grew its vast end-to-end retail FX infrastructure very quickly and remarkably efficiently. For a small island to become the commercial mainstay for retail FX and all of its components within just six years is quite a feat to have achieved.
One of the reasons that it is attractive is that it is the only region in the world which has an entire workforce that know the retail FX business and understand it clearly, has very straight forward market entry procedures and is part of the European Union, hence the regulatory authority, CySec, is subject to MiFID II and all other ESMA directives.
This made it a far more attractive proposition from a client acquisition perspective than the proliferation of offshore, unregulated b-book firms that pervaded the internet a few years ago.
The difficult is that whilst all of this is to be recognized, CySec’s ‘straw man’ approach and the institutional-level corruption which underlines the decisions made with regard to preventing harm to customers and to our industry, is detrimental to the entire system.
ESMA considers Cyprus to be one of the only countries on its list that are non-compliant with European regulatory rulings.
The entire FX industry is all too aware of aberrations such as the method of operation that has sullied the name of the industry such as IronFX which continues to operate and ride roughshod over any rules or regulations, as well as the countless binary options scams that have been associated with many other regions, but have been allowed to operate, fully regulated, out of Cyprus and despite the criminal background of their operators, have been able to gain a license and continue to run their businesses unabated.
FinanceFeeds has had several conversations with CySec about this matter, and has also approached CySec with regard to why IronFX and various binary options firms are allowed to continue operations, are let off very serious matters with at the very most a very small fine or settlement, and are allowed to use bogus words such as “Exchange” when there is no such thing present in any of the OTC binary options firms or market makers.
The response has been one of resignation, accompanied by an explanation that CySec does not have restitution or criminal prosecution powers.
Yes indeed, in Australia, a wrongdoer would not only have its license removed, but would be prosecuted via a criminal court and have the firm wound up. The same would happen in North America.
In Cyprus, however, the maximum that could happen is a permanent license cancellation.
Licenses have been cancelled by CySec recently, however IronFX continues to maintain its license and continues to aggressively target customers with 100% bonuses to b-book accounts when it owes $176 million in unpaid client withdrawals, has a 1.6 million Euro unpaid tax liability to the Cyprus government, and has been engaged in litigation between IBs and traders from all over the world.
IronFX’s dishonorable exit from China in which several IBs made a media campaign and the offices of the firm were stormed has now faded to long term memory, yet the money is still outstanding to retail clients and IBs.
Two IronFX senior principals were recently tried by the Chinese government in a court in Shanghai, something that very rarely happens to overseas firms.
Additionally, senior European Commission politicians have actively spoken out in European Parliament, labeling IronFX as ‘fraudulent’.
IronFX has managed to effect influence over the media, local Cyprus newspapers having reported incorrect accounts of legal proceedings in order to whitewash the realities (FinanceFeeds has the court papers on file) of said cases.
Yet despite all of these clear transgressions, IronFX continues its operations, and continues to blast retail FX traders and IBs with aggressive marketing material, itself counter to MiFID rulings on deposits and overly persuasive methodology.
This morning, FinanceFeeds was provided with today’s example of this, which was sent to a company in South East Asia that refers retail clients to western brokerages.
The title of the email was “SURF THE WAVES OF TRADING | 100% BONUS WITH NO LIMITS!” – in capitals just as presented here.
Here is the rest of the advertisement:
This is an unsolicited message, which despite being titled ‘Dear Client’, has been sent to a marketing database consisting of individuals and IBs that have never deposited with IronFX.
Back in November 2016, CySec Chairman Demetra Kalogerou issued a notification to all FX and binary options firms in Cyprus expressing her interest to ensure that FX and binary options firms desist from offering deposit bonuses, and taking a very conservative approach to leverage in OTC FX products.
If a broker had a history of outstanding withdrawals to even an eighth of this magnitude and had not conducted the litany of transgressions that IronFX has in Australia, China, Singapore, Hong Kong, Japan or America – all large regions for electronic trading of different categories – and then flouted a directive issued by the chairman of the local regulator (offering bonuses in this case), there would be serious implications and the firm would be shut down and liquidated, and likely its principals be prosecuted.
Warnings and regulatory notices are usually worth less than the paper that they are written on, and mean absolutely nothing, and are often followed up by no action whatsoever.
ESMA’s recent directive reads quite differently, however.
The European Securities and Markets Authority (ESMA) recently issued a warning about the sale of contracts for differences (CFDs), binary options and other speculative products to retail investors who are unaware of the risks associated with these products, and also highlights the regulatory action taken in relation to several Cyprus-based investment firms.
This was a blanket dig at Cyprus investment firms (CIFs) in general, from the main regulator which is responsible for overseeing CySec regulated firms at large.
ESMA’s senior regulatory figures have noted that there has been an increase in the marketing of these products, often through aggressive practices, and at the same time, a rise in the number of complaints from retail investors who have suffered significant losses.
Steven Maijoor, Chairman of ESMA made it clear that “ESMA and national regulators still have serious concerns that firms are selling these products, which are inherently risky and speculative, to people who do not understand them. These products are often advertised to the retail mass market via online platforms and sold without investment advice. When these products are marketed and sold in an aggressive manner or when firms otherwise fail to comply with their regulatory obligations, this creates the conditions for retail investors to suffer significant detriment, including unexpected losses. ESMA and national regulators are committed to working together to ensure investors receive proper protection across the EU.”
This means that unless firms are prepared to move themselves on, and adapt different practices, emulate the more sophisticated trading environments of London and New York, there will be limited upward mobility.
Mr. Maijoor’s notice alludes to some notorious firms in Cyprus, stating that CySec has reached settlemnts with Depaho, Reliantco, IronFX Global, WGM Services, Pegase Capital, Rodeler, Banc de Binary and Ouroboros Derivatives Trading – totalling EUR 2,072,000.
Big deal. That is less than IBFX got for warehousing trades (without detriment to customers) and for undercapitalization from the NFA before the NFA finally removed them from the US altogether, and whilst IBFX was undercapitalized on several occassions, its behavior cannot be compared to any of the entities on this list.
The danger is that if funds, multi-product environments and higher level business is not adopted – and in Cyprus it would be VERY easy to adopt – then ESMA will likely begin to wind down a large proportion of the smaller brokerages on the island.
This would be a travesty, as the island is an absolutely first class place to do business, is home to fantastically knowledgeable professionals and has the absolutely right formula of institutional and technology firms in place to drive such an advancement forward.
If I can afford myself an opinion on this from my own professional perspective, I would like to see an investment in a move in that direction by Cyprus firms to the effect that within five years, Cyprus is regarded as the prestigious destination for electronic trading, rather than the populous.
Image: Chinese IBs protest at IronFX’s offices in 2014.