Market forces are the real regulators – Guest Editorial

Nicc Lewis is a renowned senior level marketing specialist within the electronic trading and FX industry. After several years as CMO at Leverate, Nicc became CEO of Expozive, which provides a comprehensive range of fully managed services for companies in the online trading and e-commerce sector, and manages how companies can conduct their public relations, branding and enhance engagement in their product ranges, along with an end-to-end enterprise solution for preparing companies for expo and conference participation.

I have long preached the ineffectiveness of Regulators, other than to punish the good guys whiles the bad guys operate risk free. Regulation is becoming tougher on the regulated with heavy restrictions on customer relation side that have heavy consequences on conversion and retention of clients. On top of the diminishing ability to generate revenues, effective ongoing costs of administration is just growing.

The recent addition of changes with MIFID ii and MIFIR reporting, plus GDPR compliance means that compliance is increasing the cost side. You do not have to be a business mogul or mathematical genius to see that less income plus increased costs means less profit. One would expect that if you played by rules, the same system would offer protection from those who do not conform. Unlike other regulators, such as in gaming, there seems to be no punitive measures taken by regulators. Websites are not blocked by order of Governments to ISP’s in any jurisdictions.

Websites are not ceased. There seems to little to stop businesses from working within the same jurisdictions. Legitimately, questions are being asked if holding a local valid license is really worthwhile; it seems a heavy cost for a trust icon on a website.

There is a big however and it comes from the market that has become more effective than the regulators. Other than consumers choosing regulated brokers, effective regulation compliance and deterrents for non regulated brokers has come from unlikely sources. Back in 2006, the US Government finally found a way to effectively combat Online Gambling.

Where the Wire Act had failed, UIEGA attacked their problem from a different angle by making it illegal to offer services to unlicensed gaming operations – like web registrars, banks, payment processors and advertisers. It appears that the service providers are now becoming the effective enforcers of regulation for Financial Trading without having to be instructed by the regulators.

The recent well publicized restrictions from Google and Facebook affecting Financial Trading on currencies and cryptocurrencies will see blockchains with no way to advertise on these platforms and only regulated brokers within their jurisdictions to advertise – excluding affiliates. The odd factor here is that it took pressure from Canada on Google to make this change and not regulators such as FCA, CySec or Bafin.

The banks have also proved to be better enforcers that the regulators. Finding banks without having the proper license is becoming a harder task. The same can be said for payment processors. The banking industry has a different agenda when it comes to restricting its services; it based on risk exposure. Banks and Credit Card companies do not like dealing with chargebacks. Not having a license means a higher risk of customers asking to have payments stopped or returned – ergo, reluctance to provide services either as a bank or provide processing for payments and credit cards.

Regulation is meant to be a three way partnership between the Government, the consumer and the service provider. Effective regulation provides each with what they need. The consumer wants protection, the service provider needs to be able to make profit while being protected by their license from less scrupulous businesses and the Government needs to raise revenues while providing protection to both the consumers and licensees. At least in the Financial Trading sector, the balance does not seem right.

The fear generated from some of the practices of some Binary brokers has lead the position we find today. Leaving the markets to be the regulation enforcers is not sustainable in the long run. Perhaps the regulators need to step in and protect their jurisdictions and perhaps then they can relax some the rules that make it hard for brokers to do business?

If the regulators ensured that only brokers working within their framework can operate, they can better manage consumer protection. For example, bonuses are not an enticement to traders to lose all their investments and savings. Like any tool it can be misused or it can be used to benefit the consumers.

The situation right now means that regulated brokers cannot offer bonuses, but unregulated brokers can offer bonuses in the same countries. If regulators enforced site blocking, perhaps they could better manage how bonuses can be offered instead of blanket bans?

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