It’s about time! Mainstream regulators ignore FX education and course providers, but now the good is being separated from the bad

“Our experience shows us that dishonest educational and software schemes that pop-up individually are short lived and as such, do not survive as the amount of  traders’ losses accumulates. As I mentioned before, with the lack of regulatory provisions to tackle the issue, the Commission will continue to do it’s part and provide guidance and notices to traders and the industry on educational providers that is deems to be engaging in misleading or fraudulent activity.” – Nikolai Isayev, COO, The Financial Commission

Opinions vary tremendously with regard to the value and virtue of educational packages provided to retail traders by individual providers and brokers alike.

Indeed, with retention of existing customers right at the top of the list of priorities within the boardrooms of many retail FX firms, effective educational tools for retail traders are a large priority and with courses ranging from short videos which are available on broker websites to extensive, academic studies provided by universities.

Novice traders, and the confidence that they can take to what is a vast, instant, liquid and in some cases technologically and financially bewildering global market place, are vital to the continuity and sustainability of the retail FX sector, as these are the future customers of the brokerages and introducing brokers that need eventually to replace their existing loyal customer base.

Some of the most loyal customers are those of the British, Australian and North American electronic trading mainstays, which have been established for three decades and have their own, painstakingly developed and maintained proprietary trading systems, and are staffed and led by highly knowledgeable professionals who understand their product and the global FX industry’s component structure inside out.

The milestone which today has been passed, ironically, does not involve the fly-by-night MetaTrader 4 white label brokers that are not connected to any live market via any integrated liquidity management system. It involves the so-called ‘educational’ services that proliferate the major financial centers of the world.

Flamboyant would be too complimentary a word to use in order to describe the purveyors of dubious methods which promote unreasonably high returns and promise a life of luxury and ease by simply emulating the ramblings of Rolex-toting, over-styled helicopter pilots who propagate their unsubstantiated ‘strategies’ to a wet-behind-the-ears audience who dream of early retirement and wealth rather than another decade of wage-slavery and unfulfillment.

Many of these entities are operated by one individual who often claims to have a background in successful interbank trading, or to have given up a life of mediocrity in favor of having mastered the markets, most claims of which are not able to be ratified by anybody.

For the past decade, Toronto, London, Sydney, Auckland and Singapore have played host to several self-styled ‘trading gurus’ whose aim is to dupe novices and sell them a massive dream which, unfortunately, quickly becomes a nightmare.

FinanceFeeds research via various onsite investigations into the operations of such companies deduces commonality between all of them, even though none are affiliated with each other in any way whatsoever.

The emphasis is on pressure sales and over-emphasized imagery which projects wealth, power and success. The sales pitches are all equally aggressive, demonstrating how the trainer is a winner and those who do not make money are in some way inferior. Often mocking techniques are applied in order to force down the morale of the delegates to make them easier to swindle.

FinanceFeeds has conducted very extensive investigations into these entities and is aware of their very blatant antics, however the education sector continues to fall outside the remit of the mainstream regulators, hence good quality FX companies in London, Sydney and New York are abound, yet just meters from the Tier 1 banks and high quality institutions lie sharks peddling extremely disingenuous courses with no consequence.

Whilst the mainstream regulators look away, FX industry orientated dispute resolution services are beginning to take note and look closely at this sector.

Last week, The Financial Commission, chaired by Peter Tatarnikov, began issuing accreditation certificates to FX educators, in the first step in the industry toward creating a genuine reference system for independent providers of educational services.

To look at this closely, FinanceFeeds spoke in detail to Nikolai Isayev, Chief Operating Officer of The Financial Commission, an FX industry leader whose career includes an eleven year tenure at GAIN Capital in New Jersey, before founding New York based DARTEK which provides services to FX brokerages and VC firms.

Mr Isayev demonstrated his perspective on FX education and the need for a certification and dispute resolution framework in an extensive conversation with FinanceFeeds today.

Educational service providers have been a moot point in the retail FX sector for many years, as they fall outside the remit of main regulators, hence there are several very dubious ‘educators’ in major areas such as London, Sydney and Toronto, who are not trustworthy. At last, The Financial Commission has begun a certification which roots out the genuine ones and gives them accreditation. What led to this, and do you agree that it is an area that the mainstream regulators have missed?

There are several reasons why we chose to focus our attention on educational service providers. The most important of them being the feedback that we have gotten from traders over the last few years.

In dealing with traders who contact the Commission with questions, we realized that many of them are not necessarily getting educated before they start trading and when they do take the time to study up on how FX trading works, risk management and the like, they are often just browsing the Internet for information rather than getting it from a provider. Because we saw this first hand, we decided that we should come up with an approach to show traders and brokers where they can find the best educational resources.

Second, we find that some brokers try and bridge the gap between aggressive marketing and ‘education’, where novice traders are provided access to complimentary educational resources on the brokers website, but often times we find that information can be very introductory, unbalanced, and sometimes even misleading with respect to profits/losses and contain information that is simply there to entice the customer to trade, rather than to educate them on the complexities of trading and analysis.

The third reason is really the Commission’s commitment to educating traders so that they can have a positive experience trading with a broker. The more information the trader has to learn the market and the risks of trading, the better his experience will be with the broker. We have learned this through our experience.

I do agree that we have not seen major FX regulators around the world have any input into the business practices of some of the larger educational service providers out there, specifically those that charge very high fees for their courses.

But I think here it is a question of regulatory powers, where in places like the US, a dealer offers its client educational materials (no matter inhouse developed or third party’s) NFA considers educational such materials as sales materials and review them accordingly.

So they are making sure that risks are disclosed and profits are not guaranteed etc, however they don’t really care about anything else.may not necessarily have the power to influence the educational providers as much as it could.

Some educational services are set up purely for the sale of unsubstantiated software and promise high returns for simply following a ‘guru’ who advertises his services with imagery of luxury and a life of leisure for just following his ‘strategies’. What is your opinion on this and how can it be stopped?

This is a problem that has been plaguing the industry and brokers for some time. In order to stop it we need the regional FX regulators to step in and begin to either license such services as introducing brokers or provide a different framework, where the marketing and educational materials can be audited. Perhaps the new directives from ESMA and FCA will have some guidance on this as the topic of licensing introducing brokers in the UK has been proposed.

I know that some brokers have taken proactive steps in warning their customers on the risks of such educational services, specifically those that offer software for sale, or trade copy services and promise high returns, but often times this is done after the customer has purchased the software or materials from the 3rd party provider.

The Financial Commission maintains a warning list to inform the industry and traders of possible misleading or fraudulent activity/behavior by companies with respect to customers, their funds and business practices.

I anticipate that as we continue to expand our educational provider certification, we may choose to include some providers in this list if we have evidence of possible wrongdoing. Since we do not have a regulatory framework in place today, the best thing we can do it to warn market participants to be careful when dealing with such companies.

What is the criteria for an educational provider to become certified by The Financial Commission, and how do you vet them and then ensure that potential customers of unaccredited providers keep away and only choose bona fide educational services?

Given our experience and knowledge of the industry we can quickly identify if an applicant is worthy of certification based on a high-level review at the time of application.

Our certification process is quite extensive in that providers first complete a comprehensive questionnaire in which they detail the credentials of the authors of any education materials, the sources of pricing/charts and other data that is used, the prevalence of risk disclaimers, balanced risk-to-reward statements and the like. We also require the applicant to provide access to all their materials for review.

Once we conduct our review we issue the applicant our findings, which may contain recommendations for changes necessary to improve or correct the materials. Once changes are made and a final review is satisfactory, we will issue a certification.

Upon issuing a certification we will publish the providers details on our site, conduct a PR release and inform our members and partners. The provider is issued a unique certificate that we encourage them to use in their materials to highlight the fact that their service is certified and as such, can be a good educational service for traders. In answering traders’ inquiries the Commission will recommend a trusted provider if the trader is looking for educational services.

Do you have plans to work with national governments and regulatory authorities to ensure that this is a sector which eventually will fall under financial services regulatory remits? I ask as it does indeed constitute a type of financial advice, especially when being encouraged to follow strategies.

I anticipate that we will raise this issue with the international regulators with whom we have a working relationship and open dialogue as we continue to process applicants for certification. We regularly inform our governmental and self-regulatory counterparts of important information that may help them improve our industry.

What is your perspective on dishonest educational service providers that act as an IB for b-book brokerages and then hold seminars to sell software to novice traders and then take IB commission when the delegates lose their money? This practice still prevails and although a complete conflict of interest between trader broker and educator, is completely overlooked by regulators, hence The Financial Commission is a step ahead here.

This goes back to my previous answer regarding 3rd party providers promising high returns to novice traders who, unfortunately, don’t know any better. We are also aware of this issue and our intention is to also focus on offline education providers whom hold seminars and the like, as we understand the scale at which such events take place in different regions and some of them have expressed interest in the certification themselves.

I would agree that the conflict of interest in these types of IB relationships is alarming and should be brought to the attention of regulators, as discussed. We will need to see meaningful amendments to regulatory rules to stem these kinds of practices. Ultimately, it is in the providers’ best interest to certify their services with us to attract new customers and ensure longevity for their business.

Our experience shows us that dishonest educational and software schemes that pop-up individually are short lived and as such, do not survive as the amount of  traders’ losses accumulates. As I mentioned before, with the lack of regulatory provisions to tackle the issue, the Commission will continue to do it’s part and provide guidance and notices to traders and the industry on educational providers that is deems to be engaging in misleading or fraudulent activity.

What should brokers look for when choosing an external education provider to recommend to their clients?

Brokers should consider choosing providers who already work with regulated brokers in different regions. Likewise, all educational materials should be reviewed prior to offering the 3rd party education service to clients. This is especially important, in my opinion, for regulated brokers under FCA, ASIC and CySEC that are going to also set up IB relationships with these providers.

Also, I would review the cost structure of the provider. Often times we see exorbitant fees being charged by the provided for courses or seminars that contain open source educational information available for free elsewhere. As we are committed to traders’ education, we recommend that brokers offer the 3rd party educational services free of charge as a courtesy.

Lastly, brokers should feel free to reach out to the Financial Commission if they have questions or need recommendations on 3rd party providers. We are happy to share our experience and knowledge to ensure our industry keeps moving in the right direction.

Last year, FinanceFeeds discussed this matter at length during a TV interview in Cyprus. Here it is:

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