LONDON--()--Following the collapses earlier this year of two renowned FX brokers, Worldspreads and MF Global, influential figures in the FX retail market gathered together at a Broker Solvency roundtable in London to address some of the biggest challenges facing the industry.
Organised by Index Trader, a leading trade magazine and sponsored by MIG Capital, the London based subsidiary of MIG Bank, the largest Swiss bank specialising in FX online trading, roundtable participants, whilst supportive of the Financial Services Authority (FSA), were critical about the levels of protection and compensation offered to investors and the paltry barriers to entry in the sector. In addition, they also criticised the lack of adequate policing in the practices of brokers operating from outside the UK that target UK investors.
In a special Broker Solvency Report to be published by Index Trader( on 15 October 2012, just days before the FSA’s consultation paper on protecting client money is due, FX industry leaders acknowledge the FSA is hamstrung with limited resources. However, there is a feeling that more scrutiny should be placed on the activities of smaller firms, the advertising practices of some brokers and regulation of foreign brokers.
The Report highlights the eagerness among brokers to work with the FSA and the hope that the new governing body, which comes into effect in 2013, will look to work proactively with the industry to alert each other of potential scams as well as to share best practice. Brokers also advocate a more hard line approach to clamping down on the rogue operators in the market.
The low minimum funding requirements to establish a broking operation and start taking client money from in theory, as little as €125,000 is also slammed in the Report. A significant increase is considered a more appropriate deterrent to prevent brokers from ‘just opening up shop,’ especially from brokers who passport in from countries with potentially less stringent regulations.
There is also a recognition that the industry must do more to educate investors, with some contributors in the Report suggesting a more proactive industry body, operating a ‘kitemark’ or scheme to accredit the UK’s safest stockbrokers. An association could also give unbiased support to inform clients as well as give guidance on complaining and even lobbying on behalf of the industry.
Joe McGrath, editor of Index Trader, says: “The FX industry has suffered reputational damage as a result of recent collapses and scandals but the Broker Solvency Report does highlight that the industry has recognised the need to change to win back the trust of investors. It is also refreshing to see that brokers have some sympathy with the FSA and its difficult role. They were also very willing to work with the new regulator to better educate and police the industry.”
Paul Chrimes, Chief Operating Officer at MIG Capital, adds: “The FSA has a huge challenge on its hands especially as events have shown that there is a need for increased and on-going risk-based monitoring, including the relatively smaller players. While they may operate in a very different way to larger and longer-established brokers and banks, their failure carries risk for us all. Part of the solution for the industry is to ensure that client money segregation rules are implemented correctly, coupled with improved client protection.”
Index Trader’s Broker Solvency Report is published on 15 October 2012.