FXCM Group has also been investigated by the US regulatory authorities for similar violations, namely asymmetric sliding points, but FXCMUK has not reported this matter to the FCA. FCA guarantees that FXCM UK customers affected by this storm will receive full compensation, and the compensation will be directly transferred to their account.

FCA Marketing Director David Lawton said, "If customers suffer losses due to the company's violations, it will weaken their confidence in the integrity of the UK financial market. FCA will regulate the behavior of regulated companies by exercising regulatory and enforcement powers and formulating relevant rules to ensure that the company does not exploit customer profits or exploit customer trust for illegal operations

Tracey McDermott, Director of Financial Crime Enforcement at the FCA, said, "Not only did FXCMUK not treat customers fairly according to regulatory rules, but what disappointed me even more was that FXCM chose to conceal facts when facing the FCA. I hope all companies can adhere to the principle of user first. Currently, the FCA has taken measures to ensure that all customers of FXCM UK affected by this asymmetric sliding point storm receive compensation

The OTC orders (i.e. rolling spot FX contracts) traded by retail trading customers in FCXM UK are executed by another institution under the FXCM Group, FXCM LLC. During the period from August 2006 to December 2010, FXCM Group executed orders at prices that were favorable to its own interests during the period from customers placing orders to FXCM UK and FXCM Group executing orders. When the price is not favorable to oneself, passing on all losses to customers is what we commonly refer to as an asymmetric sliding point.

Meanwhile, FXCM UK cannot verify whether its order operating system is valid. Does its order execution policy comply with FCA's optimal execution (executing orders at the optimal price).

The optimal execution rules require companies to take reasonable measures to provide customers with the safest trading platform and treat customers fairly (FCA Rule 6). FXCM UK did not achieve either of these two points.

In July 2010, the US authorities conducted an investigation into the FXCM business within its territory. The board of directors of FXCM UK (senior management of FXCM Group) is aware of this investigation, but they have not reported it to FCA This behavior violates FCA Rule 11, which states that regulated companies should be open and transparent before the FCA.

It was not until August 2011 that the FCA learned about the US authorities investigating the FXCM Group incident, when the FCA began an investigation into FXCM UK to ensure that customers affected by the storm received compensation.

FXCM UK also failed to tell the FCA that the US authorities were investigating another part of the FXCM Group for the same misconduct. The FCA has ensured that FXCM UK’s clients will be fully compensated, with credit automatically paid to their accounts.  David Lawton, the FCA's director of markets, said:

“When consumers lose out because of poor conduct it undermines confidence in the integrity of our markets. The FCA will use all the tools at its disposal – supervision, rule-making and enforcement – to ensure that firms do not exploit conflicts of interest or the trust placed in them by their clients.”

Tracey McDermott, the FCA’s director of enforcement and financial crime, said:

“Not only did FXCM UK fail to treat its customers fairly or correctly apply our rules, I am particularly disappointed that it was not transparent in its dealings with the FCA. We expect all firms to put customers at the heart of their business, and we have taken action to ensure clients of FXCM UK will get redress.”

FXCM UK placed ‘over the counter’ foreign exchange transactions known as rolling spot forex contracts on behalf of retail clients, which were then executed by another part of the FXCM Group. Between August 2006 and December 2010, the FXCM Group kept profits from favourable market movements between the time the orders were placed by FXCM UK and executed by the FXCM Group, while any losses were passed on to clients in full – a practice known as asymmetric price slippage.  

FXCM UK also failed to check that its order execution systems were effective, and whether its order execution polices complied with the FCA’s rules on best execution.

These rules require firms to take reasonable steps to secure the best possible deal for their clients. The FCA also expects firms to treat their customers fairly (FCA principle 6) – FXCM UK fell short of both of these standards.

In July 2010, the US authorities launched an investigation into FXCM’s business in the US. Although senior managers of the FXCM Group sat on the Board of FXCM UK and knew about the investigation, FXCM UK failed to alert the FCA. This breached the FCA’s requirement that firms are open and cooperative with the regulator (FCA principle 11).  

Once it became aware of the investigation in August 2011, the FCA stepped in to review FXCM UK and secure redress for affected consumers.

View original text:

http://www.fca.org.uk/news/fca-fines-fxcm-uk-4-million-for-making-unfair-profits-and-not-being-open-with-the-fca

On February 24, 2014, the FCA issued a final resolution on FXCM

From August 1, 2006 to December 17, 2010, FXCM Ltd was fined £ 3.2 million for violating FCA Rule 6 (Customer Interest) and the Best Execution Rule by operating asymmetric sliding points. In addition, from the date of disclosure to June 8, 2015, FXCM Ltd will pay compensation of $9828677, and unclaimed compensation will be included in the total penalty amount. The FCA has ordered FXCM Ltd to pay a fine of £ 3.2 million by March 10, 2014.

2. FXCM Securities violated FCA Rule 6 and the Best Execution Rule, resulting in a public warning.

From July 2010 to August 2011, FXCM UK concealed the investigation of FXCM Group, violated FCA Rule 11, and fined £ 800000. The FCA ordered FXCM UK to pay a fine of £ 800000 before March 10, 2014.

4. During the period from May 14, 2010 to December 17, 2010, FXCM Group illegally profited $113293 from users of FXCM Securities through a forward sliding point

5. FXCM UK agrees to pay a total compensation amount of $9941970 to the UK customer, which is $9828677 from FXCM Ltd and $113293 from FXCM Securities

FCA Final Resolution:

http://www.fca.org.uk/static/documents/final-notices/forex-capital-markets-limited.pdf

Editor's message:

FCA hopes that while pursuing their own interests, companies should also take reasonable measures to execute orders at the optimal price for retail customers and professional investors. The Market Regulation Department of FCA has repeatedly emphasized these systems and held thematic discussions on order execution in multiple markets.

2. Counter trading refers to bilateral transactions where both parties establish an over-the-counter currency market. This also means that the profits that end customers can earn largely depend on the prices proposed by their competitors. In addition, once the position is opened and the contract becomes effective, customers cannot make other choices, even if they believe they can obtain greater profits from other companies.

3. Rolling spot currency trading refers to the negotiation of prices between both parties and the purchase and sale of FX contracts, which is a delayed payment trading method. Or profit or loss can be achieved through the exchange rate difference, which is also known as a contract for price difference.

4. FCA related business guidelines: Regulated companies should treat every customer fairly and fairly, and pay the benefits that customers deserve. (Rule 6- Customer Benefits). The company should adopt an open and cooperative approach when dealing with regulatory authorities, and should provide the FCA with relevant information that the FCA needs to know. (Relationship with regulatory authorities - Rule 11)

5. UK customers who suffer losses exceeding $1 due to the FXCM storm will be compensated. Customers who hold an old account and the account has been closed need to sign a new agreement with FXCM UK, after which the customer can enjoy compensation, which will be received within 60 days. Except for fines, any unclaimed compensation will be transferred to FCA. Excluding the cost of investigating this case by the FCA, the remaining amount will be handed over to the UK Treasury.

During the investigation of this incident, FXCM cooperated with FCA's investigation and agreed to resolve the issue early in the case. FCA agreed to reduce the fine by 20%. Without enjoying discounts, FXCM is required to pay a fine of up to £ 5 million.

This enforcement action is not related to the money market transactions being investigated by the FCA.

1.The FCA expects firms to take reasonable steps to obtain the best possible results for retail and professional clients when executing orders on their behalf (‘best execution’). The FCA highlighted these rules in the most recent edition of Market Watch, and is undertaking a thematic review of best execution across a number of markets.

2.Forex markets are ‘over the counter (OTC)’ – based on bilateral transactions between counterparties in the market. This means end-clients rely heavily on the price quoted by the counterparty acting on their behalf. In addition, once opened, contracts cannot be transferred between firms. As a result, clients cannot shop around once they have traded, even if they think that they can get a better result elsewhere.

3.Rolling spot foreign exchange transactions are:

contracts to buy or sell foreign exchange where prices are agreed but payment is made later, or

contracts where the profit made or loss avoided depends on changes in the exchange rate (known as ‘contracts for difference’).

4.The relevant FCA principles for business:

A firm must pay due regard to the interests of its customers and treat them fairly (customer interest - principle 6)

A firm must deal with regulators in an open and cooperative way, and must disclose to the FCA appropriately anything related to the firm of which the FCA would reasonably expect notice (relations with regulators – principle 11).

5.FXCM UK’s customers who lost more than $1 as a result of the firms’ execution practices will have their accounts credited within 60 days. FXCM UK will contact customers who no longer hold an account to notify them that their accounts have been temporarily reopened for these purposes.

6.Any unclaimed funds will be passed to the FCA in addition to the fine. Once the FCA has recovered the costs related to enforcement cases, the balance is passed to HM Treasury.

7.FXCM UK agreed to settle at an early stage of the FCA’s investigation, qualifying for a 20% discount. Without the discount, the total fine would have been ￡5,000,000.

8.This enforcement action is unrelated the FCA’s ongoing investigation into trading on the foreign exchange market.