FXCM Ltd and FXCM Securities (collectively "FXCM UK") have been fined up to £4 million by the FCA.

The US arm of FXCM Group deprived FXCM UK clients of nearly £6 million (US $9,941,970) in earnings through asymmetric slippage; FXCM UK conceals the fact that FXCM Group is being investigated by US regulators for asymmetric slippage.

FXCM Group had been investigated by US regulators for the same breach, asymmetric slippage, but FXCMUK did not report the matter to the FCA. The FCA has assured FXCM UK customers affected by this incident will receive full compensation, which will be transferred directly into their accounts.

David Lawton, director of marketing at the FCA, said: "If customers lose out as a result of firm misconduct, it undermines their confidence in the integrity of the UK's financial markets. Using its regulatory and enforcement powers, the FCA will set out rules to regulate the behaviour of regulated firms to ensure they do not exploit their customers and take advantage of the trust they place in them."

TraceyMcDermott, Director of Financial Crime Enforcement at the FCA, said: "Not only did FXCMUK not treat its clients fairly in accordance with the regulatory rules, I am more disappointed that FXCM chose to hide the facts when confronted by the FCA. I hope all companies will adhere to the principle of customer first. The FCA has taken steps to ensure that all clients of FXCM UK affected by the asymmetric slip incident are compensated."

OTC orders (i.e., rolling spot FX contracts) for retail trading clients trading on FCXM UK are executed by FXCM LLC, another unit of FXCM Group. Between August 2006 and December 2010, FXCM Group profited from the execution of orders placed by clients with FXCM UK and the execution of orders by FXCM Group at prices that were in its own interest. When the price is not favorable to itself, all the losses are passed on to the customer, which is what we usually call the asymmetric slip point.

At the same time, FXCM UK was unable to verify that its order operating system was valid. Whether its order execution policy complies with FCA's optimal execution (execution of orders at the best price).

The best execution rules require firms to take reasonable steps to provide customers with the safest trading platform and to treat customers fairly (FCA Rule 6). FXCM UK does neither.

In July 2010, U.S. authorities conducted an investigation into FXCM operations in the United States. The board of FXCM UK (senior management of FXCM Group) was aware of the investigation, but they did not report it to the FCA. This is in breach of FCA Rule 11, which states that regulated companies should be transparent before the FCA.

It was not until August 2011 that the FCA became aware of the US authorities' investigation into FXCM Group, at which point the FCA began an investigation into FXCM UK to ensure that clients affected by the incident were compensated.

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.

See original article:

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 its final decision on FXCM

1 Between 1 August 2006 and 17 December 2010, FXCM Ltd was fined £3.2 million for operating asymmetrical slippage in breach of FCA Rule 6 (Client Interests) and the Best Enforcement Rule, and between the date of issuance of the notice and 8 June 2015, FXCM Ltd will pay damages of $9,828,677, with unclaimed damages added to the total fine. The FCA has ordered FXCM Ltd to pay the £3.2 million fine by 10 March 2014.

2, FXCM Securities violated FCA Law 6 and the Law of Optimal Execution and is subject to a public warning.

3 Between July 2010 and August 2011, FXCM UK breached FCA Code 11 by concealing an investigation into FXCM Group and was fined £800,000. The FCA has ordered FXCM UK to pay the £800,000 fine by 10 March 2014.

4. FXCM Group made $113,293 from users of FXCM Securities Inc. through positive slippage between May 14, 2010 and December 17, 2010

5. FXCM UK has agreed to pay a total of $9,941,970 in compensation to its UK customers, consisting of $9,828,677 for FXCM Ltd and $113,293 for FXCM Securities

FCA Final decision:

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

Editor's Message:

1. The FCA expects firms to take reasonable steps to execute orders at the best price for retail customers and professional investors while pursuing their own interests. The FCA's Market Regulation Department has repeatedly highlighted these regimes and has conducted thematic discussions on order execution in a number of markets.

2. Over-the-counter transactions refer to bilateral transactions in which two parties establish an over-the-counter currency market. This also means that the profit that the end customer can make depends heavily on the price offered by the counterparty. In addition, once a position is opened and the contract is in force, customers cannot make other choices, even if they think they can make more money elsewhere.

3. Rolling spot currency trading refers to: the two parties negotiate the price and buy and sell FX contracts, which is a transaction method of delayed payment. Or profit or loss through the difference in exchange rates, known as a contract for difference.

4. FCA business Guidelines: Regulated companies should treat every customer fairly and justly and pay customers the benefits to which they are entitled. (Rule 6 - Customer Benefit). Companies should be open and co-operative in their dealings with regulators and should provide the FCA with relevant information it needs to know. (Relationship with regulators - Rule 11)

5. UK customers who lost more than $1 as a result of the FXCM storm will be compensated. Customers with an old account that has been closed will need to re-sign the agreement with FXCM UK, after which the client will be entitled to the compensation, which will be deposited within 60 days. In addition to the fine, any unclaimed compensation will be transferred to the FCA. After the cost of the FCA's investigation into the case, the remaining money will be handed over to the Treasury.

6. During the investigation of this incident, FXCM cooperated with FCA's investigation and agreed to resolve the issue at an early stage of the case, and FCA agreed to reduce the fine by 20%. Without the discount, FXCM would have had to pay a fine of up to £5 million.

7. 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