The Financial Conduct Authority (FCA) has fined Forex Capital Markets and FXCM Securities (FXCM) £4 million for allowing its US-based FXCM group to withhold client profits.
FXCM UK also failed to tell the UK regulator that US authorities were investigating another part of the FXCM group for the same misconduct, the FCA says.
Approximately £6 million ($9.9 million) was withheld, which according to the agency’s rules should have been passed on to FXCM UK’s clients.
“This settlement is a significant step in our efforts to put this legacy trade execution issue behind us,” says Brendan Callan, FXCM UK’s CEO.
“A recent analysis of trades over a six-month period demonstrates how our customers have benefited from our enhanced trading execution policy,” he adds.
The FCA says it 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, adds: “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.”
The decision relates to a period between August 2006 and December 2010 when the FXCM Group was found to have kept profits from favourable market movements in the FX spot markets between the time the orders were placed by FXCM UK and executed by the FXCM Group.
In addition, any losses were passed on to clients in full – a practice known as asymmetric price slippage.
According to the FCA, 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.
In August 2011, the FCA also became aware of an investigation into FCXM’s US business launched over a year previously.
But according to the FCA, although senior managers of the FXCM Group sat on the board of FXCM UK and knew about the investigation, FXCM UK had failed to alert the UK regulator. This breached one of the FCA’s principle requirements that firms are open and cooperative with the regulator.
“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,” says Tracey McDermott, the FCA’s director of enforcement and financial crime.
"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.”
The agency is also conducting a thematic review of firms’ execution practices, including the way services are described to clients and arrangements for order execution and review, which is due to be published in Q2 2014.