A group of 50 retail FX spread-betting clients that experienced losses as a result of the sudden removal of the EUR/CHF peg is petitioning the UK’s Financial Conduct Authority to investigate current practices in the sector, Profit & Loss has learnt.
In an open letter to Tracey McDermott, FCA director of supervision and authorisations, Chancellor of the Exchequer George Osborne and MP Andrew Tyrie, the group is urging the regulator to examine what it claims are the “misleading advertising and unfair business practices” of spread-betting companies.
“Hundreds of people face imminent bankruptcy and the loss of their homes unless the FCA immediately steps in to investigate the practices of spread-betting companies,” the group says. “Spread-betting companies market their trading platforms to the public as sophisticated and reliable financial products; but when they have failed to work as advertised, it has resulted in enormous losses for their customers.”
The action follows recent comments by other senior industry bodies and commentators regarding the lack of regulatory oversight and protections in the retail FX market.
But certain practices such as last look appear to be moving onto the regulatory agenda following the request of the Fair and Effective Markets Review for industry comments on whether the convention is open to abuse.
The petition is open to all clients who feel they have been wronged by their respective platforms, although a significant number are clients who made substantial losses through IG and Saxo Bank.
According to one former trader, while the group is aware of the potential for losses it was not aware that they would be “at the mercy” of whether the spread-betting firms allowed them to get out of their position or not. “In which other industry can an individual lose unlimited amounts? Some of our group have a net worth of £100,000 but have lost £300,000,” the trader asks. “I think it’s now time to litigate. From the FCA point of view, it has left the rules completely up to the spread-betting companies.”
According to the former IG trader, the regulators should look into providing a strict set of guidelines, not just around fund segregation but on whether the onus should now be on the spread-betting companies to help each client manage their risk.
Some spread-betting firms were actively managing risks through warning clients about the consequences of the SNB removing EURCHF peg, as well as some companies decreasing their leverage, the trader explains. “There’s no other way of looking at – it’s unlimited credit being given out to traders without needing to provide evidence that they can repay any debts accrued as a result of losses,” the trader adds. “There is no other industry/investment in the 'regulated' space which allows this.”
One of the biggest hurdles that retail clients are now facing is that there appears to be no regulatory channels for them to turn to with their complaint.
Some firms pointed their client to the UK’s Financial Ombudsman, but the government body can currently only award up to £150,000 in cases of malpractice.
“Under MiFID guidelines, best execution is not sitting there while you aggregate to get your best position,” explains one source. “It’s looking after each customer and trading the position as quickly as possible and at the best price, which hasn’t happened in this case.”
In the letter to the FCA, the group also highlights that many investors who had only small accounts and believed they were protected are now “hundreds of thousands of pounds in debt because the spread-betting companies failed to perform as promised”.
“For many – teachers, office workers, builders, small business owners – this failure will mean bankruptcy or years of crushing debt repayments unless we act immediately,” the letter claims.
When contacted by Profit & Loss, a spokesperson for IG Group says: “We are seeking payment as we always do from clients who have outstanding debts. We are happy to debate any particular case with the FCA and with the client or clients in question.”
The FCA had not responded to requests for comment by the time of going to press.
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