On February 6, 2017, the National Futures Association (NFA), reported that they are permanently barring FXCM from NFA membership. This effectively bars FXCM from ever operating in the United States, since NFA membership is required to operate in the United States as a forex broker. On the same day, the US Commodity Futures Trading Commission (CFTC) has fined FXCM $7 million for defrauding retail forex customers, and required that their CFTC registrations be withdrawn.
The NFA and CFTC’s scathing indictment of FXCM is the most strongly worded regulatory action against a retail forex broker that Forex Scam Alerts has ever seen.
The primary finding against FXCM was that they falsely advertised that they used a No Dealing Desk (NDD) order execution model, when in fact it was using what amounted to a Dealing Desk (DD) model. FXCM was routing its customer’s trades to Effex Capital — a company it controlled and supported. Effex Capital was a spin off from FXCM to keep an algorithmic trading system within a separate company. FXCM maintained a very close relationship with Effex Capital. Effex Capital conducted its business with the use of FXCM employees, and they worked in the same office as FXCM operations. Further, Effex Capital benefited from interest free loans from FXCM, and received special trading permissions. Up to 70% of Effex Capital’s profits were funneled back to FXCM as rebates. These rebates amounted to $77 million between 2010 and 2014. Since Effex Capital was a market maker for FXCM, this $77 million made by FXCM was money lost by FXCM clients. FXCM had concealed this relationship with Effex Capital from 2009 until at least 2014.
Numerous regulatory violations
The other numerous violations made by FXCM include:
- FXCM clients were denied favorable price improvements due to the abusive trade execution practices of Effex Capital. This effectively amounts to an asymmetrical slippage policy, which is against the law in the United States. It is also a practice that FXCM had been fined for as far back as 2011. For this reason, FXCM was found to have failed “to observe high standards of commercial honor and just and equitable principles”.
- FXCM provided misleading information to the NFA in trying to conceal their relationship with Effex Capital.
- FXCM failed to implement a satisfactory anti-money laundering program, in violation of NFA compliance rules
- FXCM failed to implement a satisfactory policy for equitable margin and liquidation
- FXCM failed to collect security deposits for retail forex trades
- FXCM failed to give equitable treatment to clients when price adjustments were required
- FXCM failed to provide complete trade data to the NFA
- FXCM failed to correctly calculate the required minimum capital reserves (adjusted net capital) to protect against bankruptcy
- FXCM failed to promptly notify the NFA of its capital deficiencies
- FXCM failed to keep adequate liquid cash reserves to cover its liabilities to its retail forex trader clients
- FXCM failed to comply with chief compliance officer requirements
- FXCM failed to implement an adequate risk management and mitigation program
- FXCM failed to adequately supervise its employees and officers
The findings against FXCM also apply equally to its founding partners, Dror (“Drew”) Niv, and William Ahdout.
The CFTC released a statement assuring the public that the CFTC takes seriously its responsibility to protect customers from harm in the markets that it regulates.
FXCM Sells Retail Client Accounts to GAIN
FXCM confirmed to its shareholders in a February 6 release that it:
- reached a settlement with the NFA and CFTC
- would exit the retail forex trading markets in the USA
- has signed a letter on intent with GAIN Capital to sell its client accounts to GAIN. GAIN clients will be under the Forex.com brand.
- would retain client accounts from outside the USA
So Is FXCM A Scam Forex Broker?
Yes, FXCM has been scamming its American clients, and you should avoid doing business with this company. Any one of these offenses would be enough to cause serious concerns about doing business with FXCM. However, FXCM’s numerous violations of the NFA compliance rules represents a baffling disregard for its own clients, in its pursuit of corporate profits for its shareholders. This is not the first time that FXCM has had regulatory action taken against it. Action has been taken against it multiple times in multiple countries. A history of regulatory action against FXCM goes back over a decade, starting as early as 2005.
It should come as no surprise that FXCM has been doing an injustice to their customers. FXCM’s own reporting to the NFA shows that FXCM client profitability is low. FXCM forex traders regularly rank at or near the bottom of US forex trader profitability. FXCM’s scams may help shed light on why their clients perform so poorly compared to clients of other brokers.
There are many, many forex brokers to choose from. Many of them operate all over the world and have a clean record with all of the regulators in the countries they operate in. With so many good options, why choose a forex broker with a history of so many fines and regulatory actions against it? We recommend against doing business with FXCM in any country.
Author: Forex Scam Alerts Google+