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By virtue of the international structure of the FX industry, differences between the effectiveness of national regulatory authorities are a fundamental consideration for FX brokerages and traders alike.
Following many discussions and a LeapRate editorial back in December on the subject of the strength and customer protection ability of the United States by comparison to other jurisdictions, Gain Capital Holdings Inc (NYSE:GCAP) CEO Glenn Stevens has now made his opinion very clear with regard to the ability to ‘passport’ regulatory oversight by Cypriot regulatory authority CySec into London due to a common agreement between regulatory authorities within the European Union.
Mr. Stevens, whose firm recently acquired British CFD and spread betting stalwart City Index for $118 million, is accustomed to presiding over a publicly listed company which is subject to adhering to the stringent reporting and regulatory stipulations laid down by the National Futures Association (NFA), however he now has become exposed to the differences in regulatory prowess between that of the United States and that of other regions.
City Index is regulated by the Financial Conduct Authority (FCA), which, via the European Union’s MiFID directive ‘passporting’ function, allows CySec regulated brokers to conduct business with British clients without an actual FCA license or British office, a matter which Mr. Stevens has voiced his disdain.
In a report by the London Evening Standard, Mr. Stevens stated that customers are “literally able to open an account as Kermit the Frog and Mickey Mouse” with some firms, lambasting what he sees as a lack of checks and balances required by firms in other jurisdictions.
The report continued to explain that Mr. Stevens called on the FCA to “tighten” its stance on passported firms, adding: “On the one hand having competition is good. But having competition that plays by different rules isn’t good. Too many of these companies operate kind of dodgy. I have even heard of people registering who were able to open and register accounts as Mickey Mouse and Kermit the Frog. Some of these firms’ version of KYC (know your customer) is such a light touch that they are letting customers go right through. That tells me they are not following the same rules that we are, checking customers’ source of funds and doing the sorts of suitability stuff the FCA wants.”
Mr. Stevens concluded: “It bothers me that there’s this backdoor Cypriot thing. It can be Gibraltar, it can be any number of locations. I know why they put this passporting thing in place because it was well intentioned — to make a more-standardized regulatory regime — but not if everybody applies it differently.”