The FinancialFebruary 15th, 2017: New York & Hong Kong: FinaCom PLC, operator of the Financial Commission (FinancialCommission.org) – an independent self-regulatory organization and external dispute resolution (EDR) body for the online trading industry including FX and CFD market participants, retail financial consumers, brokerages, and technology providers, today announces the results of its 2016 Annual Report.
2016 Membership Growth, New Appointments, Key Events and Industry Observations
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Financial Commission’s 2016 annual report recaps another year of continued growth. As the number of approved membership applications increased during the year, so did the number of complaints that were filed with Financial Commission during 2016. |
There was further expansion from new appointments to the Dispute Resolution Committee (DRC) and significant cross-border synergies with other regulatory and non-governmental organization (NGOs), as well as meetings with foreign regulators and industry event participation in Europe and Asia where key Industry themes were observed and collected from market participants’ feedback.
Key Industry Themes During 2016
- Several key industry trends persisted during 2016 such as the importance of self-regulatory efforts in the field of best-execution practices as the FX Global Code initiative was underway and brought the subject of fair dealing practices further under the spotlight, and as a voluntary code of conduct was rolled-out for interbank dealers.
- A global derivatives survey by IOSCO in 2016 coincided with a growing wave of reforms against binary options providers and helped to set in motion efforts to seek a clear framework for how margin FX and CFDs are offered across various jurisdictions. These efforts paralleled a reduction in leverage implemented by several regulators following the aftermath of major events including the UK’s Brexit that caused unprecedented volatility in the GBP/USD currency pair in 2016.
- Despite the shockwave from these 2016 events including Brexit and major geopolitical shifts from Trump’s victory in the US election, global markets including foreign exchange functioned efficiently with many brokers taking prudent measures to prevent against market gaps by voluntary reducing leverage and limiting trading on a number of occasions, reflecting self-regulation at its finest.
Financial Commission 2016 in Review
On the backdrop of challenging market conditions, Financial Commission was well positioned to handle a significant increase in the number of complaints together with the addition of new members, as factors such as trading volumes and volatility ranged from low to high surrounding major events throughout 2016 and which led to considerable changes in asset values for active and passive market participants.
Whether due to volatile market conditions or from the normal course of day-to-day operations, disputes may arise between customers and their broker from time-to-time. When such grievances cannot be amicably resolved, a formal complaint is filed with Financial Commission – where it is then examined using a systematic approach and is fully investigated before being reviewed by the DRC to render a non-bias decision. Using a proven dispute resolution process, Financial Commission achieved another record year across the board during 2016 including the following key highlights:
2016 Highlights
- There were 165 complaints filed with Financial Commission, a nearly 80% increase compared to 93 complaints filed in 2015.
- There were 4 new appointments made to bolster the Dispute Resolution Committee.
- A total of eighteen new members were approved by Financial Commission which brought the total number of members to thirty-three, including certified technology providers.
- Financial Commission participated in key industry events across the globe, meeting with clients and members at important industry conferences in Hong Kong and Cyprus, and held important meetings with industry regulatory bodies in Eastern Europe.
About Financial Commission
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Financial Commission operates as an independent EDR using a membership-based structure and is not a governmental organization or sanctioned by any jurisdiction, and is domiciled in Hong Kong under FinaCom PLC. The ethos of our mission statement is transparency, swiftness, and education, which are the paramount drivers that uphold our operations. |
Supporting self-regulatory efforts is just one of the benefits provided by the Financial Commission to its members who join voluntarily – yet must adhere to strict guidelines in order to maintain membership and demonstrate transparency, compliance, and integrity to their customers.
The Financial Commission helps intermediate fair dealings by providing an unparalleled dispute resolution process between online brokerages and their end-customers, in the rare but inevitable cases of trade disputes that cannot be resolved.
The subject of each complaint can be as diverse as the underlying broker, product, or customer, yet all disputes share one thing in common which is to seek fair dealings regardless of the financial services products, providers, trading technologies, or pricing issues related to market participants’ transactions, from the complaints that are filed.
Financial Commission guarantees protection of the interests of both brokers and traders, thus is providing a fair and neutral platform to effectively resolve complaints. Financial Commission ensures that traders and brokers are getting their disputes resolved in an efficient, unbiased, authentic, and a quick manner and walk away with a well-founded answer.
Details of 2016 Results
Below the Commission presents further details of its Annual Report for 2016, which also provides statistics on the number of complaints handled and key metrics regarding processing and mediation results. The statistics information is insightful to our Members and their clients, the public, and for brokerages that are considering the benefits of obtaining membership with the Financial Commission and/or are interested in learning about the organization’s structure.
2016 Complaint Statistics in Review
The need for transparency continues to grow. Building trust is crucial and using fair and neutral 3rd party dispute resolution – that Financial Commission provides – is an effective solution in cases where clients or brokers cannot resolve matters together and seek an independent channel and wish to avoid often complex legal or costly arbitration alternatives. The Financial Commission continues to achieve this objective by providing brokerages and technology firms with the benefits that accompany membership status, as seen in the statistics results for 2016.
A significant increase of 77% was achieved in the total number of complaints received in 2016 (165 complaints filed), compared Year-over-Year from 2015 (93 complaints filed). This nearly 80% increase was driven from the addition of new members reflecting the increasing credibility and positive reputation Financial Commission has been earning since its foundation, and coupled with market volatility from major geopolitical events during the year.
The monetary amounts for complaints filed during 2016 ranged from as low as $10 to as much as $57,199.00, and the total amount of compensation that was paid out was $157,326.00 from a total of 165 complaints filed.
Overview of 2016 Complaints Statistics:
Total Complaints filed 165 (100%)
- Complaints filed against Members 128 (77,58%)
- Complaints filed against non-Members 37 (22,42%)
- 165 Complainants sought a record $1,813,275.00
Total amount of compensations $157,326.00
- Maximum complaint amount awarded $57,199.00
- Minimum complaint amount awarded $10.00
Total amount of resolutions (against Members)
- Resolutions in favour of client 39 (30,47%)
- Resolutions in favour of broker 61 (47,66%)
- Out of jurisdiction 28 (24,87%)
Types of Complaints
Trading complaints are directly related to the process of trading on the market and the affect of execution of orders, payment of margins, calculation of commissions, forced liquidation of positions and other parts of the trade cycle. These complaints are considered by the Dispute Resolution Committee and included in the statistics.
Total amount of trading complaints 57:
- against Members 54
- against non-Members 3
Financial complaints are related to transactions on the account, and in majority of cases involve delays in withdrawals. Such complaints do not fall under dispute resolution process; however, the Financial Commission never rejects such complaints and helps advocate the payment process with clients till the end. We do not record cases of non-payment of funds to the clients by Member-companies. Nevertheless, in cases when such complaints are received against non-member companies providing of a refund to the client from the broker is often very problematic.
Total amount of financial complaints 56:
- against Members 54
- against Non-Members 17
Non-trading complaints are often clients’ complaints about the facts of losses incurred as a result of cooperation with the administering traders and sales consultants. To a lesser extent these are complaints for automatic copying transactions systems and signaling services. Such complaints do not fall under the dispute resolution process; however, we always analyze the contract, risks warning, correspondence and negotiations with the client and also give our assessment of the situation and recommendations for a possible settlement of the dispute.
Total amount of non-trading complaints 52:
- against Members 36
- against Non-Members 16
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Event Participations and Important Meetings in 2016
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Financial Commission was one of the exhibitors at the 2016 iFX Expo in Hong Kong which took place at the end of January, followed by the 2016 iFX Expo in Cyprus in May. The main focus of these events were recent developments within the online trading industry including challenges, opportunities and ongoing trends discussed among market participants. Financial Commission’s stand was in a very prominent location during the Cyprus event and benefitted from the increased exposure to the event’s industry delegates. The collective feedback that Financial Commission received during these events from industry media resources, attendees, and fund managers was highly supportive. Chairman Peter Tatarnikov had an opportunity to give a few interviews during the Cyprus event including to local TV channels as well as to Internet media resources for the financial industry. |
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After participating at the Cyprus conference, on July 22nd, 2016, in Minsk, Belarus, Financial Commission signed a Memorandum of Understanding (MoU) with the Association of Financial Market Development (ARFIN). The MoU provides a basis to develop favourable conditions to support the Foreign Exchange market for ARFIN members and was signed during a meeting between Financial Commission Chairman, Peter Tatarnikov, ARFIN Chairman, Alexey Sidorov and representatives of the National Bank of the Republic of Belarus. The MoU will enable cooperation to improve the dispute resolution process in Belarus, and the exchange of information between both organizations. |
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On October 12th, 2016 Peter Tatarnikov, Chairman of the Financial Commission (FinaCom PLC) took part in the press lunch dated for discussion of the bill on forex market regulation in Kiev, Ukraine. During the event such topics as lack of the legislation regulating forex market in Ukraine, vulnerability of private investors, the most effective approaches to forex market regulation and the liability of Ukraine towards investors were discussed. |
Participants of the event announced their visions of the forex market and regulatory challenges on the territory of Ukraine, while sharing their international experience, answering journalists’ questions and providing several examples of forex regulation in Western countries.
Mr. Tatarnikov expressed his opinion – during the press lunch – concerning the need of creating a compensational fund, which would enable clients of financial services providers to be compensated in case of bankruptcy of their financial services provider. The event was also attended by Roberto d’Ambrosio – CEO of Alpari Research, Vitaly Shapran, member of the Executive Committee of Ukrainian society of financial analysts (USFA) and Natalia Evseeva – Director of Alpari official partner in Kiev. The gathering had also been widely reported in many Ukrainian media, including: Finance.ua, Business capital, Hubs, Business channel and other media outlets.
New Member Announcements in 2016
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Appointments Made to the DRC in 2016
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Vadim Sviderski, Editor, Finance Magnates |
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Peg Reed, COO, Forex Development Corporation |
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Nir Porat, Co-Managing Partner, Ben Basat, Porat & Co |
Current Members of the Dispute Resolution Committee (DRC)
- Anatoly Bulanov – Head of Dispute Resolution Committee
- Ilan Azbel – CEO, AutoChartist
- Carl Elsammak – CEO, Kammas Trading
- Simon Grunfeld – Founder, Gallant Partners
- Andrew Ralich – Co-Founder, oneZero Financial
- Lior Nabat – CEO, Tradency
- Aleksey Kutsenko – CEO, Tools4Brokers
- Juan Pablo Jutgla – CEO, Better Way FX Consulting
- Akin Abbak – Managing Partner, Abbak Attorneys at Law
- Kristina Nettles – Vice President, Integral
- Nir Porat – Co-Managing Partner at Ben Basat, Porat & Co.
- Peg Reed – COO, Forex Development Corporation
- Vadim Sviderski – Editor, Finance Magnates
2017 Outlook: Wave of Changes to FX and CFD Markets, and Trump Geopolitics
There is a clear shift towards a further reduction in leverage that is gaining momentum in various jurisdictions. Furthermore, the marketing of Forex and CFD trading is becoming increasingly regulated to help counter the significant degree of misleading advertising that is still prevalent in the online brokerage industry – albeit mostly from unregulated firms including binary options providers or in regulated environments that lack marketing guidelines.
Moreover, the recent expulsion from the National Futures Association (NFA) – a membership-based self-regulatory organization (SRO) in the United States, of online FX and CFD broker FXCM, a Nasdaq-listed company, highlights another major challenge that is prevalent in the industry – brokers claiming to offer agency execution who are routing orders to a 3rd party dealer where the agency broker has common ownership in that dealer.
While draconian measures may be taken by various regulators to eradicate these challenges, it will also likely add a notable compliance burden to firms in terms of increased time and effort (manpower) that will be needed to adhere to stringent compliance requirements with regard to order routing, execution, risk-management, disclosure requirements, and other such costs that will lead to an increase in regulatory compliance expenses.
For brokerages operating in less stringent regulatory environments and jurisdictions where no such formal rules have been outlined, there will be even more difficult challenges ahead in distinguishing a genuine offering from firms purporting to be legitimate brokerages – yet who are not, increasing the need for acquiring regulatory licenses from a bona-fide regulatory hub, and becoming members of independent SROs, as a means to demonstrate a firm commitment to compliance and best practices to win and maintain clients’ trust.
While there remains uncertainty in how the Trump administration would go about repealing parts of the Dodd-Frank Act in terms of the Wall Street Reform and Consumer Protection Act, a repeal would directly affect the global online brokerage industry. One school of thought holds that this could benefit brokerages that will be able to provide clients a greater degree of trading freedom while having less compliance burden.
Another school of thought is that loosening regulations in the US could increase chances of unfair dealing where greater risk falls on the client and away from the broker. A repeal of Dodd-Frank could possibly spark a global race where regulators in Europe and Asia roll-back restrictions to avoid regulatory arbitrage where consumers and brokerages may seek more favorably conditions in the U.S.
As reiterated in Financial Commission’s 2015 report and here again for 2016, online brokerages who put their clients’ interests first, whether agency brokers, market-makers or those who operate a hybrid-model, as well as technology providers that develop trading platform, by joining the Financial Commission demonstrate a firm commitment to clients and help support customer education efforts where the foundation of trust is built on understanding.
With financial product complexity on the rise, client education has never been more important when it comes to understanding the details of how an investment product works, including a broker’s procedures, processes including their internal controls – which can all affect how products are handled and what is permitted.
Financial Commission continues to strive to educate clients, and brokers, and support related initiatives while holding brokers to high standard and investigating each case thoroughly using a proven approach to the dispute resolution process and in a new era of geopolitical uncertainties and market volatility as 2017 is underway.
2016 Annual Report Closing Remarks from Financial Commission Chairman
“We are delighted to share the results of another successful year marked by further growth in key areas of operations, as highlighted in our 2016 annual report. Thanks to the support from our members, staff, and the online forex and CFD industry at large, Financial Commission continues to deliver an essential service to market participants, and against the backdrop of challenging market conditions including a shifting regulatory landscape.
A promising new year is already underway with new members approved, additions made to our in-house staff, and strategic objectives outlined to help sustain our momentum from 2016 through the end of 2017 and forward.
As the focus on best-execution practices and price discovery came under the spotlight from the Global FX Code initiative, this is an area that we have been working with for several years already, and are well-positioned to continue to support companies and customers to help resolve trade-related disputes to help ensure fair dealing is being upheld.
We also commend other global initiatives underway such as the IOSCO survey surrounding derivatives that concluded in December 2016, regarding margin FX and OTC products, aimed to help increase awareness and enhance regulatory reforms and improve market integrity while best supporting companies and the customers they serve.
I stand behind what I voiced last year and reiterate that we welcome brokerages and technology providers, whether regulated, unregulated, or self-regulated, to submit their membership application to Financial Commission, and review our requirements to see if your firm will qualify for approval. Approved members show a firm commitment to their customer, by adding an extra level of support where Financial Commission will stand by both sides in cases where a complaint is brought, and with the aim to bring it to resolution quickly and fairly.”
Peter Tatarnikov,
Chairman,
Financial Commission
To learn more about the benefits and requirements of joining the Financial Commission, available for brokerages and technology providers, contact us and visit www.financialcommission.org