News & Analysis

Trading in the UK: An established British FX and CFD company is the only way

Andrew Saks, Tuesday, 20 April 2021

Over the 45 years since retail traders were inaugurated into the world of online financial markets by some of the now long established stalwarts, the whole retail FX and CFD industry has passed some significant eras.

Evolution and innovation may well be the cornerstone of all online financial services, however aside from all of the continual refinements and striving for perfection that the brokerages with their own infrastructure continue to work on very conscientiously, there have been three major changes within the FX trading environment.

The first of course was its establishment in the mid 1970s. New OTC FX and CFD platforms came into being, giving retail traders their first glance at being able to participate in live forex markets that had previously been the preserve of Tier 1 banks and proprietary trading companies in London, Chicago and New York.

The second phase was when third party, off-the-shelf platforms entered the FX business, giving rise to thousands of almost identical white labels, all based in offshore regions with no regulation, and often run by affiliate marketers and 'lead churners', treating customers with disdain and using high pressure tactics to force first time deposits from members of the global public new to trading, and then simply zeroing their account, splitting the loss between themselves and the platform provider, and emulating the odious and illegal methodology viewing a financial services environment through the lens of online gaming.

The third phase came about in the early 2010s, when the regulatory authorities of nations with developed and high quality capital markets centres began to take the time to fully understand the scale of the FX and CFD trading industry and introduced comprehensive regulatory structures for electronic capital markets, starting with the Dodd-Frank Wall Street Reform Act in the US, followed by EMIR and MIFID II infrastructure directives in Europe.

Now, the FX and CFD business is at absolute maturity and if chosen well, a good quality broker is an empowering choice for retail traders.

It may well be a borderless array of asset classes with which traders can genuinely be part of the entire world's currency trading, however where your broker is based is vital.

Today, a further testimony to the stability of British brokerages was made clear.

Whilst it is very rare indeed for British financial services firms to operate in any way which is remotely detrimental to clients - after all, London is the highly polished global financial capital - it can sometimes occur.

Retail OTC bond firm London Capital and Finance (LC&F) was a case in point.

The firm famously collapsed in 2019 leaving its customers high and dry, owing them £237 million.

Had this been an offshore firm, any chance of recuperation would be very slim and in some cases impossible.

Over the years, many offshore white labels with no trading infrastructure of their own have gone west, taking their clients' investments with them with absolutely no recourse.

Those who consider a scant regulation from offshore islands such as the Seychelles or British Virgin Islands, home to many retail FX entities almost all of which are white labels of one affiliate marketing-orientated platform meaning they do not own their own intellectual property and have not invested one penny in establishing their own trading environment, therefore could up sticks and vanish within a second - think again, as every single offshore  unregulated broker that has vanished with client funds has resulted in no recovery of funds for customers.

The case of British firm LC&F may be absolutely lamentable in the respect that it was a newly established entity, and relied on nepotism from inception. Simon Hume-Kendall established the firm in 2012, and he is former chairman of one of Britain’s major political parties in his local area of Tunbridge Wells.

In January 2019, London Capital & Finance went bust, and it transpired that 13 of the company’s executives including Mr Hume-Kendal had misappropriated client money. The company’s downfall lost its customers a collective £178 million.

London Capital & Finance grew rapidly between 2016 and 2018 after it hired Surge Group, a Brighton-based marketing company set up by former police officer Paul Careless, to attract new investors, selling 16,706 bonds.

It is imperative when choosing a broker to look at its history. There are only a handful of genuine FX and CFD brokerages in the world, ETX Capital being one of them, having its own proprietary trading infrastructure and having been established in the City of London since 1965.

That is over five decades of trading, with ETX Capital's retail derivatives business having been in constant operation since 1973.

LC&F's departure with client funds therefore was a shock to the British regulator's system, as companies in London, like ETX Capital, are so well established and diligently operated that the regulator - the Financial Conduct Authority (FCA) - has to simply sit and watch the slick expertise of London's polished establishment.

In the case of LC&F, customers today will get some reprise as the 11,600 people who trusted them will likely get every penny of their money back due to the ability of the Financial Services Compensation Scheme (FSCS) which is a government-backed system paid into by all FCA-regulated firms in Britain to back all client money up to a maximum of £85,000 per client account should a firm go bust.

That is the highest amount per customer offered by any government financial services protection scheme anywhere in the world.

The Serious Fraud Office is pursuing a criminal investigation amid claims that savers' money was used to buy luxuries, from a helicopter to a membership to a Mayfair private members' club.

LCF's administrators Smith & Williamson are also trying to sue several individuals to get more of savers' money back.

Some victims were able to get money from the FSCS – but only if they fitted very strict criteria. The scheme has paid out more than £57million to  2,800.

It is our duty as the leaders of the highest and most prestigious level of the electronic trading industry to continue to uphold good standards and lead the way forward.

London's finest and long established FX and CFD brokers will always lead the way, and always have done.

However, it should be of great comfort to British traders that alongside very high levels of diligence, there is also a watertight regulatory back up which protects your capital like no other in the unlikely event that anything should go awry.

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