In the latest instance of regulatory backlash Chicago’s NFA (National Futures Association) announced today that it had issued a $200,000 fine against the American arm of Alpari. This marks the second occasion that Alpari is in the regulator’s crosshairs. Last June Alpari was fined another $200,000 by the NFA, which it promptly paid and continued to operate in the United States.
The National Futures Association has accused Alpari of the following:
- Cancelling foreign exchange trades and removing profits from traders’ accounts.
- Failure to report trade data in a timely fashion.
- Failure to maintain high standards and practices regarding commercial honour.
- Failure to comply with the NFA’s Enhanced Supervisory Requirements.
- Failure to keep accurate records.
- Failure of Jermaine C. Harmon and Richard A. Lani to adequately supervise the firm’s activities.
Over and above the $200,000 fine Alpari is also obliged to refund the losses it imposed on its customers within 30 days as well as submitting proof to the NFA that these amounts were paid to and received by the traders in question. This is in connection to an October “market event” that had brought the firm to the NFA’s attention. Beyond these penalisations Alpari must also provide the NFA with a full report outlining the results of an independent review that is to be conducted of Alpari’s trading platform as well as what the company has done to rectify “deficiencies” in the firm’s internal controls. This report must be received by the NFA within 180 days of the ruling.
The specifics surrounding the run-up to the NFA’s fining of Alpari are as follows:
Alpari failed to provide the NFA with adequate trade logs pertaining to the company’s Alpari Direct platform, which is a Currenex white label trading solution. The October “market event” took place on the 16th of October 2012, and saw Alpari omitting in excess of 3700 trades in its report to the NFA. This is a little under half of the trades of that day that were not passed on to the regulator. Alpari came back to the NFA with the explanation that the platform the company is running is unable to report over 1000 daily trades, which was refuted by the NFA by making reference to other reports the company had provided which contained over 1000 reported trades. While scrutinising the companies reports the regulator also found that Alpari had also erroneously listed several institutional investors as retail customers and moved to charge the FX broker.
We have reached out to Alpari for a comment which they have declined to make due to the ongoing legal proceedings they are embroiled in.
Our FX Industry Insider Guy Mantel had the following to say about the case in an interview conducted with us in the early hours of this morning:
“What many people don’t understand about the U.S regulatory lay of the land is that it is exceedingly expensive to operate in this market. Unlike Europe where MiFID secures that a single regulatory license can be passported into all other E.U jurisdictions, or as in the case of the U.K, just a single regulatory body’s standards have to be complied with; the U.S is a different story altogether. Not only are SEC and CFTC licenses necessary depending on the underlying assets offered by the broker in question, but then the regulatory bodies belonging to each and every US state that a broker wishes to operate in have to also be applied for and secured before accepting customers in those states. So in Europe a single licence applies to all 27 E.U member counties whereas in the United States it’s the exact opposite situation, to operate in a single country a different license has to be received for each and every state. The regulatory procedure is expensive enough when applying for just one license, let alone what is required to operate U.S-wide.”
In response to a question regarding the future of FX brokers in the U.S, with the recent exit of FX Solutions, GFT and Forex Club from that market, Mantel had the following to say:
“I read that article too and I don’t agree with the conclusion. Yes, regulation is prohibitively expensive but then the profits of these companies are also astronomically high. I’m willing to guess that Alpari paid more than that combined $400,000 fine just to its affiliate partners in 2012, so we can only imagine the profits the company made. Fines are by and large factored in to operating costs for these companies. As long as they can legally keep operating they can continue to rake in the profits. And that’s not to say that regulation is a bad thing. The most important part of this news is not the fine at all as many are drawing attention to, it’s the company being publically called out on its misdeeds, that’s the real hit and that is why we have regulators in the first place. Retail FX has an untold story, and that story is the cat and mouse game between the companies and the organisations that wish to hold them accountable for their actions. Every time a regulatory advance is made the FX firms up their own game and find an even more subtle way to get around the problem. It’s never going to be completely transparent but the without the regulators the industry would be significantly more opaque”.