Although Canada is home to just a small number of retail FX firms, the northern Dominion hosts a considerable number of financial markets traders, as it has a very strong economy and financial sector.
Canadian FX regulation is administered provincially rather than federally, and whilst the majority of the financial markets activity and FX trading in Canada is concentrated around Toronto, and overseen by the Ontario Securities Commission, there are other provinces within Canada where, despite far less FX market activity, the financial regulatory authorities apply very stingent customer protection rules to parties operating within the FX industry.
British Columbia is one particular region in which the provincial authorities are able to enlist the services of the Police and process criminal prosecutions against individuals or companies which conduct FX training, portfolio management or introduction of clients to brokers for commission if the parties involved are unlicensed or from a different jurisdiction, or if they carry regulatory approval from outside of British Columbia.
As an example of the dim view which British Columbia takes relating to transgressions of its financial markets laws, the British Columbia Securities Commission (BCSC)’s Executive Director yesterday issued a notice of hearing alleging that a self-employed FX trader committed fraud by concealing how he earned commissions, offered clients false guarantees to reimburse them for any losses, and engaged in unregistered trading.
BC Regulators Expect Total Transparency
The regulatory authority in Canada’s most westerly province has demonstrated a commitment to ensuring that its citizens are kept informed of all aspects of risk and reward when enlisting traders and portfolio managers to trade financial instruments including FX on their behalf, full transparency of all earnings and commissions is one particular tenet of the responsibilities of FX fund managers and traders.
This particular notice alleges that between April 2009 and June 2011, Hong Liang Zhong met with 14 B.C. residents about trading Forex on their behalf. Mr. Zhong is a B.C. resident and has never been registered to trade securities in B.C.
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Additionally, it states that Mr. Zhong filled out electronic applications to open trading accounts for his FX clients at two online brokerage firms. In the account applications, Mr. Zhong listed himself as a referring broker so he could receive commissions from the brokerage firms based on the volume of trading in the Forex clients’ accounts.
Furhtermore, as Mr. Zhong would not be eligible for the referring broker commission if he had trading authority over the accounts, he made his spouse the apparent trading agent. However, BCSC staff maintains that it was Mr. Zhong, not his spouse, who executed trades on behalf of the Forex clients.
Concealment Of Commissions
Mr. Zhong informed his FX clients that he would only get paid by taking a share of the profits, while concealing from them that he was actually receiving commissions as a referring broker based on trading volume alone.
Mr. Zhong conducted high volume trading in the client accounts and earned at least USD $108,408 in commissions as a referring broker. He lost USD $268,305 of the USD $403,012 that his Forex clients invested. BCSC staff contends that by misrepresenting the true nature of his commissions to his Forex clients and to the online brokerage firms, Zhong perpetrated a fraud.
The notice also alleges that Mr. Zhong guaranteed at least four of the FX clients that he would return their full principal if they suffered trading losses. These clients invested USD $115,062, and Mr. Zhong lost USD $102,721 of their money. Despite being asked to do so, Zhong has not reimbursed them for their losses.
These allegations have not yet been proven. Counsel for the executive director will apply to set dates for a hearing into the allegations before a panel of commissioners on September 3, 2013 at 9:00am.
A full and detailed report on Canada’s FX market is available within the Forex Magnates Industry Report for Q2 of 2013.