In its Q3 2013 financials report, FXCM reported an overall loss due to the creation of $15 million in loss reserves for an ongoing FCA investigation of the broker. Today, FXCM has announced that they have reached a settlement with the FCA for a total of $16.9 million in fines and compensation agreed to be paid.
As detailed by FXCM, the investigation was in regards to assymetric slippage policies that the broker had in place prior to August 2010. Before trading conditions changes were applied in 2010, customers were not receiving price improvement in the event that FXCM’s liquidity providers executed their orders at a price better than anticipated. However, FXCM clients were still vulnerable to negative slippage.
Following the settlement with the FCA, FXCM will be issuing approximately $10 million in restitution to clients affected by the asymmetric slippage policies, while paying an addition $6.9 million in fines. As such, FXCM stated that they will be recording an additional $1.9 million in losses due to the case when they report their Q4 2013 and full year results next month. According to FXCM, clients due to receive restitution will be notified within 60 days. They added though that the average impact to traders was only $3.70. In addition, in their FAQ to clients, they explain that customers with old accounts that have been closed will be required to complete a new Trading Agreement with FXCM to trade funds from the compensation.
When announcing the fine, FXCM also used the event to post findings from their internal review of price improvements. In that review of trades that took place between August 2013 and January 2014, of 43,128,901 Forex and metal executions, FXCM was found to have provided clients price improvement on 15% of orders, totaling $15.5 million.
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In addition to conducting internal reviews, the FCA has also begun a Thematic Review of broker executions. As reported in their most recent Newsletter, the thematic review of executions by the FCA comes as the regulator is monitoring whether firms have been following guidelines created by ESMA and the European Commission in 2007.
Among brokers, FXCM is the first to be fined by the FCA for asymmetric slippage. However, as stated when first reporting on the investigation of FXCM last November, Forex Magnates believes that similar to fines issued by the NFA in the US to multiple forex brokers, the FCA may initiate reviews of other UK regulated brokers. Speaking to a representative of FXCM in this regard, they believed that this was possible and would make sense given that the FCA is currently conducting its thematic review of broker executions.
Providing a positive spin on the news, Brendan Callan, FXCM UK’s Chief Executive Officer, commented in the broker’s public statement that “This settlement is a significant step in our efforts to put this legacy trade execution issue behind us.” Adding, “We are also pleased with the FCA’s 12 Feb, 2014 MarketWatch Newsletter article on trade execution standards and we hope that it helps improve execution practices across the industry.
(Correction: In a previous version of this article it was reported that the results of FXCM’s price improvement review was conducted by the FCA. These figures were in fact part of an internal review by FXCM)