FXCM UK Announces $16.9 Million Settlement with FCA for Asymmetric Slippage
Following the reporting of a loss reserve of $15 million in relation to FCA investigation during its Q3 2013 financials
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.
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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)
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This is very interesting that. Does FXCM plan on reimbursing clients affected from other subsidiaries for asymmetric slippage? i.e. FXCM Singapore, FXCM Au, FXCM China, etc. Before you answer that, a colleague of mine was telling me that FXCM was posed a similar question shortly after FXCM USA was fined: Joe trader: “….does this mean that FXCM will refund customer across all FXCM customers not only US. Or FXCM UK will keep the non dealing desk scam claim?….” http://www.forexfactory.com/showthread.php?p=4868637#post4868637 Jason Rogers: “The change to our execution process made last year adds positive slippage on all orders to all clients regardless… Read more »
different financial year perhaps than a calendar one, it’s common, but i agree – it’s confusing
different financial year perhaps than a calendar one, it’s common, but i agree – it’s confusing
Funny how they try to spin this to sound like the offered to pay the settlement on their own. This is the real notice on the FINE that was imposed on them by the FCA for making ‘unfair profits’ and not being open with the FCA and not treating clients fairly: The Financial Conduct Authority fines FXCM UK £4 million for making ‘unfair profits’ and not being open with the FCA The Financial Conduct Authority (FCA) has fined Forex Capital Markets Ltd and FXCM Securities Ltd (“FXCM UK”) £4,000,000 for allowing the US based FXCM Group to withhold profits worth… Read more »
@MC….good job. Shame on FM for not uncovering this earlier. Combined with my earlier comment above, FM has all they need for a ‘breaking news’ followup article. Such an article should cover: – Other jurisdiction regulator’s response to this matter – FXCM’s repayment plan, to both US/UK clients and non-US/UK clients – how can clients be confident this will not happen in the future. – [bonus] how does asymmetric slippage work? (how do brokers actually implement this, particularly using a NDD execution model) – have shareholders been notified? Is it really necessary? Because the implications here are damning. Unless I’m… Read more »
@MC & Jon – good points, and as posted when FXCM first announced the pending fine in November, the expectation was that these investigations would be applied to other brokers. Based on the FCA announcing its Thematic Review taking place, it seems that it is now close to certain that this will take place.