As part of the strengthening of customer protection parameters by regulators worldwide, FX brokers have been subject to what has become a zero-tolerance policy, especially in the United States, with regard to net capital requirements, making the jurisdiction a very expensive region in which to operate a retail FX operation.
Today, FXDirectDealer (FXDD) finds itself on the receiving end of a $275,000 fiscal penalty issued by the US Commodity Futures Trading Commission (CFTC) for transgressing the rules stipulated by the regulator on minimum capitaization required for FX firms.
Undercapitalized Over Two Year Period
According to the CFTC order, FXDD did not maintain its required adjusted net capital during at least 18 separate months between November 2010 and December 2012, with month-end adjusted net capital computations showing that FXDD was undercapitalized by more than $7.5 million at one point. This contravenes a law implemented by the US authorities in October 2010 when the CFTC adopted comprehensive rules to protect members of the public who buy FX contracts from, or sell FX contracts to FX firms.
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Under these rules, RFEDs and FCMs that offer or engage in retail FX transactions must at all times maintain adjusted net capital of $20 million, or more in certain circumstances.
Because FXDD reported its adjusted net capital on a consolidated basis with its subsidiary, FXDD apparently did not realize that, according to the CFTC’s findings, and on the required stand-alone basis it failed to satisfy its adjusted net capital requirements throughout most of this period.
FXDD’s Marketing Director John Corbett provided a statement to Forex Magnates on behalf of the company, “With regard to the recent CFTC settlement on the issue of undercapitalization, FXDD continuously maintained sufficient capital on a combined basis with its subsidiary, however, for accounting reasons, the two net capital computations needed to be separated in order to meet adjusted net capital rules.”
September has been an expensive month for FXDD. As well as today’s order issued by the CFTC, the National Futures Association (NFA) concluded its case against the firm just under two weeks ago, handing down a $1.8 million restitution order and $1.1 million fine as a result of failing to implement the correct supervision obligations by employing a trading system providing FXDD with pricing advantages which harmed retail customers.
Back in July, whilst this case was in progress, the NFA issued a fine to the company’s compliance officer to the tune of $75,000 for irregularities in the company’s anti money-laundering procedure, demonstrating the personal liability carried by individuals when carrying out compliance-related tasks on behalf of their employer.
The order issued to FXDD today, as well as imposing the aforementioned $275,000 civil monetary penalty, includes a cease and desist order against FXDD for its violations. The order also notes that in settling this matter, the CFTC took into account FXDD’s cooperation and the corrective action it undertook after its deficiencies were discovered.