FXCM Settles Another Regulatory Headache in US Ahead of Departure

The CFTC claimed that FXCM guaranteed to customers that they would not lose money while they assumed significant risks.

2017 will be a year to forget for FXCM, and the troubled broker is not yet out of the woods. On Monday, the New York-based FX broker took a step towards resolving another legal headache in the US, which is scheduled to leave soon, by agreeing to pay a
$650,000 civil fine to the CFTC to settle charges that it was under-capitalized in January 2015, and failed to report its capital shortfall in a timely manner, the company said in a statement.

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On top of this, the settlement, filed with the US District Court for the Southern District of New York, also resolved charges that FXCM guaranteed against customer losses, by “zeroing out negative customer balances”, which is a CFTC violation.

US laws explicitly prohibit retail brokers from saying that they can guarantee customers against loss, or limit these potential losses. However, the CFTC claimed that FXCM improperly guaranteed customers that they would not lose money while it should have warned them of the significant risks of trading FX and that they assume risk of loss in excess of their investment and margin deposit.

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The CFTC complaint, filed on August 2016, alleged that FXCM was required to maintain adjusted net capital of $25 million on January 15, 2015. However, on that particular day FXCM admitted it had a shortfall of at least $200 million under its adjusted net capital requirement, meaning that FXCM had liabilities exceeding its assets by $175 million.

The case stemmed from the SNB black swan event which saw FXCM and other brokerages hit hard by the decision. The company announced on January 16 2015 that it lost more than $200 million as a result of the SNB’s action.

The settlement was disclosed one week after the CFTC settled with FXCM and some of its executives on the charge of misleading its retail customers into believing that the firm used a ‘no dealing desk’ order execution model, while in fact FXCM was routing orders through a market maker that was supported and controlled by FXCM.

There were several other charges against the company raised by the NFA. The company has settled the charges with both the CFTC and the NFA. The retail broker and its senior executives have been permanently barred from the industry and can no longer operate in the US. FXCM also agreed to pay a $7 million fine.

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