FXDD Compliance Officer Fined $75,000 By NFA For Irregularities In AML Procedure

Further demonstrating the regulatory effort directed at ensuring that funds received by FX firms are legitimate, the NFA has fined

Worldwide regulatory authorities continue their focus on FX firms and their internal practices, most notably the methods by which they exercise care and attention to the handling of client funds and with regard to the procedures in place for ensuring that funds to be held with brokers for the purposes of funding trading accounts originate from genuine and legitimate sources.

On Thursday last week, the National Futures Association prosecuted FX Direct Dealer (FXDD)’s Chief Compliance Officer James E. Green as a result of complaints filed against this particular individual on June 29, 2012 and subsequently October 23, 2012.

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The NFA’s panel took the complaints to hearing, and found that Mr. Green was personally responsible for failing to supervise FXDD’s operations including the anti money-laundering (AML) program, therefore handed down a $75,000 fine to Mr. Green and in addition sought an undertaking from Mr. Green that he would not be employed or act as an AML Compliance Officer for any NFA Member or in a compliance capacity, unless he reports to or is supervised by another person within the Member’s compliance department, for a period of one year.

Whilst Mr. Green did not admit or deny the allegations, he agreed to settle this matter in full with the NFA.

FXDD Embroiled In  Slippage Case With NFA

Although this particular case involves the NFA having pursued Mr. Green for personal liability, this is not the first time that FXDD finds itself under the regulator’s microscope, the NFA having previously entered into litigation against the firm itself.

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In July last year, the NFA issued a charge against FXDD for an alleged violation of rules pertaining to the way in which the company handled a series of accounts.

The resultant cost to FXDD in fines and rectification by crediting customers is somewhat unclear, however the NFA put FXDD in a position whereby the company agreed to putting a potential $3.3 million settlement in to an escrow account December of the same year should the outcome fall on the side of the regulator.

The NFA set in place final rules relating to slippage and re-quoting back in 2010 after irregularities in FXCM’s practices relating to slippage and re-quoting were discovered, costing the firm $16 million in fines collected by the NFA and restitutions to customers.

NFA Inspection Revealed Irregularities

During a visit to FXDD in June 2011, NFA discovered that FXDD had been using asymmetrical price slippage settings since becoming an NFA Member in December 2009.

These asymmetrical slippage settings were activated during the “price check” process when FXDD’s system compared the customer’s tagged price to current market prices. If, after the customer entered his/her order, the market moved in the customer’s favor (“positive slippage”) by no more than two pips, then FXDD would fill the customer at the tagged price.

This particular complaint against FXDD last year cited that, for example, in an IE trade, if a customer requested to buy 100,000 EUR/USD where the bid price on the customer’s computer screen was 1.43 and the ask price was 1.45, the customer would click on the ask price of 1.45 to buy the contract and that would be the tagged price captured on the front-end of FXDD’s system. However, before executing the trade and confirming it to the customer, FXDD would also run the customer’s order through two primary “checks” – a “margin check” and a “price check” – on the back-end of FXDD’s system.

The “margin check” ensures that the customer has adequate funds to make the trade, while the “price check” ensures that when the back-office system receives the customer order that the tagged price remains within certain price parameters based on current market prices. After these “checks” were completed, the complained alleged that FXDD either filled the customer’s trade at the tagged price of 1.45 or rejects the trade.

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