Forex.com UK hit with $490K fine for taking US customers
Gain Capital is one of the very few retail forex brokerage groups which has regulated entities in both the US and UK (plus other jurisdictions), so it is unclear why they would “cross-pollinate” and allow one entity to take clients from the jurisdiction of another entity. Surely there would be simple checks and processes to prevent that from happening. But when it happens and indeed goes on for more than five years…..
The US financial regulator Commodity Futures Trading Commission (CFTC) has announced that it has issued an order filing and settling charges against Gain Capital UK Limited of London, England for taking US customers in its Forex.com UK unit. By doing so, the CFTC stated that Gain UK failed to register as a retail foreign exchange dealer (RFED).
The CFTC also noted that there were supervision violations at the company, related to the handling of a customer account managed by an unregistered commodity trading advisor (CTA).
The order requires Gain UK to pay a $250,000 civil monetary penalty and to disgorge $241,671. The company must also cease and desist from any further violations of the Commodity Exchange Act (CEA) or CFTC regulations, as charged.
The order finds that from at least February 6, 2014 to March 8, 2019, Gain UK acted as a counterparty to retail foreign exchange (forex) customers who were located in the United States, without registering as an RFED as required by the CEA and CFTC regulations. Gain UK accepted customers who used U.S. mailing addresses in account applications and provided documents such as lease agreements, utility bills, and health-insurance enrollment letters suggesting that they were located in the United States. Furthermore, one customer informed a Gain UK employee that she was a student at a U.S. university when questioned about her account application and U.S. mailing address. Nevertheless, Gain UK failed to register as an RFED as required.
The order also finds that Gain UK failed to diligently supervise the handling of the account of a retail forex customer who was located in the United States. Specifically, Gain UK failed to detect warning signs of the underlying fraudulent conduct by an unregistered CTA who solicited the retail forex customer to open an account with Gain UK. For example, a Gain UK employee had extensive communications with the unregistered CTA and was aware that the CTA had been rejected from managing accounts with Gain UK and its affiliates because the CTA may have been soliciting managed accounts through social media and a website without registering with the CFTC. Despite the unregistered CTA not being named on any of the account documents, the CTA had extensive communications with Gain UK’s employee about creating the account, directed the trading in it, and refunded commissions to the customer to reimburse significant trading losses. Due to the unregistered CTA’s fraudulent conduct, the customer suffered approximately $280,000 in losses while Gain UK earned $241,671.