Business & Economy

Wednesday, 22 July 2020 17:18

FSCA Temporarily Suspends Forex Trader’s Licence - Trader Plans to Fight Back

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FSCA Temporarily Suspends Forex Trader’s Licence - Trader Plans to Fight Back

The Financial Sector Conduct Authority (FSCA) recently suspended the financial service provider (FSP) licence, temporarily and with provisions, of a forex trader, JP Markets, pending investigations into the trader’s alleged breach of certain laws in the financial sector.

It cited the trader has been operating in “absolute conflict” with its clients. It has allegedly been tampering trading conditions to minimize some high-level clients’ earnings and instead maximizing its own. It also transpired that the trader has for the past year amassed numerous complaints from clients who have not had their deposit withdrawal requests honoured, or have suffered losses due to intermittently not being able to access the trading platform. As such, the FSCA said it has a reasonable belief that substantial prejudice to clients or the general public may occur if the trader continued rendering financial services.

The regulator is now moving to have the trader liquidated, and has filed papers to this effect with the High Court in Johannesburg. While on suspension, JP Markets are not permitted to take on any new business or clients or render any services; however, it is not prohibited from processing client withdrawals. The firm had to inform all affected clients of the recent events. The FSCA’s investigation is currently on-going and any new findings will be made public.

The FSCA said in a statement it is considering further enforcement actions depending on the outcome of its investigations. It went to warn the public that JP Markets is not authorised as an over-the-counter (OTC) derivative provider, and as such may not trade in these markets, whether as part of its own business or as acting principal for a third party.

The trader is opposing the FSCA’s application for liquidation and plans to fight back in court, said its attorney, Darren Hanekom. His clients are in the process of filing answering papers. He believes the FSCA’s application is based on statements by “whistle-blowers” who made no affidavits under oath, and said the FSCA ought to have consulted with relevant parties before rushing off to court.

The head of the FSCA business supervision division, Kedibone Dikokwe, explained the nature of the investigations. According to her, JP Markets allowed its clients to access a platform to trade in contracts for difference (CFDs), and to deposit their funds into its bank accounts. These deposits would then seemingly allow the clients to trade in forex CFDs, enter transactions, and make profits or losses depending on how the underlying forex exchange rose or fell. However, it transpired these clients were not trading on an online decentralised global financial market, but merely on a software application that the firm acquired ready-made and pre-programmed, that recorded these trades. According to Dikokwe, these clients were in fact purchasing CFDs issued by JP Markets, for which the trader by law required an OTC derivative provider licence. Without one, the trader is not permitted, even under regular features of its business, to originate, issue, sell or make a market in OTC derivatives.

JP Markets has been operating in South Africa since 2016, according to Dikokwe, under a category 1 licence to provide advice and render intermediary services in respect of derivative instruments and deposits as defined in the Banks Act. It has traded in outside countries too, including Kenya, Pakistan and Bangladesh.

In another case, the FSCA also warned the public against entering in any financial business with Tradehedges. It received information by concerned members of the public that this trader claimed to be an authorised FSP, operating under a false FSP number and licence, and allegedly displayed a certificate claimed to have been issued by the FSCA back in 2017 when it was still the FSB (Financial Services Board). According to FSCA, it researched its records, and subsequently found that Tradehedges is not an authorised FSP nor a juristic representative, and no records of any applications for such exist, or of the licence number in question.

The FSCA again strongly advised members of the public to check that a trader is registered with it and to verify which categories it is permitted to trade and advise in, before entering any business or trade agreements, or depositing any funds to into any bank accounts these traders proffer. Similarly, there have been cases in which individuals are registered to provide basic low-risk advisory services only, and yet offer services of considerably higher risk and complexity, resulting in major financial losses and extensive damage to investment portfolios for the clients who follow the provided ill advice to the letter.

Prospective clients of any foreign exchange trader are reminded to check with the FSCA beforehand whether it is properly authorised and licensed, on either the toll-free number, 0800-110-443, or on its website at www.fsca.co.za. 

Here you can have a look at the FSB Regulated Forex brokers currently in South Africa.

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