The FCA has taken action to stop four Cypriot investment firms from continuing to offer high risk contracts for difference (CFDs) to UK investors.
It appears that these firms used unauthorised celebrity endorsements on social media as part of their marketing. The orders require them to stop selling CFDs to UK customers, to close existing positions with UK customers, to return UK customers’ money and to notify UK customers of the FCA’s action.
The firms are entitled to seek a review of the FCA’s action.
Hoch Capital Ltd (trading as iTrader and tradeATF), Magnum FX (Cyprus) Ltd (trading as ET Finance), Rodeler Ltd (trading as 24option) and F1Markets Ltd (trading as Investous, StrattonMarkets and Europrime) used social media and webpages carrying fake endorsements from celebrities to entice consumers into the scams involving CFDs.
The FCA estimates that UK investors have lost hundreds of thousands of pounds in these investments.
None of the firms and their operators have any actual presence in the UK and the firms have addresses in Cyprus.
The FCA took action because consumers were not provided with sufficient information as to the nature of the investments, some were pressured into making increasingly large investments in CFDs, which referenced bitcoin, foreign exchange, shares and indices, and some were even encouraged to take out credit to make the payments.
It also appears that the firms had failed to pay money owed to investors, charged customers undisclosed fees and failed to tell them about the risks of trading CFDs.
CFDs are complex financial investments which allow traders to speculate on the movement in prices of underlying assets and can cause heavy losses to unwary or inexperienced investors.
A number of customers are known to have lost more than £100,000 to the schemes.
The Cypriot-regulated firms – which were permitted to operate in the UK through a method known as passporting – must now cease all regulated activities with UK consumers.
It is the first time the FCA has used its power to remove passporting rights from a firm.
Mark Steward, FCA Executive Director of Enforcement and Market Oversight, said:
'The FCA has removed passporting rights for these firms which effectively stops them from continuing to provide these types of products in the UK. We welcome the further action taken by the CySEC. The FCA’s investigations into the sector are continuing.'
Following the FCA’s action, and on the basis of information supplied by the FCA, the Cyprus Securities and Exchange Commission (CySEC) has fully suspended the regulatory authorisations of Rodeler Ltd and Hoch Capital Ltd and partially suspended the regulatory authorisations of Magnum FX (Cyprus) Ltd and F1 Markets Ltd.
The CySEC action means that Rodeler Ltd and Hoch Capital Ltd must cease all regulated activities entirely. Magnum FX (Cyprus) Ltd and F1 Markets Ltd, may only provide investment services to their existing non-UK-resident clients, and must not promote the provision of their investment services or take on new clients. They are also explicitly prohibited from providing investment services to existing or new UK resident clients
Background
1. First supervisory notices:
2. The FCA has been closely focused on retail consumer harm associated with the marketing, sale and distribution of CFDs and Binary Options in recent years.
3. FCA’s Dear CEO letter focused on client take-on in firms offering contracts for difference (CFDs).
4. FCA’s second Dear CEO letter on the responsibilities of providers and distributors of CFD products on an advisory or discretionary basis.
8. The FCA’s action follows a similar move by the Italian regulator, the Commissione Nazionale per le Societa e la Borsa (“CONSOB”) which recently prohibited Hoch Capital Ltd and Rodeler Ltd from providing investment services and activities in Italy.
