AMF Mystery Shopper exposes dubious brokers’ practices and brings CySEC under fire once again


Whether CySEC, the Cypriot financial markets regulator, is an effective and trusted watchdog and whether it is appropriate that the firms it licenses gain passporting rights to operate and offer their services in the entire European Union is a question that keeps cropping up in the retail online trading of forex, cfds and binary options industry.

A recent case where this was brought to the fore once again were the allegations of Glenn Stevens, the CEO of GAIN Capital, whose firm has recently acquired British CFD and spread betting stalwart City Index and he has thus been exposed to the differences in regulatory prowess between that of the United States and that of other regions. Stevens showed he is unhappy with the fact that the British regulator, the FCA, due to the European Union’s MiFID directive ‘passporting’ function, allows CySec regulated brokers to conduct business with British clients without an actual FCA license or British office.

Stevens wants the FCA to “tighten” its stance on passported firms, because as he pointed out: “On the one hand having competition is good. But having competition that plays by different rules isn’t good. Too many of these companies operate kind of dodgy. I have even heard of people registering who were able to open and register accounts as Mickey Mouse and Kermit the Frog. Some of these firms’ version of KYC (know your customer) is such a light touch that they are letting customers go right through. That tells me they are not following the same rules that we are, checking customers’ source of funds and doing the sorts of suitability stuff the FCA wants. It bothers me that there’s this backdoor Cypriot thing. It can be Gibraltar, it can be any number of locations. I know why they put this passporting thing in place because it was well intentioned — to make a more-standardized regulatory regime — but not if everybody applies it differently.”

These statements did cause some ripples, but what is even more worse news for CySEC and it tends to verify Stevens’ concerns about poorly implemented KYC policies by CySEC licensed firms are the results of a mystery shopping campaign that targeted Internet sites, offering Forex and binary options trading and conducted by the French regulator AMF.

The AMF said in a relevant press release that these on-line tests clearly show the dubious practices of trading websites which do not respect the basic rules for protecting investors and that these mystery shopping visits, which were designed to accurately assess the business practices of online trading websites, actually confirm the reprehensible practices and unscrupulous business approaches of the sites in question.

The campaign targeted 29 websites, offering Forex and binary options trading, which are the most visited online trading sites by French investors. The mystery shoppers were instructed by the AMF to open a live account, start a trading activity and try to withdraw funds, but they were forbidden to give out their credit card details. As highlighted by the AMF this latter was “an “obstacle” that did not prevent 9 accounts from being opened out of the 29 target sites: 8 accounts on sites approved by the Cypriot regulator and 1 on an unauthorised site.”

To make matters worse, in 5 cases out of the 9, the companies did not bother to demand any form of an ID from the trader at any point, while in three cases clients were allowed to trade for 10 days without any verification of their identity being asked.

Besides not observing the regulations with regards to KYC policies, the sites targeted by the AMF campaign were found to be misinforming clients and underplaying the risk involved in the trades and giving them incentives to invest or even exerting pressures on them to do so. In a nutshell, the results show that information on the risks is minimal and barely-visible, while the “training” provided by brokers is often deceptive, concealing the complexity of the financial instruments on offer and all discussions with clients focus on the unrealistic possibilities of gains.

Finally, the obstacles to recover client funds were numerous, including staff trying to dissuade the traders from withdrawing their funds and trying to convince them to deposit more instead. Moreover, the withdrawal procedures described on the sites was unclear and exercising one’s right to withdraw funds dependent on minimum criteria, such as for example a specified trading volume or period of activity being reached beforehand. As a result, several weeks after the mystery shopping experiment, the shoppers have managed to get their funds back only from 2 out of the 9 sites in question.

Feeling that the results of this campaign vindicate it, the AMF has now set of on its war against unscrupulous service providers with a re-invigorated zeal and is expected to take even more drastic measures to prevent the French public from the risks of online trading in the future.