Breaking: Another high profile firm avoids fine by choosing to settle: the CySEC Vs Banc de Binary case


Similarly to what happened recently with another high profile firm, IronFX, today CySEC announced, besides the imposition of a fine to CIF Rodeler Ltd, that it had reached a settlement agreement with the Cyprus Investment Firm Banc De Binary Ltd, for the amount of €350.000.

This amount, which according to the announcement has already been paid by Banc de Binary, is in fact the largest sum in the recent wave of fines and settlements announced by CySEC, although the actual announcement of the settlement divulges very little as to the nature of the actual suspected violations and breaches of the relevant legislation and rules.

However, if one takes a closer look and searches the specific articles of CySEC legislation to which reference is made, it is revealed that the violations for which “there was reasonable ground” to believe that they have occurred are actually quite numerous and serious and include the use of misleading marketing materials, the lack of adequate contractual obligations set between the brokerage and the client and their rights and duties, as well as the lack of sufficient information about the binary options brokerage and the assets it is providing for trading. Moreover, the CySEC announcement mentions Article 28 (d) of the Cyprus Investment Firms law which is relating to the performance of investment services, leading one to assume that in the case of this binary options broker the violation pertains to trading signals providers.

The case of Banc de Binary choosing to settle with CySEC as did IronFX a couple of months back has made us think and try to explain this phenomenon, especially since in both these cases the settlement sums were much higher than the fine amounts announced on the same day to other brokers.

So why are the “possible violations” costing companies more than the actual, proven and substantiated violations? Why are those found and proven to break the rules called to pay less that those who are merely suspected to have done so?

Well, we believe that this issue begs for some straight talk and honesty and not for beating around the bush. We hold the view that the settlement is a “technical” term and issue and that the firms that choose to settle and dish out the bigger amounts are actually guilty of the violations that the regulator refers to. If they were innocent they would have allowed the full course of the inspection and gloat when in the end the watchdog would not have found something against them. By choosing to pay a settlement fee, they are indirectly admitting their wrong-doing.

If we look at the two companies that went for the option of a settlement, namely IronFX and Banc de Binary, we can discern some parallels that may help to explain their decision. Both are big players in their respective markets, or claim to be at least, and seem to pay particular attention to their brand image and engage in flamboyant rhetoric. In fact BdB were so annoyed when we recently published a post on the New Zealand regulator announcing they were not registered to offer their services there, that they contacted us and asked us to remove the post, claiming that it wasn’t true. On a similar spirit, when IronFX was caught in the middle of its big dispute with angry clients and IBs, especially from Asia, demanding their withdrawals, it was using as one of the main arguments to defend itself that it has never being “convicted” or fined by any regulator and that the clients were in the wrong, as IronFX always plays by the book…

Technically, then by choosing to settle, the firms avoid the tarnish to their image and this is perhaps why they are prepared to pay more and pay it immediately. The regulator seems to be playing along by wording the relevant announcement in a much different way than the fine imposition announcements and make it more unclear and difficult for the exact nature and type of the suspected violations to be publicized and smear the firm’s reputation.

By avoiding the specifying and exact spelling out of their wrongdoings, as well as the precedent of a “conviction and a sentence” by a regulator marring their record, the firms involved save themselves a lot of bad publicity and have in their hands a situation that is much easier to handle in terms of negative press, criticism and exposure, elements that can well put many potential customers off and lead them to avoid to particular firm that was found guilty and fined by its regulator.

What is unclear is whether the practice of settlements instead of fines is a form of effective client protection, since it may lead to firms presenting a rosy picture of themselves which is not entirely true and thus be misleading prospective customers, while we are also not 100% certain if the regulator can demand the implementation of corrective measures to ensure the compliance of the brokers, since technically the violations have not been fully proven.