LeapRate Exclusive… LeapRate has learned that some of the leading regulated online trading and platform companies in Europe, from both the Retail Forex and Binary Options industries, are actively working on forming a new industry association to set standards and represent the sector’s interests.
And, to help reshape the sector by moving deposits and volumes to regulated, licensed brokers.
An initial invitation-only meeting is taking place this morning in Cyprus to begin the process of forming the association – to be called the European Brokers Association (or EUBOA) – and setting its formal agenda. About 50 brokers and platform providers have been invited to the meeting, and we understand that most of those invited are attending.
According to Bjorn Krog, Head of Legal at one of the organizers, SpotOption Exchange:
We hope that with the establishment of EUBOA, the online trading industry will mature and pave the way for brokers who want to run credible and reputable operations. Cooperation between all the parties involved is the key to redefining the industry reputation, giving it the fair chance it deserves, and taking the action items necessary to protect the interests of traders and brokers around the globe.
We understand that the major impetus behind forming the association is the proliferation of unregulated brokers over the past year, particularly in the Binary Options sector. The Binary Options industry has come under a lot of scrutiny lately, an issue we at LeapRate have covered at length. Much of the criticism is certainly valid, with many documented cases of brokers not honoring client withdrawal requests, and very aggressive and misleading sales and customer retention practices becoming commonplace.
However much of this activity has been carried out by unlicensed, unregulated brokers. The organizers – from regulated, licensed brokers – want to help both traders and regulators differentiate between the ‘bad guys’ in the industry, versus those who treat clients well and are under constant supervision by recognized regulators.
Some of the key issues which we understand will be discussed at the meeting today (and beyond) include:
- Regulated Brokers operating unlicensed subsidiaries. This practice has been common among many regulated brokers, where they take on traders from EU countries in their regulated EU subsidiary, but shunt traders from everywhere else to an unlicensed subsidiary abroad. In that way, they avoid larger capital requirements from the regulator, and can do things such as offer leverage beyond regulatory allowances.
- Platform providers selling to and supporting unlicensed brokers using their software and services. The majority of binary options brokers operating today do so unlicensed. Cutting them off would certainly come at a significant cost for the platform providers, so that is unlikely. Also, just like Microsoft can’t control what people use Windows, Word and Excel for, platform providers don’t have total control over what their software is used for. However it looks like the association organizers have their eye on helping the industry grow in a more regulated environment over the long term.
- Practices in call centers.
- Practices in marketing channels, including at Affiliates. Some of the criticism leveled recently at the industry stems from activities not of the brokers themselves, but of the Affiliates which advertise and then send leads and clients to the brokers, in return for either an ‘acquisition’ fee or a revenue share. The brokers and platform providers want to establish more control over how their brands are marketed and presented to clients, even when they themselves are not involved.
The organizers are looking to recruit an experienced individual from outside the online trading industry to act as Chairman, and to be the key spokesperson for the association. We understand that the organizers are currently in discussions with a few potential candidates. The candidates are mainly veterans of the European banking and finance sector.
While the association’s actual makeup and mission is still to be determined, our understanding is that it will look to fulfill several important functions, including:
- Educate Traders – in choosing a regulated broker, and understanding what their rights and protections are with regulated brokers (e.g. broker bankruptcy protection, segregated client funds, proper complaint and dispute mechanisms…) as opposed to if they give money to unlicensed operators (essentially, none).
- Work with Regulators on Rules and Industry Standards. While standards for things such as capital requirements, leverage and advertising rules will never be uniform country to country, even within the EU, the association will work with each country regulator to help form rules that don’t restrict competition or send business underground, while still protecting the interests of retail traders.
- Facilitate cooperation between brokers, platform providers, regulators, and other market participants including banks, liquidity providers and other FX industry stakeholders. This has to do a lot with how financial technology is rapidly changing, altering the landscape of FX trading faster than ever before.
From a strategic standpoint, the association will look to help move trading volumes and client deposits from unregulated brokers toward licensed, regulated brokers. We estimate that about 30% of Retail Forex trading volumes currently take place at unregulated brokers, while in the Binary Options sector it is closer to 90%. The association will be looking to greatly reduce both figures.
The association is initially going to be comprised only of EU regulated brokers. It might in the future consider adding companies from other jurisdictions noted for having strong regulatory authorities, such as Australia, Dubai, Switzerland, Hong Kong, Canada and the US. It will not include brokers licensed in offshore places such as Mauritius or the BVI.
We understand that the key organizers of the association, and the ones who initiated next Monday’s initial meeting, come from the Binary Options sector, including platform providers SpotOption Exchange and TechFinancials Inc (LON:TECH) – both of which have CySEC licensed subsidiaries, with TechFinancials also operating regulated binary options broker OptionFair. Other organizers include Banc de Binary and Anyoption. However a number of Forex industry operators are also bullish on the idea and are getting involved.
We will continue to follow this story as it develops.