On 14th August, the UK Financial Conduct Authority (“FCA”) announced a substantial fine against Forex TB Limited (“FXTB”), a financial firm based in Cyprus, due to multiple violations of UK regulations. The fine, which amounted to £276,100, would have been significantly higher—£1,736,000—if not for financial hardship considerations and the application of the 30% settlement discount. This enforcement highlights the severity of FXTB’s misconduct, which primarily involved failing to treat customers fairly and offering unauthorised investment advice.

FXTB: A closer look

FXTB is a Cyprus-registered company that primarily offers Contracts for Difference (“CFDs”)—complex financial derivatives often targeted at retail investors. CFDs allow traders to speculate on the price movement of various assets without owning them. Although these instruments can generate high returns, they also carry significant risks, particularly for less experienced investors.

Despite being headquartered in Cyprus, FXTB aggressively targeted UK consumers through online marketing, including social media and direct telephone contact. The firm’s marketing strategies, combined with aggressive sales techniques, often took advantage of retail investors who lacked a deep understanding of CFDs and margin trading.

FCA investigation and findings

The FCA’s investigation uncovered that FXTB was offering some services to UK clients without proper authorisation. By April 2021, the firm had been asked to agree to restrict its UK operations, as the FCA considered that its activities were causing serious harm to UK consumers. Prior to this, FXTB continued to operate in the UK through the Temporary Permissions Regime (“TPR”) after Brexit. During the transition period between 1st January and 5th April 2021 (referred to as the “Relevant Period”), FXTB opened 2,477 new accounts for UK-based consumers. Furthermore, during this period the firm generated a total revenue of £666,186 from trading with UK consumers. Prior to the commencement of the TPR, the firm already held 1,833 UK client accounts.

The FCA expressed serious concerns about FXTB’s activities during the Relevant Period, which led to the FCA asking the firm to agree to the imposition of a Voluntary Requirement (“VREQ”) requiring it to stop conducting business with UK consumers. Despite the FCA’s warnings, the firm’s actions caused considerable financial harm, with one UK client losing as much as £167,478.

Key violations and misconduct

The most serious violation involved FXTB’s breach of FCA Principle 6, which requires firms to treat customers fairly. FXTB’s breaches extended across several areas, including providing unauthorised investment advice and exploiting the inexperience of many retail investors. A review of 47 complaints highlighted a pattern of unethical behaviour, including persistent high-pressure tactics from account managers aimed at financially vulnerable clients.

Unauthorised investment advice

One of the most egregious forms of misconduct involved FXTB providing investment advice without the correct permission. Account managers often portrayed themselves as experienced, trustworthy advisors and encouraged clients to deposit additional funds or engage in more trades, warning them they could miss out on potential gains. In several instances, clients were advised against using protective measures like stop-loss orders, further increasing their risk exposure.

FXTB also pushed clients to apply for “elective professional client” status, enabling them to “game” the leverage limits imposed by the European Economic Area (“EEA”) and the UK. These restrictions, introduced in 2018, were designed to protect retail clients. Account managers often assisted clients by providing answers to tests intended to assess their trading knowledge, effectively encouraging false statements.

High-pressure sales techniques

FXTB’s account managers used relentless pressure to push clients into making additional deposits. Many clients were inexperienced and unfamiliar with the intricacies of margin trading and CFD risks. FXTB capitalised on this lack of knowledge by using manipulative sales tactics, including invoking fear of missing out (“FOMO”) or suggesting that additional deposits were necessary to protect existing investments.

In several cases, clients who were financially insecure were pressured into borrowing money from friends or family to continue trading. The FCA found instances of account managers making frequent, unsolicited calls, even after clients had made it clear they could not afford to invest further. This level of pressure breached FCA regulations and took advantage of financially vulnerable clients unfamiliar with the risks involved.

Financial harm inflicted on UK consumers

The FCA’s findings revealed that FXTB’s practices resulted in considerable financial losses for its UK-based clients. During the Relevant Period, UK residents lost a total of £4,426,023 while trading with FXTB. Among these, 62 clients lost over £10,000, with one individual losing nearly £50,000—an amount representing their “entire life savings”.

The FCA underlined the severity of this misconduct, noting that FXTB’s actions disproportionately impacted inexperienced retail investors. CFDs are inherently high-risk financial products, and in 2018 the FCA found that 78% of retail clients end up losing money by trading them. By exploiting their clients’ lack of understanding, FXTB’s account managers were able to maximise the firm’s revenues at the expense of those most at risk.

TPR and regulatory breaches

FXTB’s misconduct was compounded by its misuse of the TPR, which allowed EEA-based firms to continue operating in the UK post-Brexit while awaiting full FCA authorisation. Despite being temporarily authorised under the TPR from January 1st, 2021, FXTB was held to have disregarded multiple warnings the FCA had made regarding firms’ conduct of CFD trading. This aggravated the severity of their regulatory breaches.

The FCA’s enforcement action against FXTB underscores its commitment to safeguarding consumers from being exploited, particularly within the risky world of financial derivatives like CFDs.

Conclusion: a serious warning for the sector

The £276,100 fine imposed on FXTB, though reduced due to financial hardship, stands as a critical reminder to firms within the CFD and wider investment sectors.  The FCA’s actions send a clear and unambiguous message: firms that exploit consumers, especially vulnerable retail investors, will face severe consequences, both financial and reputational. This warning is even more relevant now with the recent introduction of the Consumer Duty.

Need help?

C&G’s consultants have substantial experience of implementing compliance programmes in the CFD industry. Please contact us if you would like help in enhancing your systems and controls.

References

2024. FCA fines FXTB for unfair customer treatment practices, Financial Conduct Authority, August 2024.

2022. FCA highlights continuing concerns about problem firms in the CFD sector, Financial Conduct Authority, December 2022.