metronomist
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Does anyone know of any CFD/SB firms outside of the EU that will allow you to open an account as a UK resident to avoid the new ESMA margin rates that come into force at the ens of the month?
ESMA & Trading Outside of the EU
- Thread starter metronomist
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Hi Metronomist,
I am writing an article on this on my website, and I happened to be researching what people were thinking about this.
This is a long and complicated topic, so I will give you the condensed version of what I am thinking:
Months ago, when the ESMA ruling was made public, I contacted 4 major brokers, that are represented in Australia to enquire about opening an account out there.
Before I go on, I need to explain why I selected Australia. I researched every major and minor legal jurisdiction on the planet to uncover where my funds would be safe. I investigated Russia and the East, as well as tax havens such as Belize and Cayman Islands. For example, there is a broker on the Cayman Islands called TradeView, which is good, but here is the problem:
There are no bank deposit schemes for any of these off-shore havens. Russia didn't have it either, BUT Australian savers are guaranteed on their bank deposits up to $250,000. Additionally, sending money to say WestPac in Australia seems like a much more attractive proposition than say sending money to Bank of Belarus or Bank of Mauritius.
The 4 biggest banks in Australia are all in the top 50 of global banks, measured by assets.So as I was saying, I contacted brokers in Australia to ask if I could open an account. I contacted CMC, IG Markets, Plus500 and Pepperstone.
None of them could open an account for me because they are all ALSO ruled by the FCA. Because these brokers also have representation in London, they HAVE TO TREAT YOU as resident in EU, and such they can not offer you the margins you are used to. They have to abide in the rules set out by ESMA and FCA.
So I had to find a broker that was of high quality, but that did not have representation in Europe, but still catered for what I like to trade, which is Dow, FTSE, DAX etc etc.
I found a number of them, but most of them are only offering MT4, and I am simply not a fan of MT4. I could go on and on about why I am not a fan, but I will give just a few reasons: I am an old-fashioned point-and-click trader, and I love fixed spreads where the broker adds their own liquidity.
I found one that I have used for 3 months: TD365. They offer what I need: fixed spreads, stock indices spreads at 1 point, and they have a nice little introduction bonus where you get 25% off the first month. The platform is not the best I have seen, but it is certainly not the worst either.
I am still writing the article, but I will post the link here later this weekend or next week.
I am writing an article on this on my website, and I happened to be researching what people were thinking about this.
This is a long and complicated topic, so I will give you the condensed version of what I am thinking:
Months ago, when the ESMA ruling was made public, I contacted 4 major brokers, that are represented in Australia to enquire about opening an account out there.
Before I go on, I need to explain why I selected Australia. I researched every major and minor legal jurisdiction on the planet to uncover where my funds would be safe. I investigated Russia and the East, as well as tax havens such as Belize and Cayman Islands. For example, there is a broker on the Cayman Islands called TradeView, which is good, but here is the problem:
There are no bank deposit schemes for any of these off-shore havens. Russia didn't have it either, BUT Australian savers are guaranteed on their bank deposits up to $250,000. Additionally, sending money to say WestPac in Australia seems like a much more attractive proposition than say sending money to Bank of Belarus or Bank of Mauritius.
The 4 biggest banks in Australia are all in the top 50 of global banks, measured by assets.So as I was saying, I contacted brokers in Australia to ask if I could open an account. I contacted CMC, IG Markets, Plus500 and Pepperstone.
None of them could open an account for me because they are all ALSO ruled by the FCA. Because these brokers also have representation in London, they HAVE TO TREAT YOU as resident in EU, and such they can not offer you the margins you are used to. They have to abide in the rules set out by ESMA and FCA.
So I had to find a broker that was of high quality, but that did not have representation in Europe, but still catered for what I like to trade, which is Dow, FTSE, DAX etc etc.
I found a number of them, but most of them are only offering MT4, and I am simply not a fan of MT4. I could go on and on about why I am not a fan, but I will give just a few reasons: I am an old-fashioned point-and-click trader, and I love fixed spreads where the broker adds their own liquidity.
I found one that I have used for 3 months: TD365. They offer what I need: fixed spreads, stock indices spreads at 1 point, and they have a nice little introduction bonus where you get 25% off the first month. The platform is not the best I have seen, but it is certainly not the worst either.
I am still writing the article, but I will post the link here later this weekend or next week.
metronomist
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Yes, I too feel a little cagey about sending money out of the UK. Also, How easy is it going to be to transfer any profits from the Aussie SB firm to a UK Bank Account?
Couple of things to be aware off;
CFD Tax implications - in the unlikely event of making a decent profit, you may be liable for tax. If you do not provide your tax details, TD365 may apply a withholding tax. (Note: You may also be able to offset losses against your tax liability as well).
Account funded in AU$ - beware of currency conversion spread and charges both ways when transferring money.
Interesting to note that the TD365 as an Australian set up is wholly owned by FINSA which is a UK PLC and I think it owns SB and CFD shops in the UK though completely different companies to TD365.
Good luck.
CFD Tax implications - in the unlikely event of making a decent profit, you may be liable for tax. If you do not provide your tax details, TD365 may apply a withholding tax. (Note: You may also be able to offset losses against your tax liability as well).
Account funded in AU$ - beware of currency conversion spread and charges both ways when transferring money.
Interesting to note that the TD365 as an Australian set up is wholly owned by FINSA which is a UK PLC and I think it owns SB and CFD shops in the UK though completely different companies to TD365.
Good luck.
metronomist
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It does seem to complicate matters using a non EU provider. Not something I would be entirely comfortable with.
Am I correct in understanding that, as from next week it will mean you're going to have a lot more funds in your account to open new positions. Not only are you going to need 10 times more margin to trade the FSTE100 but if you offset a long position with a short then you'll have to fully fund both legs. The current margin requirement for the FTSE100 is 0.5% (with IG) therefore about £38 for a £1 per point trade, increasing to 5% or £380.00 for a £1 per point trade.
There is also a 50% close out rule that I don't entirely understand. I guess I will have to wait until next week to see how my account will be affected. The only way out if these new margin rules is to become a professional trader by which you will need 500,000 in investment to be even considered.
Am I correct in understanding that, as from next week it will mean you're going to have a lot more funds in your account to open new positions. Not only are you going to need 10 times more margin to trade the FSTE100 but if you offset a long position with a short then you'll have to fully fund both legs. The current margin requirement for the FTSE100 is 0.5% (with IG) therefore about £38 for a £1 per point trade, increasing to 5% or £380.00 for a £1 per point trade.
There is also a 50% close out rule that I don't entirely understand. I guess I will have to wait until next week to see how my account will be affected. The only way out if these new margin rules is to become a professional trader by which you will need 500,000 in investment to be even considered.
Hi Metronomist,
I have written an article about the pros and cons of ESMA's new rules. I will post a link. It has been a while since I have posted on Trade2Win, so I am not sure if you are allowed to post external links. Here goes. If I break any rules, please remove post.
http://tradertom.com/new-esma-rules-brokers-outside-eu/
I have written an article about the pros and cons of ESMA's new rules. I will post a link. It has been a while since I have posted on Trade2Win, so I am not sure if you are allowed to post external links. Here goes. If I break any rules, please remove post.
http://tradertom.com/new-esma-rules-brokers-outside-eu/
D
Dowser
Hi Metro,
I received this email today from my broker (IG) It seems they are willing and able to allow their clients to relocate their accounts to different juristictions enabling them to use much higher margin rates.
Dear Mr. Brads
We have been receiving lots of questions from clients about the other locations in which we operate, so we have put together some information which you may find useful.
We operate 16 offices across the globe and are regulated in all of them, from the Financial Conduct Authority (FCA) in the UK to the Australian Securities and Investments Commission (ASIC) in Australia and many places in between.
All of our global offerings are compliant with the relevant local regulation and therefore our products may vary slightly by office, as may access to certain other features. For instance, Australia does not have a compensation scheme equivalent to the Financial Services Compensation Scheme (FSCS) in the UK, but does operate an equivalent Financial Ombudsmen Service (FOS) to handle customer complaints.
Across all of our offices, we always strive to treat our customers fairly and focus on delivering the best possible customer outcomes. We also strictly apply client money rules in all of our global offices, meaning that your client money is segregated and protected to the highest possible standard. Whichever global offering you choose, you’ll receive the same market-leading technology and unrivalled support that you expect from IG.
How to apply
If you decide you’d like to open an additional account with another IG office, you’ll need to complete a new application form. This is because your new account will be entirely separate from your UK account, with a new username and password.
From the global comparison page, please click on the location you are interested in for more details.
We're here to help
If you have any questions about this or need assistance with your account, our highly trained client services team is available by phone or email 24 hours a day from 8am Saturday to 10pm Friday.
Kind regards
IG
Here is a link with tons of info on the subject:
https://www.ig.com/uk/compare-our-l...ID=22380&tid=1852f6c46be336ebdac6fce764208e20
I received this email today from my broker (IG) It seems they are willing and able to allow their clients to relocate their accounts to different juristictions enabling them to use much higher margin rates.
Dear Mr. Brads
We have been receiving lots of questions from clients about the other locations in which we operate, so we have put together some information which you may find useful.
We operate 16 offices across the globe and are regulated in all of them, from the Financial Conduct Authority (FCA) in the UK to the Australian Securities and Investments Commission (ASIC) in Australia and many places in between.
All of our global offerings are compliant with the relevant local regulation and therefore our products may vary slightly by office, as may access to certain other features. For instance, Australia does not have a compensation scheme equivalent to the Financial Services Compensation Scheme (FSCS) in the UK, but does operate an equivalent Financial Ombudsmen Service (FOS) to handle customer complaints.
Across all of our offices, we always strive to treat our customers fairly and focus on delivering the best possible customer outcomes. We also strictly apply client money rules in all of our global offices, meaning that your client money is segregated and protected to the highest possible standard. Whichever global offering you choose, you’ll receive the same market-leading technology and unrivalled support that you expect from IG.
How to apply
If you decide you’d like to open an additional account with another IG office, you’ll need to complete a new application form. This is because your new account will be entirely separate from your UK account, with a new username and password.
From the global comparison page, please click on the location you are interested in for more details.
We're here to help
If you have any questions about this or need assistance with your account, our highly trained client services team is available by phone or email 24 hours a day from 8am Saturday to 10pm Friday.
Kind regards
IG
Here is a link with tons of info on the subject:
https://www.ig.com/uk/compare-our-l...ID=22380&tid=1852f6c46be336ebdac6fce764208e20
Well they could introduce policy that requires UK residents to have their leverage policy applied. This reminds me of tax avoidance schemes and the subsequent changing of the rules by the government to close them once they realised.
Sent from my SM-G950F using Tapatalk
metronomist
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Great article Sunseeker. Cbrads, I received the same email from IG too. I've sent an email to IG to ask about opening a non-EU account with them as a UK resident. I'll let you know how I get along.
metronomist
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Thankyou for sharing your research Sunseeker.
metronomist
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OK. I've received a reply from IG which reads,
"Our product and account offering does vary depending on which entity you chose to contract with. The easiest way to compare our different offerings is to use the link in the previous email which provides an overview of IG Group. You can then decide which offering will best meet your requirements."
Doesn't quite answer my question, but as I read it you can open an account with an IG office in another country. This will be a new application for an account and is in no way linked to your existing UK one. Looking at the link they sent (posted above by cbrads), it appears that they do offer 200:1 leverage on Indices CFD's in New Zealand, Australia & Switzerland.
"Our product and account offering does vary depending on which entity you chose to contract with. The easiest way to compare our different offerings is to use the link in the previous email which provides an overview of IG Group. You can then decide which offering will best meet your requirements."
Doesn't quite answer my question, but as I read it you can open an account with an IG office in another country. This will be a new application for an account and is in no way linked to your existing UK one. Looking at the link they sent (posted above by cbrads), it appears that they do offer 200:1 leverage on Indices CFD's in New Zealand, Australia & Switzerland.
ARE BROKERS CREATING A DANGEROUS SITUATION WITH THE “PRO” STATUS?
Today I called the FCA. I wanted to hear with my own ears what the watchdog of the financial service industry in the United Kingdom had to say about brokers, which are converting their clients from “retail traders” to “professional traders”.
You can’t have missed these communications from your broker. Our brokers are keen to get you to consider becoming a “professional trader”, because it means you can maintain trading with 200:1 margin, rather than the boring 20:1 margin.
Why is the broker so keen on that? Otherwise he will lose revenue as your trading size will be significantly lower. It makes sense for all parties to seek to maintain the higher margin. As I pointed out in another article a few days ago, there is not much fun trading a pound a point, if you are used to trading 10 pounds a point.
NOT EASY TO BECOME PRO
Of course, it is not so easy to achieve the “pro” status. You need a sizable chunk of money, as well as being able to demonstrate that you have some trading experience.
I decided to speak to the highest power, so I placed a call with the FCA and I asked the following question:
“If a retail client is converted to “professional status”, is he or she still protected by the FSCS?”
Before I tell you their reply, let me enlighten you about retail traders and the FSCS.
FSCS stands for the Financial Services Compensation Scheme. It is a scheme that protects the ordinary man in the street against unexpected financial disasters, such as your bank or broker or insurance company going belly up.
Say you have £5,000 in a trading account with a CFD broker, and the company goes under – for whatever reason – you are going to be compensated for your monetary loss by the FSCS.
Sounds good, right?
You have other rights too, when you are a “retail trader”. You can complain to an Ombudsman, for example, if you have a dispute with your broker, and generally you will be favoured rather than the broker, should a dispute arise.
The professional trader though is not so lucky. He is unable to complain. I imagine many people are less worried about the ability to complain and are more concerned about whether their account balances are protected by the FSCS.
So, I asked the FCA, and they said: “Professional investors are likely to lose their ability to claim compensation with the FSCS, but you should really contact the FSCS directly.”
I hung up, thinking that was a vague answer from an institution that is meant to safeguard the public against malpractice of financial firms. What does “likely” mean. Will they or won’t they lose their account protection?
So, I called the FSCS. I can’t begin to tell you how utterly unprofessional that conversation was. I might as well have been trying to explain basic calculus to a new-born. “How do you spell CFD’s?” the lady asked me.
She told me to email the FSCS legal team with my question, which I have. I am still awaiting their reply.
As I was sitting trading anyway, and I had little else to do, I went online to a couple of brokers, who have these neat online chat facilities, where you can ask questions.
ASKING THE BROKERS
I spoke to Activ Trades, and asked them this question:
“I have a question regarding the new ESMA rules. If I become a pro client, am I still protected under the FSCS?”
The answer was so laconic, and so quick, I was startled. “Yes”. That was it.
I pressed a little harder. Here is the transcript of the conversation:
ME: are you sure? The FCA says no, but they referred me to FSCS
Activ Trades: As a professional client you receive the same protection as an individual client
So ACTIV TRADES says I receive the same protection as a retail client. That is simply not what I hear elsewhere. A “pro” client will not have the risk warnings. A pro client will not have the new ESMA rule of Negative Balance Protection. I guess
Active Trades were not told that, or maybe they misunderstood my question.
I didn’t think one broker should be the basis of my investigation, so I contacted the grandfather of the CFD industry: IG MARKETS.
I spoke to the IG customer service team, posing as a new client. I asked them the same question I had asked Activ Trades, and I was put on hold.
The voice came back and said that the credit team had advised him that nothing would change. I would still be protected even if I was a “pro”.
I explained what the FCA had said, and I asked to be put through to the credit team. The credit team explained a slightly different story.
The credit team of IG explained to me that the main difference between a “retail trader” and a “pro trader” is that the retail traders trading account deposit is placed in a “segregated” bank account. This means that a company like IG can not use the client’s funds for business purposes. Your cash just has to sit there, ring-fenced.
For he “pro” trader however, it is an entirely different proposition. His account is not segregated. His funds are used as collateral with prime brokers and to facilitate the general cash flow of the business.
The guy explained to me that some clients are professionals but still have segregated accounts, while other professionals do not have segregated accounts. The difference was often that the non-segregated accounts were big individual stock traders. Their funds were often used as collateral with the prime brokers.
BUT HERE IS THE REAL KICKER OF MY CONVERSATION WITH IG: IG does not have a LEGAL obligation to segregate the funds of professional traders. The credit team went to great lengths in explaining that as a matter of good business practise, they would segregate the accounts of “pro” traders, but they were not legally obliged to do so.
So, I asked the voice a simple question: so, IF you as a company were forced for liquidity or cash-flow reasons to use the account deposits of the professional traders, you could do so legally?
I never really got a yes or a no. I think he knew where this was headed. He might as well have said “hey, while all is well, your funds are safe with us, but if the **** ever hit the fan, we can legally do whatever we want, and there is nothing you can do about it”.
He went on to explain that professionals also lose the Negative Balance Protection, something that Activ Trades told me was entirely the same. As I said, maybe Activ Trades just misunderstood my question.
Talking of Activ Trade, they have the written on their website that as a professional client you will normally be eligible to make a claim against the FSCS,…..as long as your account with them is not your main trade or business.
Can you hear how contradicting this sounds? You are a “professional”, but it is not your main occupation. If someone said to you “I am a professional dentist, but it is not my main occupation. I am a car salesman”, would you not shake your head?
Anyway, moving on to ETX Capital, where I spoke to a really cool compliance lady who was not in the mood for platitudes and vague answers. Thank you ETX.
She said: “No, you are not protected. When you opt for the professional classification, you basically hand over the funds to the company, and if the company goes bust, you become a creditor, and you have no FSCS protection.
Short and sweet – and to the point. You become a creditor if you are a “pro” and your brokers becomes insolvent. There is no dear mamma FSCS for you, according to ETX Capital. Their story is very different to IG’s story and Activ Trades story.
The final phone call of the day was placed to Core Spreads. At this point my Dow position was moving, so I began to lose my enthusiasm for this self-appointed fact-finding crusade I had started, and was more interested in Donald’s comments about EU.
Core Spreads is a small but very ambitious brokerage company, run by a bunch of competent and thoroughly nice people. They went to great lengths to explain to me what was up and down of this whole business of “pro” and “retail”.
Look at their Terms and Conditions, because you will find their wording in all the other companies wordings too, and it just proves one thing: IF **** HAPPENS, and we get another “2015 Swiss Bank 20% move” or another “Flash Crash” or some other event that wrong-foots a bunch of traders and brokers in a bad enough way, you haven’t the slightest chance of recovering your funds.
Here is the legal wording, you need to know:
11.5 If you have been classified as a Professional Client or an Eligible Counterparty by us, we may agree, in accordance with the Applicable Rules and Regulations, that money we hold on your behalf may not be treated as client money and your money will not be held in accordance with the Client Money Rules. We will acquire full ownership of any sums which are not treated as client money for the purpose of securing or covering your present, future, actual, contingent or prospective obligations.
Such sums may not be segregated from money held in our own account and may be used by us for the purposes of our business. You will rank as a general creditor of our firm only in respect of this money in the unlikely event of our insolvency.
That is a lot of “may”.
I also contacted CMC, SPREADEX and Plus 500. I am aware of the length of my post, but you have let me entertain you with the responses I received from these companies:
CMC: “No, if you become Pro, you are not protected, but if it is something you want, we can look into it for you.”
SpreadEx: “No protection” – end of story.
Plus 500 was clearly uncomfortable with my questions. I was told after a good online chat that “Your query will undergo a thorough review by the responsible department, to give you more accurate answer. I am forwarding it now and you will be contacted through an e-mail shortly.” This was after the operator told me that the FOS and the FSCS was the same.
Here is my concern and I am not the only one sharing this concern, I can assure you of that:
1/ clients are being converted to “pro” and I doubt they understand the implications.
2/ FCA and ESMA will investigate it and as if this industry wasn’t in dire strait before, we will be if clients have been converted to professionals using wrong assumptions.
3/ How long do you think it will be before some of these new “pro” clients lose their funds, and they claim they were mis-sold and they didn’t know what they signed up to. As a friend of mine said: This is a PPI disaster in the making.
If you have any comments or questions, email me on [email protected]
Good luck
Tom Hougaard
Today I called the FCA. I wanted to hear with my own ears what the watchdog of the financial service industry in the United Kingdom had to say about brokers, which are converting their clients from “retail traders” to “professional traders”.
You can’t have missed these communications from your broker. Our brokers are keen to get you to consider becoming a “professional trader”, because it means you can maintain trading with 200:1 margin, rather than the boring 20:1 margin.
Why is the broker so keen on that? Otherwise he will lose revenue as your trading size will be significantly lower. It makes sense for all parties to seek to maintain the higher margin. As I pointed out in another article a few days ago, there is not much fun trading a pound a point, if you are used to trading 10 pounds a point.
NOT EASY TO BECOME PRO
Of course, it is not so easy to achieve the “pro” status. You need a sizable chunk of money, as well as being able to demonstrate that you have some trading experience.
I decided to speak to the highest power, so I placed a call with the FCA and I asked the following question:
“If a retail client is converted to “professional status”, is he or she still protected by the FSCS?”
Before I tell you their reply, let me enlighten you about retail traders and the FSCS.
FSCS stands for the Financial Services Compensation Scheme. It is a scheme that protects the ordinary man in the street against unexpected financial disasters, such as your bank or broker or insurance company going belly up.
Say you have £5,000 in a trading account with a CFD broker, and the company goes under – for whatever reason – you are going to be compensated for your monetary loss by the FSCS.
Sounds good, right?
You have other rights too, when you are a “retail trader”. You can complain to an Ombudsman, for example, if you have a dispute with your broker, and generally you will be favoured rather than the broker, should a dispute arise.
The professional trader though is not so lucky. He is unable to complain. I imagine many people are less worried about the ability to complain and are more concerned about whether their account balances are protected by the FSCS.
So, I asked the FCA, and they said: “Professional investors are likely to lose their ability to claim compensation with the FSCS, but you should really contact the FSCS directly.”
I hung up, thinking that was a vague answer from an institution that is meant to safeguard the public against malpractice of financial firms. What does “likely” mean. Will they or won’t they lose their account protection?
So, I called the FSCS. I can’t begin to tell you how utterly unprofessional that conversation was. I might as well have been trying to explain basic calculus to a new-born. “How do you spell CFD’s?” the lady asked me.
She told me to email the FSCS legal team with my question, which I have. I am still awaiting their reply.
As I was sitting trading anyway, and I had little else to do, I went online to a couple of brokers, who have these neat online chat facilities, where you can ask questions.
ASKING THE BROKERS
I spoke to Activ Trades, and asked them this question:
“I have a question regarding the new ESMA rules. If I become a pro client, am I still protected under the FSCS?”
The answer was so laconic, and so quick, I was startled. “Yes”. That was it.
I pressed a little harder. Here is the transcript of the conversation:
ME: are you sure? The FCA says no, but they referred me to FSCS
Activ Trades: As a professional client you receive the same protection as an individual client
So ACTIV TRADES says I receive the same protection as a retail client. That is simply not what I hear elsewhere. A “pro” client will not have the risk warnings. A pro client will not have the new ESMA rule of Negative Balance Protection. I guess
Active Trades were not told that, or maybe they misunderstood my question.
I didn’t think one broker should be the basis of my investigation, so I contacted the grandfather of the CFD industry: IG MARKETS.
I spoke to the IG customer service team, posing as a new client. I asked them the same question I had asked Activ Trades, and I was put on hold.
The voice came back and said that the credit team had advised him that nothing would change. I would still be protected even if I was a “pro”.
I explained what the FCA had said, and I asked to be put through to the credit team. The credit team explained a slightly different story.
The credit team of IG explained to me that the main difference between a “retail trader” and a “pro trader” is that the retail traders trading account deposit is placed in a “segregated” bank account. This means that a company like IG can not use the client’s funds for business purposes. Your cash just has to sit there, ring-fenced.
For he “pro” trader however, it is an entirely different proposition. His account is not segregated. His funds are used as collateral with prime brokers and to facilitate the general cash flow of the business.
The guy explained to me that some clients are professionals but still have segregated accounts, while other professionals do not have segregated accounts. The difference was often that the non-segregated accounts were big individual stock traders. Their funds were often used as collateral with the prime brokers.
BUT HERE IS THE REAL KICKER OF MY CONVERSATION WITH IG: IG does not have a LEGAL obligation to segregate the funds of professional traders. The credit team went to great lengths in explaining that as a matter of good business practise, they would segregate the accounts of “pro” traders, but they were not legally obliged to do so.
So, I asked the voice a simple question: so, IF you as a company were forced for liquidity or cash-flow reasons to use the account deposits of the professional traders, you could do so legally?
I never really got a yes or a no. I think he knew where this was headed. He might as well have said “hey, while all is well, your funds are safe with us, but if the **** ever hit the fan, we can legally do whatever we want, and there is nothing you can do about it”.
He went on to explain that professionals also lose the Negative Balance Protection, something that Activ Trades told me was entirely the same. As I said, maybe Activ Trades just misunderstood my question.
Talking of Activ Trade, they have the written on their website that as a professional client you will normally be eligible to make a claim against the FSCS,…..as long as your account with them is not your main trade or business.
Can you hear how contradicting this sounds? You are a “professional”, but it is not your main occupation. If someone said to you “I am a professional dentist, but it is not my main occupation. I am a car salesman”, would you not shake your head?
Anyway, moving on to ETX Capital, where I spoke to a really cool compliance lady who was not in the mood for platitudes and vague answers. Thank you ETX.
She said: “No, you are not protected. When you opt for the professional classification, you basically hand over the funds to the company, and if the company goes bust, you become a creditor, and you have no FSCS protection.
Short and sweet – and to the point. You become a creditor if you are a “pro” and your brokers becomes insolvent. There is no dear mamma FSCS for you, according to ETX Capital. Their story is very different to IG’s story and Activ Trades story.
The final phone call of the day was placed to Core Spreads. At this point my Dow position was moving, so I began to lose my enthusiasm for this self-appointed fact-finding crusade I had started, and was more interested in Donald’s comments about EU.
Core Spreads is a small but very ambitious brokerage company, run by a bunch of competent and thoroughly nice people. They went to great lengths to explain to me what was up and down of this whole business of “pro” and “retail”.
Look at their Terms and Conditions, because you will find their wording in all the other companies wordings too, and it just proves one thing: IF **** HAPPENS, and we get another “2015 Swiss Bank 20% move” or another “Flash Crash” or some other event that wrong-foots a bunch of traders and brokers in a bad enough way, you haven’t the slightest chance of recovering your funds.
Here is the legal wording, you need to know:
11.5 If you have been classified as a Professional Client or an Eligible Counterparty by us, we may agree, in accordance with the Applicable Rules and Regulations, that money we hold on your behalf may not be treated as client money and your money will not be held in accordance with the Client Money Rules. We will acquire full ownership of any sums which are not treated as client money for the purpose of securing or covering your present, future, actual, contingent or prospective obligations.
Such sums may not be segregated from money held in our own account and may be used by us for the purposes of our business. You will rank as a general creditor of our firm only in respect of this money in the unlikely event of our insolvency.
That is a lot of “may”.
I also contacted CMC, SPREADEX and Plus 500. I am aware of the length of my post, but you have let me entertain you with the responses I received from these companies:
CMC: “No, if you become Pro, you are not protected, but if it is something you want, we can look into it for you.”
SpreadEx: “No protection” – end of story.
Plus 500 was clearly uncomfortable with my questions. I was told after a good online chat that “Your query will undergo a thorough review by the responsible department, to give you more accurate answer. I am forwarding it now and you will be contacted through an e-mail shortly.” This was after the operator told me that the FOS and the FSCS was the same.
Here is my concern and I am not the only one sharing this concern, I can assure you of that:
1/ clients are being converted to “pro” and I doubt they understand the implications.
2/ FCA and ESMA will investigate it and as if this industry wasn’t in dire strait before, we will be if clients have been converted to professionals using wrong assumptions.
3/ How long do you think it will be before some of these new “pro” clients lose their funds, and they claim they were mis-sold and they didn’t know what they signed up to. As a friend of mine said: This is a PPI disaster in the making.
If you have any comments or questions, email me on [email protected]
Good luck
Tom Hougaard
Good piece of detective work Tom. Its shameful that the regulatory authorities made it necessary for you to dig so hard and so deep. Maybe they should take you on on a consultancy basis.
Meantime, if I wanted to go pro via my current SB firm, they stipulate I must be able to demonstrate I have at least £500k in a financial portfolio somewhere. The pro option with them is therefore a non-starter for me. However, especially having read your article, I am not sore that they at least are taking a conscientious line to actively discourage what some people are thinking or portraying as just a simple re-labelling exercise from private retail to pro.
Meantime, if I wanted to go pro via my current SB firm, they stipulate I must be able to demonstrate I have at least £500k in a financial portfolio somewhere. The pro option with them is therefore a non-starter for me. However, especially having read your article, I am not sore that they at least are taking a conscientious line to actively discourage what some people are thinking or portraying as just a simple re-labelling exercise from private retail to pro.
Hi tomorten,
that is an enormous amount of posts to your name, and we joined at the same time.
Anyway, I maintain good contacts to the city, so my article was not about naming and shaming. However, my "detective work" did uncover how inconsistent the rules are being applied, and that worries me immensely. I would hate to see my friends get into deep financial water if they as a result of being upgraded to PRO status found themselves in an unrecoverable position.
that is an enormous amount of posts to your name, and we joined at the same time.
Anyway, I maintain good contacts to the city, so my article was not about naming and shaming. However, my "detective work" did uncover how inconsistent the rules are being applied, and that worries me immensely. I would hate to see my friends get into deep financial water if they as a result of being upgraded to PRO status found themselves in an unrecoverable position.
NVP
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great threat and thanks Sunseeker......ive been going through the loops as well on this from around May till now ...there were other threads on the go re ESMA new rules
im gonna go with the flow ......cant be arsed to be placing funds outside Europe....big brother will close loopholes as soon as they can i suspect ....
but great work guys
N
im gonna go with the flow ......cant be arsed to be placing funds outside Europe....big brother will close loopholes as soon as they can i suspect ....
but great work guys
N
