In a recent interview with The Times of Israel, Caroline Leau, a spokeswoman for French financial regulator, L’autorité des marchés financiers (AMF), said that there are three types of actors in the forex and binary options industry: companies regulated by “serious” regulators, 90 percent of whose investors lose their money; unregulated companies, 100 percent of whose customers lose; and companies that are regulated by the Cyprus Securities and Exchange Commission.
In order to better understand the experience of customers of Cysec-regulated companies, the government regulator approached the 29 most commercially active online trading platforms in France. Of the five companies that the AMF identified by name, four of them operate from Israel. These are OptionWeb, AnyOption, OptionFair and Markets.com. The fifth, Trading212, appears to have a call center and other operations in Sofia, Bulgaria. Ultimately, the AMF made deposits with nine of the 29 companies, eight of which were Cysec-regulated and one of which was entirely unregulated.
The AMF’s findings, described in an April 2015 press briefing, were that overall the companies do not comply with Cysec regulations, nor does Cyprus adequately enforce those regulations.
AMF spokeswoman Caroline Leau said, “Cysec is less diligent than French or German or Anglo-Saxon regulators,which have much more expectations concerning protection of investors and monitoring of the activities than Cyprus.”
The AMF report described how the Cyprus-regulated companies made it extremely easy to start trading, often without an ID, but difficult to withdraw funds. Once they had potential clients’ details, the companies bombarded them with aggressive messages, constantly pressured them to put in more money, assured customers that they would earn big, and failed to mention the risks involved. Their pitches were designed to encourage “psychological addiction” in their customers, creating a sense of urgency with phrases like “act now” or “only a few spots left,” or engineering wins and losses in a way that causes addiction in those susceptible to it. And they offered bonuses whose fine-print terms effectively prevented customers from withdrawing their money.
On five of the nine platforms, undercover AMF regulators were able to deposit money and start trading without any sort of ID. This happened despite a European Union requirement that new investors fill out a form stating that they have a job, earn more than 20,000 euros per year and have a net worth greater than 100,000 euros. Sales agents at the companies told AMF regulators that “the questionnaire is mandatory but it’s not mandatory to tell the truth,” and “the regulator is super boring. This is purely administrative.”
Many of the companies “trained” their customers in how to use the platform, all the while telling them how much they could earn while rarely describing the risks. Sales agents employed techniques of flattery as well as constant, badgering phone calls and messages, all in the hope of obtaining the customer’s bank details, said the AMF.
Among the deceptive statements the regulators heard were: “Our statistics show that 72% of trades win. You and I have the same interest. Each time you win I get a commission; if you lose, I get nothing. It’s a win-win relationship.”
Another statement heard was: “I have 20 years experience, I am the CFO and I’m 55 years old. I call my clients and give them information throughout the day.”
A mystery investor was also told that “when a company is behaving normally, its stock prices tend to go up over time.”
In total, the AMF “invested” €3,840 in the nine platforms. Several weeks after requesting a withdrawal, only two sites allowed them to withdraw anything at all. As soon as the regulators asked to take out the money in their account, all the sites tried to dissuade them while some outright refused because the customer had accepted a “bonus.” Several companies demanded the customer’s credit card number before he could withdraw money, while others provided difficult and obscure instructions to those who wished to withdraw funds.
In response to these findings, a spokesman for Cysec told the Times of Israel that since the time of the French report, in 2015, Cysec had launched what it calls a “risk-based Supervisory Action Plan into the forex and financial binary trading industry.”
As a result, the spokesman said, 20 investment firms licensed in Cyprus were subject to “in-depth checks were carried out to ensure market procedures, governance and risk processes, client onboarding and suitability requirements, and AML procedures were being complied with.”
Cysec says that as a result of these inspections, €2,072,000 of fines were issued while three companies had their licenses suspended and one license was revoked.
The spokesman added: “CySEC’s regulatory action of the last two years has shown that it takes complaints and feedback from the market extremely seriously and will deploy the necessary resources to combat any wrongdoing. Those firms looking to cheat the law have no place in Cyprus. CySEC will continue to uphold its commitment to making sure those licensed in Cyprus do so in full compliance with the necessary European Directives and the national legislation, which are designed to protect investors.”
The AMF told The Times of Israel that there is a proposed law in the French legislature that would ban advertisements for many of these companies. In addition, for sites that are illegal, the French government can block them with permission from the High Court although the procedure to do so is somewhat slow and arduous.
AMF spokeswoman Caroline Leau said there is no way to know the number of French citizens who have been defrauded, because most have not come forward yet. However, she says, the scope of the fraud has surpassed the level of the carbon-VAT scam, widely known in France as the “heist of the century,” which cost the European Union €5 billion and the French government €1.6 billion in France, according to Europol.