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Regulatory jurisdiction over global websites

Updated: Jul 31

In May 2021 the FCA instructed a firm based in Cyprus to add a warning to its website that it is not authorised to transact business in the UK.


The firm was under the Temporary Permissions Regime and FCA intervened because FCA considered the business was using its UK permission as an indication of quality and standing.


Use of the UK licence in this way by overseas businesses remains a cause of create concern for FCA.



Use Your Licence


Use it or lose it. That is what the FCA announced at the start of this year. Since then FCA has been checking who is using the permission granted to them by FCA and who has not.


The exercise is to weed out some businesses that have obtained a licence to operate in the UK for the primary purpose of enticing in customers who are then rerouted to a non-UK entity.


FCA is concerned about this because those customers are either mistakenly or deliberately led to believe that their transactions are covered by UK complaints and compensation schemes. They are not.



Jurisdictions can be used to mislead


Yet many customers of overseas firms will contact the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS) in the expectation that their grievance will be covered. The FCA considers that those firms have an obligation to ensure their customers are clear about the regulatory regime which they come under. If the UK regime is contacted then that business cannot have been sufficiently clear to their customers.


As well as being misleading to customers this wastes already very stretched resources at the FOS and FSCS the record high costs for which are being picked up by real UK businesses.


The FCA has therefore been reviewing the data submitted to it by regulated businesses to assess whether the permissions it has granted are being actively used.


If a business is authorised and regulated in the UK then it has to be actively using its permissions.



Brexit is an opportunity for the FCA


Take ICC Intercertus Capital Ltd as an example. This is a Cyprus based Platform providing FX CFDs. It has been operating in the UK since January 2021 under the Temporary Permissions Regime.


Brexit provided FCA with an ‘opportunity’ to look more closely at firms that were passporting into the UK. FCA is no longer required to directly engage home state regulators about that firm’s activities in the UK. FCA can therefore take a decision about something it does not like and direct the business to change or cease activities.



Websites for Global Businesses


ICC Intercertus Capital Ltd used to provide a platform through its group website www.everfx.com. The website was being used by all companies in the group. In FCA’s view the issue here is that the website and the activities of the UK and overseas entities were not clear about which regulatory regime they came under.


In fact according to FCA, very often customers were given the impression by ICC Intercertus Capital Ltd that they were engaging with the UK regulated entity when they were not.


There are parallels with what happened with London Capital Finance from which the FCA is resolutely trying to salvage its reputation. As a result we can expect to see many more such interventions from FCA.


The issue the FCA is trying to address is that while it is perfectly acceptable to have a corporate website you must be very clear for clients about which entity or geography they are wanting to engage with and keep them within that part of your website.


Meaning if a client wants to look at a section that is intended for, non-UK customers, then the website should have a clear message saying the customer is moving from one entity to another.



CFDs for Retail


We know the FCA holds the view that CFDs will only be suitable for a minority of retail customers because retail customers struggle to understand the factors that affect CFDs, and therefore speed of potential downside.


The FCA has stopped short of banning CFDs for retail. Choosing instead to require additional controls to be in place such as risk disclosures and target market monitoring. Under which providers and distributors must take responsibility to ensure CFDs only reach customers with whom they consider the investment compatible.


The challenge lies in monitoring that you are reaching your intended target market and keeping information about your customers up to date.


Some markets require regulated firms to set out which types of client a product should not be sold to – negative target markets. This might be worth considering, to help create clearer guidance for sales staff and help you demonstrate to regulators that you are appropriately limiting these types of product.



Draconian Sanctions


FCA demanded that ICC Intercertus Capital Ltd reports to it every week and stopped them from providing services to UK clients and from marketing to UK residents.


ICC Intercertus Capital Ltd were also required to add a prominent statement to their website that they are not authorised to do business in the UK and to close all open positions for UK residents and return their cash balances.


The FCA requires that these steps are reported to them every seven days.


These are tough penalties from a regulator that is determined to show it is tough on those who try and abuse their licence. As we know regulators tend to follow one another so this may not just be a UK only crack down.

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