At the start of November, an Israeli court revealed the names of four people who were allegedly involved in a massive Forex scam. While most of the financial scams this year involved cryptocurrency assets, foreign exchange-related fraud has seen a spike in the last few months.
In October 2021, the Commodity Futures Trading Commission (CFTC) charged a man from Texas for $3.9 million worth of Forex and crypto fraud. Additionally, the authority charged a Costa Rican firm running FX-related fraud schemes.
According to a report published by Calcalist in October, the authorities in the Philippines arrested an Israeli who was the alleged mastermind of a fraudulent FX scheme. So, with all the news around us regarding the rise in illegal Forex activities and crackdowns by authorities, is it safe to say that FX scams are surging? Probably not. Because, when we compare it with previous years, the foreign exchange-related fraudulent activities have been declining due to strict regulations by global financial regulatory authorities.
In a recent discussion with Finance Magnates, Alex Katsaros, Group CEO of TOPFX, said that retail traders are far more educated now. “I don’t agree that the level of fraud in the CFD / Leveraged investment industry is rising. Veterans who have been in this business for as long as I have, remember the days where the majority of CFD brokers were unregulated, practically operating by their own rules. Nowadays most, if not all, reputable brokerage firms are regulated. Even when they are not, they have to provide an equal quality of service to regulated brokerage firms in order to survive because retail traders are far more educated preferring to trade via regulated entities,” Katsaros said.
Binary Options
Since its launch, the concept of Binary Options has remained controversial because of its extremely high-risk nature. During the last few years, several Binary Options-related fraud schemes have emerged and most of the authorities have imposed a complete ban on Binary Options offerings. Last week, the CFTC ordered individuals to pay $7 million in a Binary Options fraud case.
“The major recent misstep in our industry was Binary Options, a product clearly not suited for retail investors, which further damaged the reputation of leveraged trading. It’s commendable that the regulators acted so strictly by prohibiting this product for retail investors,” Katsaros added.
Regulators
While the recent steps from regulators have made the industry secure for retail traders, some challenges have also emerged. “No one can argue that Regulation is necessary for fraud reduction and in the best interest of the retail traders. However, in recent years, we have observed that the regulators are acting too strictly, specifically with their reporting requirements. Those make operating a regulated CFD business harder and a lot costlier, practically reducing resources that could be serving clients, for the benefit of the industry and regulators,” the Group CEO of TOPFX, commented.
Going forward in 2022, regulators look set to increase crackdowns against fraudulent investment schemes. In tandem, they are planning to enhance capital requirements for financial brokers to ensure the safety of retail traders. However, in this approach, they need to make sure that emerging companies with exciting ideas for the industry are not discouraged.
