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After a brief hiatus, we return with another podcast. In this episode we speak to Dianah Igati, who is Regional Head of Compliance at Pepperstone.
Dianah is now based in Australia but previously held senior compliance roles for the Kenyan branches of Scope Markets and Equiti Group. She was also involved in setting up regulations governing the FX/CFD industry in Kenya and worked on the approval processes for licences at the regulator.
We talk about what it takes to work in a compliance function at a broker with such a large global reach, her time at the Kenyan regulator, ties between regulators, and what the makeup of the African market is.
Listen via the buttons below.
Before starting this newsletter, my assumption was always that people who go to places like St Vincent to start a broker were scammers.
Such people undoubtedly exist but the reality is more nuanced. Every person I’ve met who was interested in starting such a firm was basically just thinking about costs and/or didn’t know what they were doing.
A lot of people who start a broker are in marketing or sales, so their knowledge of other parts of the business – dealing, payments, banking, regulation, and so on – is often poor. But when you want to bootstrap a business in this industry (or any?) you basically have to do all this stuff yourself.
Anyway, this came to mind this week after coming across another ‘so-called’ regulator in the island nation of Nauru.
For readers who are not familiar with the island, it is way out in the Pacific Ocean and is mainly famous for having been a giant phosphate mine. Driving around the perimeter of the island takes about 30 minutes and its population is slightly over 10,000.
The regulator calls itself the ‘International Services Authority of Nauru’. Its website was only registered this year and there is almost no detail on who set it up or who actually runs it.
Nauru’s government has an official document on how to go about getting regulated as a financial institution in the country. The scope of this legislation is such that it would include the services brokers offer. There is no mention of the International Services Authority of Nauru.
We can probably conclude then, that the International Services Authority of Nauru is not ‘legit’. However, as readers often tell us, TradeInformer has a naive tendency to believe in laws and rule of law and stuff, which others don’t share. So it might be the case that there is a random ‘regulator’ in Nauru whose existence contradicts the letter of the law, but if the letter of the law is not so important to you, such a contradiction doesn’t matter.
Anyway, Nauru is not the only fake regulator that exists. Last week Jonathan Baumgart, who operates the firm Atomiq Consulting, posted a video – that I thought was kind of funny to be honest – saying he would explain how to start a broker in the Comoros for free.
If the International Services Authority of Nauru smells fishy, the so-called Mwali International Services Authority in the Comoros is like someone took all of the produce in Billingsgate Market and left it in a sauna for a week.
What’s amazing is that I very occasionally get people trying to justify this place to me. Sorry to break it to you guys, but this ‘regulator’ does not exist. The government in the Comoros has said it doesn’t exist. The licenses they give out aren’t real – it is literally just a PDF that you have paid a ridiculous amount of money for. Real regulators don’t ask for payments in crypto or share a weird e-commerce bank account in Slovakia with an offshore broker.
None of this surprises me too much though. Over the course of writing up some of the content for our Learn section, I had to go through regulations for a lot of regions, see what they were, and also work out roughly what the pricing would be.
What was striking is the sheer volume of total rubbish that exists online about the regulations governing this industry. To give one example, one major site claimed that America has banned CFDs (they haven’t) because of high leverage (wut?).
A key driver of this misinformation are legal ‘consultants’ and a key facet of their services appears to be absolutely ripping you off. For example, if you are going to start a broker in a region where CFDs aren’t regulated, this should not be difficult or pricey to do. And yet I have seen multiple consultant sites quoting prices in excess of 10x the face value cost of doing so – something that makes zero sense if you aren’t even required to file a licensing application, get a legal opinion, and so on.
What is the other knock-on effect of this?
Well let’s say you go to start a broker in Nauru. Now you have a ‘license’ (or Adobe PDF to be more accurate) from the International Services Authority of Nauru.
There is one bank in Nauru, which is run by Australian firm Bendigo Bank. They are governed by Australian regulations and accounts are denominated in Australian dollars. Would they accept you? Would any other bank really accept you with this random license? Probably not.
Then you have to think about getting a trading platform. They may ask you for certain documents that, because the license you have is fake, you won’t be able to get.
Ultimately you just end up forking out a load of cash for a document that has no validity and which is going to make it extremely difficult, if not impossible, to access the services you need to start your company. In other words, it’s not a great idea.