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A document that has been doing the rounds over the last couple of weeks is about clients who are part of a class action lawsuit involving IC Markets.
That is in Australia and is similar to a number of others we’ve seen in the country that argue clients were ‘missold’ CFD products and so have the right to get their money back.
We looked a while ago at another of these involving IG Group and the one involving IC Markets is almost identical.
In fact, the same law firm – Piper Alderman – is heading up both cases.
These people are ambulance chasers. They have basically leapt on to a bunch of people losing money, know that they’ll be mad about it, and now claim they can get their money back.
They are using the wider anti-CFD propaganda – a sad and all too common phenomenon in the media – that you see in Australia to put the wind in their case’s sails.
IC Markets’ founder has been in the press there too for using colourful language and appearing to be slightly eccentric – traits which we vigorously defend at TradeInformer.
The law firm is using the bad publicity this eccentricity has created to fabricate an aura of negativity around the broker to buttress its case.
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Another component of the lawsuit is the fact that many retail customers are, I am sorry to say, complete chancers.
They are willing to take on massive risks – which they fully understand – and will then go and cry to the regulator (or law firm) when they blow up.
To give a great example of this, one of the people who has spearheaded the lawsuit against IC Markets is called Chris Wyer.
Wyer is arguing that he was missold a product he didn’t understand. On his IC Markets account application he said that he’d been trading CFDs for almost 10 years.
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I think I am stating the obvious when I say it is hard to believe someone could spend close to a decade trading CFDs and not understand the product.
More amazing than this is the fact Wyer initiated the lawsuit…then continued trading with IC Markets?! The only reason he stopped is because the broker shut his account. They should have let him keep going.
The fact that some industry executives have shared the case against the broker with some level of glee to me is misguided.
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This is primarily because IC Markets, as you can see from the other class actions, didn’t really do anything differently to other firms. Consequently, if this, or any of the other cases, are successful, it would have huge, negative knock-on effects for the rest of the industry in Australia, which has already been butchered by leverage caps and other restrictions.
One positive in this regard is that part of the case against IG Group was thrown out earlier this year. That related to the argument that bonuses were based on a conflict of interest against customers.
Let’s see what happens.
In the meantime though, I think it points to a couple of other trends you see in places like Australia and the UK.
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Regulators in these countries have decided that rather than a ‘buyer beware’ model, in which people are given the information they need to understand the risks associated with a product and then bear responsibility for their subsequent behaviour, any loss is on the product provider and they must suffer the consequences.
A lot of people in our industry seem to believe this is unique to CFDs. It’s not. Recently I spoke to someone who was helping formulate regulation for a fairly niche product in the US, UK, and Europe. He noted that in the US, regulators openly said firms failing and/or bad client outcomes were a normal part of doing business and growth. In Europe and the UK, the impression he got was that clients were effectively not allowed to take risk because it could lead to bad outcomes.
To give another example of the consequences of this, a couple of years ago we spoke to a UK options broker on this site. Their biggest investment when starting up was in compliance technology to make sure no one could claim they were missold a product.
Not trading technology, not improving the product, not working on educational resources, not hiring staff – just building out tech and a workflow to cover their ass in case something like the IC Markets case happened. I can see that should require some investment but what does it say if it’s your biggest one?
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A knock-on effect of this is it creates the incentive for the client to play dumb when something bad happens. To use another example, it is very, very clear that many of the punters buying stocks in the pump and dump schemes we’ve seen on the Nasdaq know that they are pump and dump schemes. What happens when they lose money? They run to the regulator and say brokers are to blame for them losing money.
This is why I am regularly astonished by executives in the industry who claim that regulation has been ‘great’ or that they agree with the regulator. Really?
For CFDs specifically, regulations had no impact on client losses, pushed huge volumes of business offshore, made life way harder for SME brokers (eg. ETX) who were trying to do things properly, didn’t do anything to bad actors, and now mean loss of jobs and tax revenue in places like the UK and Australia.
IC Markets is an example of this. I would imagine most of their revenue is going through Dubai, rather than Cyprus, and none of their key decision makers are in Limassol anymore. The same looks like it is true for Australia. Is that a positive thing for Cyprus and Australia?
And if you think this is unique to CFDs, ask yourself why London’s stock exchange has raised less money than Oman this year and the CEO of Revolut is now a UAE resident.
That doesn’t sound like regulators are doing a great job to me.
