Something we’ve looked at a lot over the past couple of months are some of the goings on in St Vincent and the Grenadines. As readers are likely aware, the regulator there issued a statement saying that brokers had 45 days to show evidence that they were licenced in the jurisdictions they do business in or else.
The assumption seems to have been that the ‘or else’ meant ‘or else we’ll shut you down’. But from speaking to a couple of people it doesn’t seem like that’s actually happening. Anecdotally, there are a couple of brokers that are definitely not licenced anywhere else and still appear to be up and running, despite the March 10th deadline having been and gone.
A simple response to the regulator’s demands seemed to be that you could just say you were licenced only in regions which require no licence. However, as one reader pointed out to me last week, this is a dork way of thinking about it. A much simpler route is to do nothing.
Being in the UK, where the compliance department is the ultimate arbiter of what goes and what doesn’t, can make you forget that there are many people in the industry who take rather a different approach to legal matters.
So if you are at an FCA-regulated firm and something like the SVG incident happens, you will most likely go into panic mode and try to get everything set up properly again. If you are some guy operating an unmarked call centre above a kebab shop in downtown Tirana and set up your St Vincent company with a fake ID, you probably aren’t that bothered about what the regulator there might do to you.
And the reality is there is probably next to nothing they can do to you. Ultimately they might shut your company down but then you can just move on to some other place with a similar setup, like St Lucia or St Kitts and Nevis. In the meantime, you can head downstairs, grab some shawarma and then come back to keep the calls going.
Some readers may think ‘yes, you could do this, but it’s not a great long-term strategy’. True, but then you need to get into the mindset of the persona described above. Long-term is not their goal, it’s more to do the easiest thing for as long as possible then move on to the next easiest thing when the first option blows up.
Webull gets fined for options trading
Webull is a broker that started out in the US in 2017 but has since expanded aggressively and now has licences in Singapore, South Africa, Hong Kong, Australia and Japan. As reported here first last August, the company also hired Trading212’s former CEO to lead its European and UK operations, which are yet to go live.
What is interesting about Webull is that it only offers stock and options trading. However, to me options and futures seem like the next ‘thing’ that’s going to happen in the sector. And if you look at Webull’s offerings in Australia or South Africa, they look a lot like a CFD shop, only with options instead of CFDs.
The company was in the news earlier this month because it got fined $3m by US regulators for failing to make sure customers met appropriateness tests from the end of 2019 through to mid-2021.
If you read through what actually took place, it seems to have been quite similar to what happened with some firms in the UK when they added stock trading. Loads of the compliance functions needed to support trading were already inadequate. Then you had a massive surge of new customers because of the pandemic. Put those two things together and bad stuff happens.
There are a couple of take aways for me. One is that Webull looks likely to have onboarded tens of thousands of customers to trade options in that period. That they were trying to do this, even if they did get fined, is a sign that this is a business very much akin to CFD trading in Europe. This would validate the options are a ‘thing’ point made above. That they’ve been expanding abroad also suggests this may not only be confined to the US moving forward.
The more negative point is that brokers adding these products are probably going to need to do lots of compliance work and you also can’t just open the floodgates and allow customers to pour in. Otherwise you might end up getting whacked by the regulator.