Investigation by AFM: many forex providers active illegally



The Netherlands Authority for the Financial Markets (AFM) has investigated eleven providers of investment products and services in foreign currency (so-called foreign exchange or forex) since February 2012. The investigation shows that many providers are actively illegally in the Dutch market. They do not hold a licence, despite the fact that they do come under AFM supervision. Failing to hold a licence entails additional risks for consumers.

The AFM has sent a letter to seven providers of forex in which the licence obligation is explained. The AFM previously published a warning issued to a party that was active illegally in the Netherlands. Several other enforcement measures were imposed as well. The AFM does not exclude the possibility that more measures will follow.

Urgent appeal

Various providers argue that they do not come under AFM supervision. The AFM has established, however, that in most cases they do come under supervision and are therefore required to hold a licence. The AFM therefore makes an urgent appeal to the providers of forex investment services to ascertain whether they are required to hold a licence. More information can be found on the supervisor's website.

Reason for the investigations

The AFM has investigated the forex providers, because it has observed an increase in the number of parties that offer consumers the possibility of investing in foreign currency. Consumers are often promised a high positive return, while most of these investments involve a high level of risk. There were also parties active that were included in international warning lists.

When is a licence required?

Forex investments are often a financial instrument, as referred to in the Financial Supervision Act (Wft). These investments often concern derivatives. The reason is that many investors do not intend to actually acquire the currency. They focus on setting off the profits and losses of the speculative positions they have assumed. The term derivative applies if there is no transfer of currency.
A licence is also required if a provider of currency investments acts as an asset manager. In such cases, it performs transactions in financial instruments at its own discretion, but does so on behalf of, and for the risk and account of, the consumer.

Consumer protection

A licence does not remove all risks inherent in an investment. The licence held by a financial undertaking is, however, important because it offers protection to consumers. Before the AFM grants a licence to a financial undertaking, it first checks, inter alia, whether a financial service provider satisfies the requirements of reliability, expertise and integrity. Moreover, a licence holder that holds a licence has to comply with the so-called continuous rules of conduct. These concern, inter alia, a proper and scrupulous service provision to consumers.

Tips for investors

The AFM has previously pointed out to consumers the risks of investing in foreign currency. It would be advisable for consumers to establish whether the high-risk trade in currency is suitable for them. Is someone willing to accept (high) losses; does he understand the product, the costs and how leverage works; does he know how the currency trade operates?

If someone decides to get involved in forex, the following points for attention are important:

  • Have a critical look at the promised profits. What are they based on, and is the provider transparent about the costs and risks. Generally speaking: the higher the return, the higher the risk.
  • Check the AFM register and the warning lists. The register contains the providers who hold a licence. A licence offers more protection, but does not remove all risks. The warning lists contain the names of mala fide providers.

More information about investing in forex can be found on the AFM website. If you have any questions or comments you can contact the Financial Markets Information Line on: 0800-5400 540 (no charge).

The AFM is committed to promoting fair and transparent financial markets.

As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.

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