Development of Global Ethical Standards for Brokers

[Danail Yordanov]

Hello to all!

I think that this is one of the best places where we can start discussing of development of Global Ethical Standards for Brokers from a client perspective. I have searched in this website for such before deciding to post here. Please correct me if I such exist and I have just missed to find them.

Obviously, most of the companies are regulated. Despite this, there are many scams and many traders continue to suffer from such "regulated" brokers.

It can be concluded that there are serious flaws in the regulations, which allow unethical practices. I believe that the gap shall be filled by:
First: Development of Global Ethical Standards
Second: Procedures for Auditing against such Standards
Third: Traders Organization - similar or even the same as Forex Peace Army, which to make the audits.

What do you think about that?

 

[Pharaoh]

My main worry is that the scam brokers would just develop one or more fake "World Financial Ethical Verification" websites to mislead people. Some already have their own fake regulators and fake awards, so a fake ethical certification would be nothing new.

If we skip past that, the hard part will be getting a set of ethical standards which are stringent enough to protect traders, but not so tight that good brokers will refuse to sign up.

 

[Danail Yordanov]

My main worry is that the scam brokers would just develop one or more fake "World Financial Ethical Verification" websites to mislead people. Some already have their own fake regulators and fake awards, so a fake ethical certification would be nothing new.

If we skip past that, the hard part will be getting a set of ethical standards which are stringent enough to protect traders, but not so tight that good brokers will refuse to sign up.

Thank you for your input! I understand your worries. Development of such standards is not the same as having a standard for measurements as kilogram or meter. However, it would be really good to know what to expect and what not from a broker? Are we comparing brokers to each other or we have standard of what is minimum, average, and best?
Answering to those two questions do not require reinventing the wheel, but can be based on overall experience, systematic ranking system and research of the best (again: how we define them as "best") practices.

 

[Pharaoh]

I think this could be a very good discussion. What exact standards (beyond not being thieves) should we hold brokers to?

Here's one I would propose:

I believe more and more regulators are requiring that ID document be collected and verified BEFORE trading begins. I would like to see this become a universal standard. Yes, in a few limited cases, more ID might be required at withdrawal time, but that should be the very rare exception, and the client should be provided with an exact and detailed explanation for any such follow-on KYC data requirements.

Sadly, the unregulated broker will still go with the "start trading in 5 minutes or less" model. At least if this became a standard for all ethical brokers, we could then easily warn that any broker not requiring full documentation and verification IS an unethical broker.

 

[Danail Yordanov]

I think this could be a very good discussion. What exact standards (beyond not being thieves) should we hold brokers to?

Here's one I would propose:

I believe more and more regulators are requiring that ID document be collected and verified BEFORE trading begins. I would like to see this become a universal standard. Yes, in a few limited cases, more ID might be required at withdrawal time, but that should be the very rare exception, and the client should be provided with an exact and detailed explanation for any such follow-on KYC data requirements.

Sadly, the unregulated broker will still go with the "start trading in 5 minutes or less" model. At least if this became a standard for all ethical brokers, we could then easily warn that any broker not requiring full documentation and verification IS an unethical broker.

I will step on your proposal and make another similar, but reversed, called "Know Your Broker" (KYB) - similar to KYC. Knowing someone cannot be done by statements that claim more than 100 years cumulative experience in Forex for example, but without actually knowing the people behind.

1. Broker shall disclose publicly its owners. If a Broker is owned by physical person(s), it shall openly disclose its owner(s) name(s) and their citizenship. If a broker is owned by corporation(s), their name(s), registered address, and operating address shall be disclosed publicly.

2. Broker shall disclose both the registered address and operating address. If a broker uses virtual offices in another countries, but not actual operating addresses they shall be clearly defined as "virtual offices".

3. Broker shall disclose its liquidity providers and the type of relationship with them. For example: Liquidity provider "XYZ" according to contract/agreement No (certain number) from date (certain date).

4. If a broker executes trades on its behalf (acting as a market maker), it shall be clearly stated and the price relationship to the market prices duly explained. In such cases the broker shall state what is the maximum deviation from the market price allowed. In cases when a broker determines the execution price, all market conditions shall be regarded as normal as the broker is the only part on the execution.

 

[Pharaoh]

I think we need to extend that to "beneficial owners". A lot of those virtual addresses come with "virtual directors" and "virtual stockholders" who are merely paid stand-ins for the people really running the company and profiting from it.

Disclosure of LPs is good. I consider "our LPs are confidential" to be the equivalent of "we have no LPs."

 

[Danail Yordanov]

I think we need to extend that to "beneficial owners". A lot of those virtual addresses come with "virtual directors" and "virtual stockholders" who are merely paid stand-ins for the people really running the company and profiting from it.

Disclosure of LPs is good. I consider "our LPs are confidential" to be the equivalent of "we have no LPs."

I agree. Beneficial owner shall be clearly stated. It will provide the same level transparency as required from clients to show and proof their identity with provision of documents.

As a whole, the first group of requirements shall cover transparency for the relationship between client and broker. As this is still in discussion, additions from other members are welcome! Furthermore, the Global Ethical Standards for brokers shall be reviewed every 5 years in order to include accrued experience in the combating the scam brokers and add .

The second group of ethical standards shall cover the client data storage and transmission. I continue with the points from my previous post.

5. Broker shall inform the potential and current clients regarding the implemented safety level of data transmission and storage. Information about safety measures implemented for data protection shall be publicly available. The previous information shall contain a description of the theft prevention too.

6. Broker shall inform the client as soon as possible for any data theft and include short description of the reasons.

We may add additional requirements and expand the current.

 

[Pharaoh]

Relevant to that, the broker needs to include ethics training for all employees. This would greatly reduce the number of incidents where a client complaining in the forums has some broker employee post the client's full name, home address, passport copy, etc.

 

[Danail Yordanov]

Relevant to that, the broker needs to include ethics training for all employees. This would greatly reduce the number of incidents where a client complaining in the forums has some broker employee post the client's full name, home address, passport copy, etc.

I agree to certain extent. One reason for the lack of such a type education is that there is no unified professional education (at least I am not aware of such one) for Forex broker employees similar to that of the Association of Chartered Certified Accountants - they have an exam for ethics and passing it means that the person is familiar with the main ethical principles.

From one side, it is obvious: there is a need for some unified professional qualification that can provide certain level of proof that whoever is dealing with information is prepared for such type of work.

From other side, we have to look for ISO 9001 and ISO/IEC 27001 certified Forex broker - probably there are some, but most of them are not or I don't find information on their websites.

I suggest that ISO 9001 and ISO/IEC 27001 certified Forex broker shall be on the top of the list when we make a choice of broker.

If you find it reasonable, ISO certification criteria shall be included in FPA ranking system too.

 

[Pharaoh]

I don't recall every seeing an ISO certified broker. Of course, now that we've said this, one will go out and pay the money to grab some ISO cert which has nothing to do with providing ethical and transparent brokerage services to clients.

We at BucketShopFx are proud to be the ONLY broker to be verified as fully compliant with ISO 19743926J37/D certification. (too bad that's the certification for the production of cheddar cheese)