Development of Global Ethical Standards for Brokers

[Danail Yordanov]

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)

ISO 27001 especially give instruction to protect information, as well as the measures to follow for implementing best practices in privacy protection.

I am citing from the website of International Organization for Standardization: "The ISO 27000 family of standards helps organizations keep information assets secure.
Using this family of standards will help your organization manage the security of assets such as financial information, intellectual property, employee details or information entrusted to you by third parties."

If a broker is ISO 27001 certified, the problem you have mentioned in your post #8 from 10th of June: "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."cannot happen!

What alternative to ISO 27001 do you suggest?

So far, I have not seen any Forex broker, which is ISO 27001 certified. On the broker website shall stand not only claim that it is certified, but also the name of the organization that has certified it.

 

[Pharaoh]

OK, looks like you found a good one for info protection, as long as it doesn't have any internal conflicts with other regulatory requirements, that's one item well covered.

But, those incidents still can happen. A stupid employee can ignore rules and training if he thinks that posting a client's private information will somehow win an argument. If this does happen, what can the ISO do about it?

 

[Danail Yordanov]

OK, looks like you found a good one for info protection, as long as it doesn't have any internal conflicts with other regulatory requirements, that's one item well covered.

But, those incidents still can happen. A stupid employee can ignore rules and training if he thinks that posting a client's private information will somehow win an argument. If this does happen, what can the ISO do about it?

By default, there are no guarantees whatsoever. ISO cannot do anything about criminal behaviour, however it can cultivate the broker culture from inside. As we can see, some regulated brokers behave irresponsibly and despite this, continue to attract new clients.

There is no standard or regulation that can guarantee something. The standards and regulations are just fulcrums for decision support in our choices. We just become clients to certain broker based on certain criteria that are visible by ourselves. We cannot see what happen inside the broker companies. The more auditing (by regulators and standardization companies) has the potential to make the things inside the brokers more visible to us, but I state it again: there are no guarantees!

Ethical standards shall provide another "layer of protection" and build another fulcrum of what the client shall expect from a Forex broker.

 

[Pharaoh]

I'm not expecting ISO to knock down doors and drag people off to jail. but if they lack even the ability to hand out fines and.or yank a certificate for companies claiming compliance while ignoring the rules, then they aren't adding any protection. Instead, the "layer of protection" becomes a "layer of bait" used by scam brokers to lure in potential victims. Given time, the number of scammers false claiming compliance with toothless rules will outnumber those who really do follow the rules. Look at Cysec and Binary Options brokers if you want to see a sad example of how long it's taken before even the initial actions are being launched against flagrantly criminal brokerages.

Having standards (ISO or made here) is good, but these MUST be accompanied by some sort of method to deal with companies which proudly display a compliance certificate while not complying. This won't be a guarantee, since even a good company can turn bad, but at least it will show that the company has passed some initial audit and doesn't have a history of significant complaints of non-compliance while it's still listed as being in good standing.

Without some form of enforcement, standards and regulations lose all meaning.

 

[Danail Yordanov]

I'm not expecting ISO to knock down doors and drag people off to jail. but if they lack even the ability to hand out fines and.or yank a certificate for companies claiming compliance while ignoring the rules, then they aren't adding any protection. Instead, the "layer of protection" becomes a "layer of bait" used by scam brokers to lure in potential victims. Given time, the number of scammers false claiming compliance with toothless rules will outnumber those who really do follow the rules. Look at Cysec and Binary Options brokers if you want to see a sad example of how long it's taken before even the initial actions are being launched against flagrantly criminal brokerages.

Having standards (ISO or made here) is good, but these MUST be accompanied by some sort of method to deal with companies which proudly display a compliance certificate while not complying. This won't be a guarantee, since even a good company can turn bad, but at least it will show that the company has passed some initial audit and doesn't have a history of significant complaints of non-compliance while it's still listed as being in good standing.

Without some form of enforcement, standards and regulations lose all meaning.

Adopting standards is voluntary. Also starting a broker as a business is voluntary too. However strict regulations shall make that business following the guidelines. In every business area we can see that there are certain entities that exist to scam the others. The Forex brokers are not an exception, however fines are not enough. There must be stricter enforcement measures from the regulators' side.

Regarding the "binary options", I wonder why these are offered as "options." Definition of option, which Investopedia gives makes it clear that it is a "contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date)."
In the case of so called "binary options", I don't see any element of the above definition. The term "binary option" shall be substituted by "binary bets" as this is what is all about. They shall be regulated by the respective gambling regulators. Even by definition (from Investopedia), they are not a financial instrument, but a "type of option"!

Certification according ISO standards is a process, which is done after in-depth auditing. Certificate is revoked in case of noncompliance. The audits continue on systematic basis after certification to ensure adherence to the standard.

Adopting ethical standards is also voluntary. However, compliance shall be ensured by consistent audits.

 

[Danail Yordanov]

The problem with misleading is common as an article titled "New Study Claims Corporate Executives Intentionally Mislead Investors for Personal Gain" reveals. I will leave that without comment.

 

[Pharaoh]

Binary Options were created by the same people who did online gambling. Those are really just betting red or black in roulette with much worse odds dressed up to look like trading. I'd love to see what they'd do if someone went long on $10k worth of silver and tried to execute the "option" for a physical settlement.

We definitely need to make certain that all standards we try to create are easily measured. Also, unless violation of such standards are very obvious (example - no posting client passport images in public forums would not require onsite inspections), we need to figure out how auditing is to be arranged and paid for.

The problem with misleading is common as an article titled "New Study Claims Corporate Executives Intentionally Mislead Investors for Personal Gain" reveals. I will leave that without comment.

Executives cheat and lie? I'm shocked and dismayed!

 

[Danail Yordanov]

Binary Options were created by the same people who did online gambling. Those are really just betting red or black in roulette with much worse odds dressed up to look like trading. I'd love to see what they'd do if someone went long on $10k worth of silver and tried to execute the "option" for a physical settlement.

We definitely need to make certain that all standards we try to create are easily measured. Also, unless violation of such standards are very obvious (example - no posting client passport images in public forums would not require onsite inspections), we need to figure out how auditing is to be arranged and paid for.



Executives cheat and lie? I'm shocked and dismayed!

I have been thinking about the matters we have started to discuss. I am afraid that except you, Pharaoh, there was no one who has commented on the thread. This obviously shows lack of interest from other members.
Aren't we concerned more about many other things while ignoring the features of the environment in which we trade?
Also, It looks to me that retail Forex sector is by default non-transparent, but we are so concerned with other things in trading that we forget that. I will definitely write more thoughts about the measurement of the standards etc., but I am afraid that the if the foundation of one sector /Retail Forex/ is built on unfair practices, it would be hard to make serious impact.

 

[Pharaoh]

I'm sure a few people are reading this with interest, but we may have scared them away from replying.

C'mon readers - we won't bite, at least not too hard. What ideas do you have for basic broker ethics that are easy to observe and measure?

 

[Danail Yordanov]

Final words regarding the matter discussed here. These shall be proposed ethical standards for brokers.

1. Broker shall disclose publicly its beneficial 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.

5. Broker shall ensure data protection and 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.

7. Broker shall ensure that ethical standards are followed by its employees and shall take measures to counter any breach of the same.

Most of us have read about the Belgian FSMA Regulation governing the distribution of certain derivative financial instruments (binary options, CFDs, etc.) (http://www.fsma.be/en/Site/Repository/faq/faq_banning.aspx).
I am really glad to read that certain part of this discussion regarding Global Ethical Standards for Brokers has been confirmed by the FSMA Regulation!

Taking into account all the circumstances, I assume that only official regulators can enforce adherence to the standards discussed here.

Having said all of this, and referring to my initial post, I can say the following:

First: Global Ethical Standards for Brokers have to be adopted and fully integrated into regulatory requirements. This will prevent fake ethical verification.

Second: Procedures for Auditing against such Standards have to be implemented by the regulatory bodies of countries.

Third: Traders organizations similar or even the same as Forex Peace Army, should be unable and unauthorized to conduct audits. However, traders’ organizations might assist regulatory bodies. Hence, audits have to be made by the regulatory bodies, which subsequently to investigate and if needed to impose countermeasures for every unlawful actions.

Wish successful trading to everyone of you!