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JEREMY MAGGS: Online trading scams are on the rise, and investors are being urged to assess legitimacy and licences of global trading platforms. Now, according to Roger Eskinazi, managing director of the platform, Tickmill South Africa, investors can avoid falling prey to scams and fraud by ensuring that the trading platforms they use are correctly licensed and are legitimate.
Roger, a very warm, welcome to you. So shed some light for me on the current trend of these scams that you refer to and how prevalent they’ve become.
ROGER ESKINAZI: Yes, good afternoon, Jeremy. I think the penny dropped after the 2008 subprime mortgage crisis, where you had these firms that were trading with optionality and CFDs (Contract for Differences) that wiped out iconic names such as Bear Stearns and Lehman Brothers.
Dealing in the aftermath of that you’ve seen very strict tightening of regulations in Australia and London, and obviously South Africa trying to follow suit. These guys were trading with enormous leverage, and something had to be done about it. In South Africa, we weren’t too far from the trend either.
Looking at the FSCA (Financial Sector Conduct Authority) annual report the other day, now, if you’re ever battling to sleep, just try and read the FSCA annual report. But this will give you an idea, between the period of 2022 and 2023, from May to July, 1668 enforcement actions, 420 licences were withdrawn, 210 debarments, which means people have been banned from the industry, 47 financial scam alerts issued, and 984 licences suspended. That’s extraordinary.
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JEREMY MAGGS: It’s absolutely extraordinary, Roger. It would seem that it really is the Wild West out there. Those figures, does it mean that the regulation is working or that the body is simply engulfed?
ROGER ESKINAZI: Well, I think it’s trying to stem the previous tsunami. This industry was, specifically the online trading industry, was fraught with these guys, overseas jockeys, trying to come in and capture some of the South African market, which they see as a very lucrative gateway to not only South Africa, but to the rest of Africa.
That is why the ODP (Over-the-Counter Derivatives Provider) regime came in on August 8, 2018. It was subsequently extended until January 2019.
Credit to the FSCA, they have perhaps overcompensated now because in order to get an ODP licence it’s inordinately difficult.
There are very stringent, in our case for Tickmill, now Tickmill is highly regulated in some of the most stringently regulated jurisdictions in the world, in the UK, in the Seychelles, in Cyprus, Malaysia and Dubai.
It took us just over four years and millions of rands to get this licence. We support the process because it’s just going to weed out the all the pretenders in the industry. But to get this licence, you really have to demonstrate very high capital adequacy ratios, a strong balance sheet, balance a strong commitment to governance and risk controls. You need an independent board in line with the King Committee’s recommendations on governance.
So we support it, but they perhaps overcompensated, I think other than the big banks there are a handful of licences that have been granted to international players and local players, and I think at last count 62 were either declined or did not elect to proceed with the process.
Read: ODP licensing is around consumer protection
JEREMY MAGGS: I’m assuming, Roger, that it’s up to traders themselves to do their homework. What advice then would you give to those who are new to forex trading, who then want to protect themselves? Is there a blueprint that they should be following in that respect?
ROGER ESKINAZI: Jeremy, every day I’m staggered at either the naivety or stupidity of South African consumers. Every day I open up the press and I see another Ponzi scheme, and another BHI (Trust), where this fellow walked off with R3 billion of investors’ money. It was a non-regulated investment.
If it’s not regulated by the FSCA walk away, why take the risk?
There’s a reason it’s not regulated, yet these guys continue to fall for scamsters, and I don’t understand what it is. But just go onto the FSCA website, it’s amazing what you can even do with a Google search. Look at references, look at testimonials, look and see where else these guys are registered. It’s just extraordinary how every day these scams are uncovered.
Read: FSCA investigates BHI Trust and Craig Warriner
JEREMY MAGGS: Let me hazard a guess at the answer to the question that you’ve just raised, Roger. It’s all about ignoring risk because human nature is predicated on us all wanting to make a quick buck, and people are seeing opportunity because these schemes are often very well marketed and over promise, I guess.
ROGER ESKINAZI: Ja, I’m astounded at some of the advertising that I see, deposit R10 000, guaranteed R50 000 five days later. Who falls for that nonsense? These are the kind of guys, as I alluded to earlier in all the disciplinary actions, who need to be shut out of the industry and banned from even giving advice to legitimate clients because there are a lot of legitimate professional traders or guys who have a side business, who trade, who want to trade metals and who want to trade indices and trade the Nasdaq and trade forex.
I think this new ODP regime, although it’s extremely strict, over time, it will weed it out. But once again, it’s all dependent on the consumer, they must do their homework and see who is regulated and licensed to do business in South Africa.
JEREMY MAGGS: Do we have a sense of who is operating or who the operators are of these bogus schemes?
ROGER ESKINAZI: Predominantly they are offshore trading companies that are not licensed, and they come to the expos here, they put up a pretty stand and they offer leverage facilities. I think at the one expo we saw a provider offering one to 2000 leverage, and that’ll kill you. If one trade goes wrong, you know the consequences of negative gearing. The three Ls that can kill you, leverage, ladies and liquor, you don’t need the other two Ls, with this 2000 leverage you’ll go straight to the grave.
So it’s most of these unscrupulous guys who come in and who want a slug of this market, which is a big market, but they’re not prepared or they don’t have the balance sheet or the rigour or the governance, the risk controls in place to do it. But they’ve been allowed to in the past, that’s the problem.
JEREMY MAGGS: Roger Eskinazi, thank you so much for the blunt and also very amusing assessment there. I do appreciate it, but you have sounded a very important warning.
