During its market surveillance procedure Magyar Nemzeti Bank (MNB) established that CFD Markets Kft., domiciled in Budapest, had performed unauthorised tied agent (proxy) activity relating to investment services for Safecap Ltd., domiciled in Cyprus and for the British Go Markets UK (formerly Vantage FX UK) – otherwise authorised for cross border services – without an authorisation. Although CFD Markets Kft. is listed in the national supervisory tied agent register, the principal thereof has not been specified, and thus the company – in the absence of a principal – is in fact not authorised to pursue any agency activity.
As the central bank's market surveillance procedure revealed, based on its active client acquisition activity, CFD Markets Kft. provided at least 240 domestic investors with the opportunity to open active trading accounts for online trading with foreign currency, CFD and commodity exchange products with the respective investment service providers. Remuneration of the domestic company depended on the number of clients, and as such it was interested in intermediating as many investors as possible for its partners.
In its resolution published today, MNB forbid CFD Markets Kft. with immediate effect to pursue tied agent activity in the absence of registration, and due to the revealed infringement it also imposed a market surveillance penalty of HUF 90 million on the company.
As the MNB has often pointed out to investors, online trading platforms – particularly for multiple leverage FX and CFD transactions– have become widespread in recent years. Leverage has an influence on small moves in market prices, and as a consequence of exaggerated market changes investors can lose many times their invested capital very fast. These trading activities are extremely risky even with regard to service providers that are licenced and domiciled in the European Union, particularly because companies with cross border services are under the legal requirements of the country of domicile.
Financial organisations providing online platforms are often registered outside the European Union, typically in an off-shore country, where legal requirements are more lax, and thus investors’ interests are less protected. These off-shore registered service providers, which often do not have the necessary permits, do not fall under the supervision of the MNB and investors’ ability to enforce their legal rights is extremely restricted even compared to those companies providing cross border services that are domiciled in the European Union. In view of the above, the products and services offered by these companies are extremely risky.
Therefore, one of the fundamental guarantee for the transparent operation of the financial and capital market is that persons and related intermediaries operate only within the formal framework defined by law. If the agency relationship is not clear for market participants or for the authority, the efficient oversight of the services activity may be severely prejudiced even if such agency relationships are related to companies that otherwise operate in possession of the appropriate licences.
In Hungary, the activities performed by financial organisations are subject to licence or registration, in order to protect the customers of these organisations. Gathering preliminary information before an investment is particularly important as a licenced investment service provider is entirely responsible for its intermediary activity registered at MNB. Consumers are therefore strongly encouraged to gather preliminary information on the official website of MNB in the www.mnb.hu/felugyelet/piacfelugyelet/befektetoi-figyelmeztetesek database on the legal status of the market participant before concluding a contract with a financial organisation.