The Financial Sector Conduct Authority (FSCA) recently published a Press Release warning the public against doing any financial related business with forex trading platforms that promise an income stream during the COVID-19 lockdown. It appears that these promises of income stream may be unrealistic.
The Press Release states that the FSCA was informed that some forex trading platforms are telling the public that risks associated with forex trading are low and that people with limited trading experience can earn a steady income in volatile financial markets. These platforms also offer CFDs (Contract for Difference), a highly leveraged financial product that could result in significant losses.
The FSCA advised that even though these trading platforms offer demo accounts, these accounts have been set up to simulate normal trading conditions that would lead to favourable outcomes, and do not simulate the high volatility the financial markets are currently experiencing.
The Press Release states that in order to trade CFDs, it is not enough that Financial Service Providers (FSPs) are merely licensed under the FAIS Act, but such FSPs also need to be licensed as ODPs (OTC Derivative Providers).
In difficult economic environments, clients may look for ways to improve their financial position, which may not necessarily be in their best interests. FSPs should stay close to their clients so that they can be alerted to any actions being considered by clients which may be to their detriment. FSPs are also reminded of their duty to do their ‘homework’ before making any recommendations to clients to invest in a product or to make use of a provider or platform. Always conduct checks and follow a due diligence process to ensure that as an advisor, you have a thorough understanding of the product or entity that you are considering offering as part of a solution for your clients and have discharged the duty of care imposed on you by the General Code of Conduct.