German Regulators shut down FXdirekt Bank

On the 21st of December 2012, BaFin the German Financial regulators took action to shut FXdirekt Bank. BaFin announced that following a period of operating losses during the course of 2012, FXdirekt Bank lacked the capital to continue to operate. This forced the regulators to put the firm into liquidation and ordered the company to cease operations, with the following notice being found FXdirekt Bank’s homepage.

‘With arrangement of 21 December 2012, the Federal Financial Supervisory Authority (BaFin), a moratorium pursuant to § 46 Section 1 Sentence 2 No. 2, 4 and 5 against the KWG FXdirekt Bank AG. Thus, the BaFin has issued over FXdirekt Bank AG to sell and stop payment. In addition, the BaFin has ordered to close the bank for the marketing of the clientele, and the Institute prohibited from receiving payments, which are not intended to pay off debts towards him (“moratorium”).

 

The demands of the customers on the FXdirekt Bank AG are protected under the Deposit Guarantee and Investor Compensation Act. The Institute is part of the compensation scheme for Securities Trading Companies (EdW). If BaFin has determined the compensation case, are the legal requirements are to ensure that the compensation scheme can compensate the customer. The EdW the creditors of the institution then shall be immediately notified. The statutory compensation claim any legitimate bank customers is limited per customer at 90% of liabilities arising from securities transactions and to the equivalent of 20,000 euros.’

 

Back in October the organisation had been the feature of an expose by the German business website Wirtschafts Woche, who accused FXdirekt of both fraud and aggressive selling practices. BaFin made no remarks regarding these accusations in their official report however and it remains to been see why the German regulator decided to shut FXdirekt Bank. Though their has been no confirmation of foul play yet. The accusations made against FXdirekt include: 

  • Aggressive selling; including encouraging customers to take up positions in particular instruments.  
  • Price manipulation; including excessive slippage market orders. 
  • Artificial demo platform which allowed brokers to coax demo users into making a trade and then gifting demo profits, to encourage the trader to deposit real money. Including add extra funds to those who were losing money using the demo account.
  • Would monitor offline accounts in order to trigger false margin calls.  
Thankfully appears that many customers of FXdirekt will get back the majority of their holdings with the company, as it was reported that broker had assets of 37 Million Euro’s with Client accounts making up 17.2 Million of that. While many will be protected by Germany’s statutory compensation scheme, I imagine that some may have in excess of 20,000 euros deposited with the institution and will seek to redeem their funds from the administrators. 

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