Swiss Franc Forex Losses: what action is the FCA taking?



On 15 January 2015 Switzerland’s central bank the Swiss National Bank (SNB) sent shockwaves through the financial markets by announcing an end to their informal policy of pegging the Swiss franc (CHF) to the Euro (EUR) at 1 EUR = 1.20 CHF, which has been in place since the SNB’s September 2011 policy announcement.  In a very short time following the 15 January announcement, the Euro fell against the CHF by about 40% as the CHF rose sharply (see chart).

This large movement in the CHF, a widely used currency by traders across the world, caused many banks, hedge funds and forex brokers such as Citigroup, Deutsche Bank, Denmark’s Saxo Bank, Discovery Capital Management, Comac Capital, FXCM (which took a $300m bailout), IG Group, CMC Markets, Swissquote, Oanda and Interactive Brokers to announce losses and has even caused some like UK forex broker Alpari to go into administration under English law in the UK (similar to Chapter 11 bankruptcy in the USA) after an unsuccessful attempt to sell the brokerage and New Zealand’s Global Brokers (trading as Excel Markets) was forced announce it would not be able to resume business.  Many of these losses are due to margin calls that the clients of these financial firms are unable to meet, leaving in many cases, the firm to be left to bear the trading losses.

The UK’s Financial Conduct Authority (FCA) as regulator has sent letters to about 90 brokers in the London market, which is the largest forex trading market in the world.  It is understood that the FCA letter asks for an update on how the firm’s trading position may impact its balance sheet as a result of the CHF/Euro movement.

Separately, it is understood that the FCA is conducting a thematic review into the whole market of retail forex trading.  Although there are very few details available at present, it has been reported in the Financial Times that the FCA is conducting a review of 40 banks, brokers and asset managers, including providers of contracts-for-difference in this space.  The FCA, like its French counterpart Autorité des Marchés Financiers (AMF) are concerned that forex trading has led to very high percentage (over 85%) of retail forex investors making loss-making trades.


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