FCA tackles mirror trades

The FCA has raised further questions about the blurred line between advised and non-advised services with a letter to trading platforms.

In particular, the FCA is targeting ‘mirror’ services, whereby trading platforms automate the management of portfolios by automatically enacting trades that copy more experienced investor trades.

Some execution-only providers also offer social media alerts when traders make decisions and then decide whether or not they want to copy that trade. The regulator believes these are a form of discretionary portfolio management because investors permit their money to go into trades that are chosen and arranged by others.

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Prior to this, copy trading services counted as non-advised or execution-only and therefore needed a lower level of authorisation.

The letter, first seen by the Financial Times, was sent to UK trading companies, and stated the FCA’s view that companies carrying out mirror trades are managing investments at their discretion. The fact the companies are not choosing those investments is irrelevant. The FCA believes there is an element of client advice.

One site operating in the UK and offering such arrangements is FxPro’s SuperTrader, through which trades are copied by a computer, while eToro offers the same online service globally to more than 3m members. Both these sites are regulated by CySEC in Cyprus and allowed to operate in the UK under a ‘passporting’ arrangement. eToro has dismissed the FCA’s belief as ‘misconstrued’.

The letter is another impediment for firms dealing with a lack of clarity in regulation at a time when they need to get ahead. A white paper published by technological consultants Altus said in order for financial services online platforms to catch up with industries such as retail, they need to focus more on consumer experience.

Elsewhere, Trustnet has launched a direct to consumer platform, and new non-advised offerings are appearing, which make it all the more important for the FCA to give clarity on which actions are permitted.

The Trustnet example could be seen as problematic because the website also provides news and investment information, which could create a precedent for what counts as ‘advice’.