FCA bans dodgy 'passporting' investment firms using fake celebrity ads

The Financial Conduct Authority (FCA) has banned four Cyprus-based investment firms from offering high-risk contracts for difference (CFDs) to UK investors after finding they were using fake celebrity endorsements as part of their marketing.

The firms that have been banned include Hoch Capital Ltd (trading as iTrader and tradeATF), Magnum FX (Cyprus) Ltd (trading as ET Finance), Rodeler Ltd (trading as 24option) and F1Markets Ltd (trading as Investous, StrattonMarkets and Europrime).

These Cypriot firms were able to operate in the UK thanks to 'passporting', which allows companies that are authorised in any EU or European Economic Area (EEA) state to trade freely in the UK with minimal additional authorisation.

Which? has heard from an investor who fell victim to the marketing and lost £200, but the regulator estimates many UK investors could have lost hundreds of thousands of pounds to these risky investments.

Read on to find out why the investments were risky, what action the FCA has taken and how you can avoid falling victim to an investment scam.

Why are these investments risky?

The firms that the FCA has banned in the UK were offeringcontracts for difference or CFDs.

These are contracts that get their value from the performance of an underlying entity. This means they allow investors to profit from the movement in the price of an asset, without ever owning the asset.

However, these sorts of investments are complex and not suitable for inexperienced investors.

The FCA found the Cypriot firms were using fake celebrity endorsements in their marketing material to attract investors. The celebrities used in the scam have not been revealed.

• Last year Which? investigated the use of fake celebrity endorsements and spoke to dozens of people who have lost hundreds of thousands of pounds after being fooled into believing respected figures were backing the firms.

In this case, the FCA says it took action because investors were not provided with enough information as to the nature of the investments and were pressured into making large investments in CFDs, which referenced bitcoin, foreign exchange, shares and indices. Some were even encouraged to take out credit to make the payments.

It also appears that the firms had failed to pay money owed to investors, charged customers undisclosed fees and failed to tell them about the risks of trading CFDs.

• Find out more:what is investment risk?

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  Case study: 'I lost £200 to Investous'

  On 11 March a Which? member, Mr M, saw an ad on Facebook for Investous - one of the barred Cypriot firms. He made a £200 deposit but then decided it wasn't for him, and tried to cancel.

  The firm was EEA-authorised on the FCA's register at the time.

  Mr M says it asked him a series of questions over the course of the day and he felt something didn't seem right.

  He tried to cancel his registration to the scheme by phone and online, but every time he tried to do it they kept asking for his National Insurance number.

  They also took another £80 due to account inactivity, at which point he cancelled his card so they couldn't take any more money out.

  Mr M. says he will not try to get his money back because he no longer wants any associations with them and doesn't want to give them his new bank details.

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What action has the FCA taken?

For the first time, the FCA has used its power to remove the passporting rights of the four Cypriot firms.

It has also ordered the firms to stop selling CFDs to UK customers, to close existing accounts with UK savers and return all investors' money. In addition, the firms must notify UK customers of the FCA's action against them.

Following the FCA's action, and on the basis of information supplied by the FCA, the Cyprus Securities and Exchange Commission (CySEC) fully suspended the regulatory authorisations of Rodeler and Hoch Capital and partially suspended the regulatory authorisations of Magnum FX and F1 Markets.

FCA executive director of enforcement and market oversight Mark Steward said: 'The FCA has removed passporting rights for these firms, which effectively stops them from continuing to provide these types of products in the UK. We welcome the further action taken by the CySEC. The FCA's investigations into the sector are continuing.'

What else has the FCA done to protect investors?

Last year, the FCA introduced permanent restrictions on how CFD products can be sold to retail investors.

Under the rules, the amount of leverage an investor can apply to the CFD holding must be limited and providers must inform a retail investor if the funds fall below 50% of the margin needed for a client to keep an account open.

They must also provide protections to ensure a client cannot lose more money than the total value of the assets in their CFD account, and stop offering inducements to entice a retail investor to trade, such as social media ads.

Firms must also provide a standardised risk warning to reveal the proportion of retail clients that lose money on CFD investments.

Are EEA-authorised firms on the FCA register safe?

Generally, you should only deal with FCA-authorised firms.

You can find out if a firm is FCA-authorised by checking the FCA register.

Thanks to passporting rights, EEA-authorised firms can appear on the FCA register and can carry out activities that they have permission for in their home state and any other EEA state. The register should tell you the status of the firm, and its permissions in the UK.

However, even if a firm is on the FCA register and authorised, it still doesn't mean it's 100% safe.

You should always conduct your own research on individual firms, irrespective of whether they're authorised or not.

It's also important to note that EEA-authorised firms may not necessarily offer any protection for UK investors if anything goes wrong.

This means you may not be covered by the Financial Ombudsman ServiceorFinancial Services Compensation Scheme (FSCS).

• Find out more: how to avoid a cryptocurrency scam

How to spot an investment scam

Be wary if you're contacted out of the blue, pressured to invest quickly or promised returns that sound too good to be true.

Before investing money make sure to:

• Search the FCA register-and check the status of the firm
• Check the news - has the company hit the headlines recently and was the story positive or negative?
• Look at reviews -what are investors saying about the firm?
• Check the firm's website - is the firm posting regular updates? Is it transparent with customers? Is their complaints data up to date?
• Call the firm - try to speak to someone at the firm and get straight answers to any questions you may have.

Our Stamp out Scams campaign was set up to demand that all banks refund innocent victims of scams and do much more to prevent this fraud in the first place. Help us with our campaign by signing our petition.

• Find out more:how to spot an investment scam