The FCA has fined Forex Capital Markets and FXCM Securities £4m for failing to treat customers fairly and for failing to be open and co-operative with the regulator.
US-based FXCM Group withheld profits worth $9.9m (£6m) that should have been passed on to FXCM UK’s clients.
FXCM UK also failed to tell the FCA the US authorities were investigating another part of the FXCM Group for the same misconduct.
FCA director of enforcement and financial crime Tracey McDermott says: “Not only did FXCM UK fail to treat its customers fairly or correctly apply our rules, I am particularly disappointed that it was not transparent in its dealings with the FCA.
“We expect all firms to put customers at the heart of their business, and we have taken action to ensure clients of FXCM UK will get redress.”
FXCM UK placed ‘over the counter’ foreign exchange transactions known as rolling spot forex contracts on behalf of retail clients, which were then executed by another part of the FXCM Group.
Between August 2006 and December 2010, the FXCM Group kept profits from favourable market movements between the time the orders were placed by FXCM UK and executed by the FXCM Group, while any losses were passed on to clients in full.
FXCM UK also failed to check its order execution systems were effective, and whether its order execution polices complied with the FCA’s rules on best execution.
These rules require firms to take reasonable steps to secure the best possible deal for their clients.
In July 2010, the US authorities launched an investigation into FXCM’s business in the US. Although senior managers of the FXCM Group sat on the board of FXCM UK and knew about the investigation, FXCM UK failed to alert the FCA.
Once it became aware of the investigation in August 2011, the FCA stepped in to review FXCM UK. The regulator says it has ensured that FXCM UK’s clients will be fully compensated, with credit automatically paid to their accounts.
The FCA is conducting a thematic review of firms’ execution practices, including the way services are described to clients and arrangements for order execution and review. The FCA expects to publish the results by the end of June.