SIB cracks down on foreign speculation

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The Independent Online

Financial Editor

The Securities and Investments Board is to clamp down on the rapidly growing business of providing high-risk speculative foreign exchange services to small investors. The SIB, the City's lead regulator, is seeking to close a loophole in the law which has allowed an unauthorised multi-million pound business to flourish in the last few years, prompting widespread complaints from investors who have lost savings.

Although the regulatory proposals for tightening application of the Financial Services Act were contained yesterday in a consultative document, the SIB left little doubt the clampdown will go into force.

Foreign exchange speculation, carried out as a matter of course by the big banks and financial institutions, has until recently been the preserve of a few very wealthy individuals, usually dealing through household name organisations.

Lately, however, small businesses have sprung up, sometimes involving unscrupulous individuals, offering small investors the opportunity to speculate with spot foreign exchange transactions and currency futures contracts. Because these are short-term contracts, officially less than seven days, the business was deemed to fall outside the Act. They therefore did not need to be authorised, leaving investors without protection. SIB has now decided that these services do constitute an investment business because the formally short-term contracts are simply rolled over.

"We are seeking to clarify what has been a matter of uncertainty for some time," said a SIB spokesman. "Action may then follow to ensure that firms which provide these services are authorised."

SIB is targeting some 30 firms offering, or about to offer, these services. A number of these firms are dealing with reputable, regulated City banks and investment houses. Many of these firms, mostly in London and west Sussex, have received advice from City law firms that their business falls outside the Financial Services Act.One of the firms, Cathay and West, run by Chinese in the UK, is being wound up by the Department of Trade and Industry for public interest reasons.