What are some of the main compliance challenges you’re currently facing and what is required for a company in your sector to overcome these?
Michael Floros (MF): Investment services operations and compliance functions have changed drastically during the last few years due to the increased use of online services and the associated automation.
Banking, investments and financial operations are not the same anymore. Every participant should be able to adjust their operations to manage and control the increased reporting obligations and business needs. This has grown in importance since the implementation of MiFID and PSD regulatory frameworks requires a lot of resources, new systems, risk controls and co-operation between the Compliance, Risk, Dealing, Accounting, Sales and Back Office/Support departments.
Retail investors in CFDs trading enjoy a more protective environment. The introduction of the negative balance protection rule to prevent traders from losing more money than they invested, the margin close out rule on a per account basis, the standardised risk warnings, and the lower leverage limits per asset class have significantly limited the clients’ trading risk.
In LegacyFX, the compliance focus stands next to the integration of the company’s operations with a more automated and reliable interactive environment for clients, able to reduce the compliance workload and meet the regulatory requirements in a new digital world.
It should be noted also that LegacyFx, from the start of its operations in Cyprus in 2017, introduced a corporate culture of good governance practices that is passed from the shareholders and the management to all group entities. In 2019, the Vanuatu and Belarus entities started their operations, and in 2020 in South Africa. Every person working in the group is responsible to follow a professional standards behaviour focused on a long-term trustful relationship with the clients. This culture significantly reduces the burden for compliance and minimises the workload from a business operations point of view.
More specifically, how has the COVID-19 pandemic affected the way you carry out the risk management and compliance functions for your company?
MF: COVID-19 adjustments in systems and processes in risk management, compliance and working from home helped companies in the investments sector check their online services in a crash test environment and further improve and automate them.
Increased volatility in the foreign exchange and stock markets, especially at the first months of the pandemic last year, led to a more risky but attractive environment for CFDs trading. New clients have been added since more than half of the world’s population stayed at home.
Trading and security systems faced increased pressure and hackers tried to take advantage of the working remotely business environment, but companies were on continuous alert, repeatedly checking the consequences of the new COVID-19 business environment, introducing risk and security adjustments where needed, while supervisory authorities in Europe made continuous surveys of the investment firms.
Any thoughts on ESG and its importance to companies moving into the future?
MF: At the 2020 Annual Risk Report of the World Economic Forum (WEF), the top five threats in terms of Likelihood were environmental, and the top four of five threats in terms of Impact were both social and environmental in nature. No one corporate can ignore ESG.
Corporate sensitivity to Environmental, Social, and Governance (ESG) standards is critical to lead the future and maximises enterprise value over the long term.
In the investments industry more than a decade ago, mutual funds and indices were created to follow stocks/companies with a high ESG footprint. CFDs on ESG-related financial instruments are not an exception and have been already present in trading platforms.
Any insider tips on how to effectively deal with regulatory authorities throughout the world? How do these relationships differ from location to location?
MF: LegacyFX Group’s worldwide business can easily be subject to half a dozen compliance regimes and the workload of the compliance managers can be extremely high and complicated.
MiFID and USA regulatory frameworks helped a lot to unify the investments compliance standards. However, every country comes up with local standards and limitations, while laws change constantly.
A common and clear corporate compliance culture with unified standards is needed across all companies of a group to be able to control similar internal procedures and guidelines. This is the most effective way to deal with different regulatory authorities throughout the world.
Tips to deal with regulatory authorities:
- Mutual respect and co-operation are the keys for a successful relationship with regulatory authorities. A supervisory authority is not an outsider; it is a part of your ecosystem. You must always find a way to understand their limits, co-operate and deal with them, and maximize the effectiveness of the business services you provide.
- Regulators want to always deal with companies that respect the regulatory framework and the deadlines of the reporting obligations. Be clear, be simple and make the regulators feel comfortable that you are not going to surprise them negatively.
- There are always red lines of every law that you must respect.
- Look not only at the limitations of the law, but also at the spirit of the law.
- Regulators have introduced the self-regulatory measures to make companies increase their self-control mechanisms.
- Every business firm needs to be proactive keeping tabs on all upcoming regulatory changes, which will affect the business and industry they operate in.
Have you incorporated any technological solutions to help you with your compliance obligations? How has that worked out for you so far?
MF: To always stay competitive, technological developments are continuous in companies operating in a global environment.
LegacyFX has upgraded its trading platform in recent years, ensuring the company’s technological evolution and the growing needs of retail and professional client. We have also recently introduced a more automated KYC software to significantly reduce the client’s identification process.
Compliance systems have been also updated to incorporate more automated procedures to meet easier deadlines in compliance obligations.
Any tips on how to best develop a business in the CFDs trading industry?
MF: Automated and interactive services will lead the investments and the CFDs trading industry forward. However, innovation and marketing is always welcomed in products and services offered to clients.
Long lasting brand names have a better positioning in the market as a safe and reliable place for clients.
Is there anything else you would like to share with our network?
MF: Have always in mind that the majority of investors love risk!
Michael Floros has twenty-five years managerial experience in investment firms, investment banks and the Athens Stock Exchange, dealing with Business Development, Operations, Compliance, Equities/Derivatives Trading, Equities’ Market Making, Equities’ Research and close co-operation with Supervisory Authorities. He holds an MBA from the ALBA Graduate Business School in Athens in 1993 and a Highest Honours B.Sc. in Economics/Business Administration from the Aristotle University of Thessaloniki in 1991.
Michael started as an Equities Analyst setting up a Research Department in 1995 for G.A. Pervanas Securities and then continued at ASYK, a subsidiary of the Athens Stock Exchange (ASE), as Head of Capital Markets, where he supported the automation of the ASE, being responsible for working with FTSE International to set up and manage the first FTSE Index in a local market. In 2000, he moved to Egnatia Finance as the New Business Development Manager to set up a subsidiary in Cyprus dealing with Margin Accounts and Market Making operations, and participate in the IT Committee of the European Securities Network. Starting in 2005, he then served in Proton Bank Group as a Deputy Director of the Securities Division, contributing to the merger with Proton Investment Bank and Omega Bank, the IPO in the Athens Exchange, and the management of both institutional and retail client operations. He then moved to Cyprus in 2014 to be Managing Director of Solidus Securities Cyprus.
In 2017, he started working in the CFDs trading sector as the Executive Manager of the A.N. ALLNEW INVESTMENTS to be part of LegacyFX’s worldwide operations development.