Mboweni warns about illegal forex trading by individuals

There is a greater need to protect individuals from becoming the victims of fraud when doing online forex trading, which is illegal in SA, finance minister Tito Mboweni said.

This is especially the case in the light of modern technological developments.

Forex trading by individuals is not allowed SA and SA residents are not permitted to speculate against the rand.

The minister noted in a reply to a parliamentary question by DA MP Dennis Ryder that though individuals are not permitted to trade in forex, some do and place their funds at risk.

“They may become victims of fraud as they deal with unregulated offshore brokers, who may not honour settlements. Often, victims do not disclose such dealings for fear of embarrassment and prosecution. The regulators often issue media announcements to caution the public,” Mboweni said.

Online platforms advertising forex trading are not allowed and therefore are not registered in SA with any of the financial sector regulators, and so operate illegally, similar to online gambling platforms. Such platforms are likely to not have a presence or a bank account in SA, Mboweni said.

“This is a challenge for regulators as they are beyond SA jurisdiction, making enforcement difficult.”

That most of the online forex operators are based outside SA means co-ordinated action with the relevant authorities in those countries is required. Mboweni said the regulators are considering how best to act in such instances.

The minister noted that domestic credit and debit cards may not be used to fund online forex trading activity, adding that the Reserve Bank had acted against individuals who used their SA credit cards to trade in this way.

“Action has been taken by the Financial Sector Conduct Authority and Reserve Bank against a broker who acted as an over-the-counter derivatives provider without being licensed to do so, and [was found] to have breached the Financial Advisory and Intermediary Services Act.

“The Reserve Bank also blocked their bank as they also entered into contracts for difference arrangements via a nonresident platform operator without obtaining the prior approval from the Bank to hedge their exposure abroad. This matter is still in progress.”

Mboweni pointed out that the illegal online forex trading platforms should not be confused with authorised brokers who use trading platforms to manage and execute market positions. The brokers do not trade in actual foreign currency but offer products with exposure to underlying referenced assets, which may include foreign currency. —