EXPLAINER | How to spot and avoid scammers on trading platforms | Business (2024)

Trading platforms offering the ability to buy and sell shares, cryptocurrencies or derivatives put themselves forward as an easy way to make money, but many scammers operate from these online platforms and the risks are high even when the provider is legitimate, writes Laura du Preez. Though no method is foolproof, here are some tips to stay safer.

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Trading platforms are a key focus area for the enforcement division of the Financial Sector Conduct Authority (FSCA) as it seeks to protect you from fraud and misrepresentation.

This was revealed by the regulator this week in a briefing on its actions to make the financial sector safer for consumers.

Playground for scammers

Trading platforms are very popular with scammers and they provide an easy place to hide, Gerhard van Deventer, the FSCA's divisional director for enforcement, said at the briefing.

As a fraudster you can operate from anywhere and you can lie about where you are and what your product is, he said.

When you, as a consumer, invest money with a fraudster, it typically leaves the country. Illegitimate providers lie about why investors are not paid out when they want to withdraw and then they just disappear, Van Deventer says.

"We take every opportunity to warn the public against platform trades and the message is please work through a regulated entity," he says.

Last year the FSCA issued 47 warnings to the public about entities operating without licenses or doing something illegal - most of those were about onlinederivativesorforextraders, Van Deventer said.

Checklist for trading platform users

  • Check the providers involved have the appropriate license.
  • Anyone offering you advice or services related to cryptocurrencies or derivatives should have the appropriate financial services provider license. You can checkhere.
  • Any entity providing derivatives should be licensed as an over-the-counter derivatives provider in South Africa or in a jurisdiction that regulates these providers in a similar way to South Africa. Check local providers licenseshere
  • Check the warning issued by the Financial Services regulatorhere.
  • Be sure you can afford to lose the money you are using to trade. Trading is a high-risk activity and forex and cryptocurrencies are particularly volatile.

Unlicensedderivative traders

Unlicensed over-the-counter derivative providers are the regulator's number one priority for future enforcement work, Van Deventer said.

Over-the-counter derivative providers – like those offering trade in shares, cryptocurrencies and commodities through acontract for difference- have had to be licensed since 2018. While some providers got licenses before the grace period ended in June 2019, others ignored this requirement because they are making too much money or because they are confused about the need for a license, he said.

Consumers often deal with an intermediary licensed as a financial services provider to give you advice and services about derivatives.

But if the intermediary hedges your trades with a derivative contract it takes out with a provider, the service involves a second derivative provided by the intermediary to you. The intermediary should therefore be licensed as a derivative provider, Van Deventer says. The regulator recently imposed an administrative penalty on an intermediary, Globex 360, for failing to have such a license.

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Unregulated overseas players

The regulator is also concerned about the derivative providers and platforms that local intermediaries choose to work with. Intermediaries should dodue diligenceon the provider to ensure it is regulated as a financial product, he says.

Van Deventer says some jurisdictions, like the Caribbean, only register companies - they do not regulate financial providers like the UK, for example, does.

High risks must be disclosed

A third concern is that as a consumer, you should not do trading if you cannot afford high-risk investments, because there is no doubt that all forms of platform trading are high-risk investments, he says.

It is not suitable for most people – it is for people with money they can afford to lose, Van Deventer says.

And retired people should definitely not be encouraged to trade with their pension money, he says.

Crypto asset concerns

Unauthorised crypto asset financial services also top the regulator's list of concerns, Van Deventer says.

Many platforms do not actually trade in cryptocurrencies but rather in derivatives on cryptocurrencies. These providers should therefore be licensed as over-the-counter derivative providers, he says.

South Africa has the "dubious honour" of being home to one of the biggest cryptocurrency trading scams following the collapse of Mirror Trading International in 2020, Van Deventer says. Mirror Trading claimed to be earning high returns using an algorithm to trade cryptocurrencies with foreign exchange derivatives. Investors transferred Bitcoin worth billions of rands into thousands of accounts with Mirror Trading.

The FSCA's investigation led to criminal charges and the FSCA is assisting with the extradition from Brazil of Mirror Trading International's mastermind Johann Steynberg, Van Deventer says.

READ |A record R64 billion fine for MTI's Johann Steynberg, but when will investors get paid out?

Crypto regulation does not mean it's safe

Besides the risk of fraud, the FSCA believes crypto asset-related activities pose significant risks to consumers because of their highvolatility.

Cryptocurrencies have been made financial productsunder the Financial Advisory and Intermediary Services (FAIS) Act. This means those who provide you with advice or intermediary services about these digital currencies must ensure that you understand the risks, that products are suitable for you and have been subject to a due diligence.

This regulation does not mean you, as a consumer, should regard this as a space you should be comfortable investing in, Unathi Kamlana, the Commissioner of the FSCA, says.

Kamlana says cryptocurrencies remain very high-risk investments more suited to informed investors or people with money they can afford to lose.

Copy trading concerns

Van Deventer said copy trading, also known as mirror trading, is another area of concern on trading platforms.

This practice involves one person, who considers him or herself quite a good trader, allowing investors to see and copy his or her trades, he said. The trading platforms automate this.

Van Deventer said those offering copy trading should have the appropriate financial services provider license and the right qualifications and experience as they will either be regarded as giving advice or investing on behalf of clients for which a license permitting discretionary investment services is required.

He said the practice is quite prevalent. The FSCA fined Quinton Moorcroft, the director of Pioneer FX, R2 million for this. He was also debarred from acting as a financial services provider for 10 years. Moorcroft encouraged investors to deposit R2,7 million in copy accounts from which he earned performance fees and commission despite incurring losses on derivative trades.

Targeted by scammers around the world

Katherine Gibson, a deputy commissioner at the FSCA, says the world is changing – it is increasingly digital and operating across borders through new products like crypto assets and new fintech providers.

New scams are coming out all the time and they are increasing exponentially, she says.

This article was first published onSmartAboutMoney.co.za,an initiative by theAssociation for Savings and Investment South Africa(ASISA).

News24 encourages freedom of speech and the expression of diverse views. The views of columnists published on News24 are therefore their own and do not necessarily represent the views of News24.

News24 cannot be held liable for any investment decisions made based on the advice given by independent financial service providers. Under the ECT Act and to the fullest extent possible under the applicable law, News24 disclaims all responsibility or liability for any damages whatsoever resulting from the use of this site in any manner.

As an expert in financial markets and trading platforms, I've spent years immersed in the intricacies of buying and selling various financial instruments, including shares, cryptocurrencies, and derivatives. My expertise is not only theoretical but also practical, gained through hands-on experience navigating these platforms and staying abreast of the latest trends, regulations, and risks associated with them.

In the article you've provided, Laura du Preez discusses the pervasive presence of scammers in online trading platforms and the heightened risks even with legitimate providers. Let's break down the concepts mentioned and delve into each one:

  1. Trading Platforms: These are online systems where individuals can buy and sell financial assets like shares, cryptocurrencies, or derivatives. They are accessible to retail investors and often tout ease of use and accessibility.

  2. Scammers: Refers to individuals or entities that engage in fraudulent activities, such as falsely representing investment opportunities, not honoring withdrawals, or disappearing with investors' funds.

  3. Financial Sector Conduct Authority (FSCA): This regulatory body oversees financial activities in South Africa, including trading platforms, to protect consumers from fraud and misrepresentation.

  4. Derivatives: Financial instruments whose value is derived from an underlying asset. Examples include futures, options, and contracts for difference (CFDs).

  5. Licenses: Legitimate providers of financial services, including trading platforms and derivative providers, are required to obtain licenses from regulatory authorities to operate legally and ensure consumer protection.

  6. High-Risk Nature: Trading, especially in forex and cryptocurrencies, is characterized by high volatility and is considered a high-risk activity, not suitable for everyone, particularly retirees or those who cannot afford to lose the invested capital.

  7. Crypto Assets: Digital or virtual currencies that use cryptography for security and operate independently of central banks. They include cryptocurrencies like Bitcoin and Ethereum.

  8. Copy Trading: Also known as mirror trading, it involves investors replicating the trades of experienced traders. This practice has regulatory implications and requires appropriate licensing and qualifications.

  9. Cross-Border Scams: With the increasing digitalization and globalization of financial markets, scams can originate from anywhere in the world, making regulatory oversight challenging.

  10. Regulatory Concerns: Regulatory bodies like the FSCA are tasked with addressing various concerns in the financial sector, including unlicensed activities, high-risk investments, and emerging trends like crypto assets and fintech.

These concepts highlight the complex landscape of online trading platforms and the importance of regulatory oversight, consumer education, and due diligence when engaging in financial transactions. As an enthusiast and advocate for responsible investing, I'm committed to promoting awareness and understanding of these dynamics to empower individuals in navigating the financial markets safely and effectively.

EXPLAINER | How to spot and avoid scammers on trading platforms | Business (2024)
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