Listen to the Article: Brokers Gone Broke: The CCC UK Case and Common Causes of FX Broker Bankruptcy

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The Covid outbreak in 2020 caused a lot of uncertainty and volatility in the global financial markets. Many asset classes suffered losses, but the forex market was an exception. The forex market saw a rise in trading volumes, as traders could profit from both rising and falling currencies. Forex trading also became more popular among new traders, who valued liquidity and flexibility during the pandemic.

However, despite the increased trading volume in the forex market, several forex brokers have faced insolvency in recent years. Some examples are Probis​, SVS Securities, Halifax​, XeroMarkets and the latest one, City Credit Capital UK, according to Fazzaco News. This leads to a question: Why do brokerages still go bankrupt one after another in a time of rising online forex trading?

Common Causes of FX Broker Bankruptcy - Let's Do A Little Case Study Here

Let's start by going back a few years, to the shocking bankruptcy crisis of the UK forex broker Alpari in 2015. One of the main reasons this crisis was the massive losses suffered by many of its clients who traded the Swiss franc, when the Swiss National Bank decided to abandon the three-year old cap against the euro. As a result, most of Alpari's clients lost more money than they had in their accounts.

Another cause is the one in the case of the US forex broker Avail Trading Corp (ATC) in 2016. ATC filed for bankruptcy to avoid the various penalties that it would have to face from regulators due to client complaints or misconduct. The penalties were probably manageable for ATC, but they filed for bankruptcy anyway for fear that other clients would withdraw their funds.

In fact, most bankruptcies are ultimately rooted in weak risk management practices. For forex brokers, this includes inadequate capitalization, leverage or hedging strategies, that expose brokers to market fluctuations or liquidity issues.

Additionally, unscrupulous behavior, such as manipulating prices, spreads or execution, or misusing client funds, is also a cause of bankruptcy for many brokers who lack effective regulation. But this is somewhat a case of getting what they deserve.

Licensing issues, as Fazzaco mentioned in several articles related to forex licenses​, are also a factor that can easily lead to a broker's downfall. For example, on May 2 this year, XeroMarkets' employees received a "Shutdown Notice" from the HR, stating that the company had gone bankrupt and would cease operations from May 14. This broker had registered with the Saint Vincent and the Grenadines Financial Services Authority (SVG FSA), but was not regulated by any authority, because SVG FSA does not regulate forex activities or issue licenses to forex brokers.

Finally, lack of clients or funds, due to low reputation, poor service quality or high competition. Without clients, there is no way to open up the market, which goes without saying. And as for funds, for example, a sudden sharp fluctuation in the forex market can cause huge losses for brokers, leading to them being unable to meet regulatory capital requirements. Or because of liquidity providers' margin calls, brokers' funds can be quickly drained and forced to file for bankruptcy.

The Case of City Credit Capital: The Missing £10 Million

According to a July report by Fazzaco, the UK Financial Conduct Authority (FCA) confirmed that forex and CFD broker City Credit Capital (UK) Ltd has gone insolvent. The order also extended to CIX Markets, the company's "low-end market" name that operated on the website cixmarkets.com.

CCC UK was founded on December 19, 2001, as Smart Link Financial Services (UK) Limited, and changed its name a year later. CCC UK's demise as a market leader was both tragic and perplexing for the industry, which was left wondering what had gone wrong.

The FCA is still looking into the bankruptcy. Although the regulator was unable to pinpoint the exact cause of the bankruptcy, the broker had been experiencing substantial difficulties in previous years. CCC UK's margin-in fell by 41% in 2021, influencing profitability by assessing the difference between the price of a product sold and its manufacturing costs.

The most recent developments in September indicate that it appears like CCC UK has almost £10 million that belonged to their professional clients but has vanished offshore, creating concerns. Many suspect Alfred Tang, the CEO of City Credit Capital, and a relevant Malaysian company CCC (Labuan) Limited are responsible. This company owes City Credit Capital over £7.7 million and is in financial trouble. It is now evident that a significant portion of the missing funds was transferred through this Malaysian company.

Final Thoughts

Obviously, this article is unable to uncover all factors that may result in a broker going broke. Also, there are still many unanswered questions and unresolved issues that deserve further attention and research.