The global industry self-regulatory body for the retail brokerage market has introduced PAMM certification. The Financial Commission, registered as Finacom LTD, has answered the calls of numerous retail investors to look into offering a certification for PAMMs offered by members of the body.
PAMMs, percent allocation management modules, have long been prone to scamming. The way they work is what makes them prime targets for companies that scam retail investors. They give investors a chance to allocate money to an investment manager. The investment manager then invests those funds on behalf of the PAMM holders. If they turn a profit, they take their commission and reallocate the profits to the retail investors in the proportions that they invested in initially.
PAMMs are popular with offshore brokers, and their purpose is to allow traders without much experience to invest funds for trading. The key aspect is that the investors do not need to trade the money themselves due to lack of skill, knowledge or experience.
Due to the lack of transparency, these instruments have been open to manipulation. This particularly prevalent in offshore brokers who are based in jurisdictions with lax regulatory requirements. They are a fertile breeding ground for scammers of all types.
FC steps in with rating system
The Financial Commission (FC) has listened to complaints regarding PAMMs. Retail traders simply do not understand how certain PAMMs operate and are not able to find the required information from retail brokerages.
The first step in FC’s plan is to review the technical setup of a brokerage’s accounts. This is something that many retail traders would never be able to do, even given sufficient access to a brokerage’s accounts.
The next step is to look at how funds are allocated. This will be looked at from multiple angles – how the trader allocation works and which investment managers are using the money to trade. It will also see in what way the trading results are reported.
The final step will be to double check on the various procedures within the brokerage itself. Are the KYC procedures done correctly? Are security procedures in line with best-case practices in the industry? What ratings systems are used to gouge the performance level of investment managers?
Once everything has been checked by the FC and it believes the brokers PAMM setup is legitimate, the self-regulatory body will issue a certificate that will be valid for one year. It is hoped that such scrutiny will instill trust in the PAMM market.
The FC provides numerous other services to both the forex/CFD market and to digital currency trading platforms. One of the key services offered to both sectors is a neutral place to address any complaints that might arise from the natural course of doing business. A part of this service is “swift and efficient investigation” into all matters brought before the FC.