By Patrick Graham
LONDON (Reuters) - The co-founder of Russian-owned Alpari applied a year ago to wind up the parent company of its retail currency brokerage, fearing it was "doomed" long before the company's collapse from trading losses last week, he said on Wednesday.
The comments by Andrey Dashin raise questions for British regulators, already under pressure over how tightly they controlled online foreign currency trading operations, most of which are based in Cyprus while doing business in London.
U.S. National Futures Association is looking at changes to its rules for leverage by retail clients trading currencies, while a lawyer who investigated a currency rate-fixing scandal for the Bank of England last year told British members of parliament that currency markets need more regulation.
Dashin, a Russian accountant and banker who formed Alpari Russia in 1998 with four other partners, said he lodged a winding-up petition for Alpari UK's parent company Alpari Group Ltd with a Cypriot court on Jan. 28, 2014.
In a statement emailed to Reuters on Wednesday which confirmed remarks made on website forexmagnates.com, he said the application was still pending.
"At one point I realised that unless Alpari UK obtains a reliable source of funding, it is doomed," he said.
"Unfortunately, it now transpires that I should have filed for winding up earlier," Dashin said. "Probably in that case that process would have been completed before the 'Black Thursday' of 15 January 2015, when the unpreparedness of Alpari UK and its lack of any financial buffer caused its collapse."
Alpari, sponsor of Premier League football team West Ham United, is one of two high-profile brokerage victims of the Swiss franc's surge, which pushed the number of forex transactions in a single day to a record high on what is the world's biggest financial market.
The other major casualty, New York-based FXCM, saw its shares lose up to 86 percent of their value on Tuesday after it unveiled details of an emergency $300 million loan taken late last week to prop itself up.
UK-based spreadbetter IG Group and online trading company London and Capital have both announced losses from the day's trade. Denmark's Saxo Bank has imposed costs on clients.
Britain's Financial Conduct Authority said on Tuesday initial indications were that the funds of more than 100,000 Alpari customers were "whole", although it would take more time to confirm if there were customer losses.
It had no immediate comment on Dashin's remarks.
Japan's Financial Services Agency also said it had frozen Alpari assets in Japan to cover all of its domestic liabilities.
EU PASSPORT
Retail currency trading has grown quickly in the past 15 years, attracting individuals staking their own money with long trading hours, low transaction costs and the ability to take on huge risks for a relatively small sum. The trade makes up nearly 4 percent of global daily spot turnover of nearly $2 trillion.
Regulation of the sector is patchy. The imposition of large capital requirements overnight wiped out much of the U.S. sector in 2013, but Europe has not been so aggressive.
Some 70 of Europe's 90 brokerages are registered in Cyprus, where players said the cost of meeting regulatory requirements is lower, while EU legislation allows them to "passport" into other jurisdictions.
"Any one country trying to introduce gold plating of regulation in these areas can find the business moves somewhere else," said Richard Reid, a research fellow in banking and finance at the University of Dundee.
"In this case there would have to be something done at an EU level. You can always come up with moral suasion and EU guidelines, but sometimes just turning the spotlight on one centre can bring pressure on that particular regime."
Responding to Reuters' questions on the issue, a European Commission spokesman said:
"The recent moves highlighted the need for several national financial authorities to look into the forex markets and for investment firms to have suitable prudential reserves to mitigate the risks involved.
"The Commission believes this is mostly a supervisory issue for the national financial supervisory authorities concerned."