Brokers beware: Chinese agents selling fake ASIC licenses to FX firms and promising custody of client funds

As clear as mud. Fabulous, well organized and a land of opportunity for those who get it right, but as clear as mud.

That’s pretty much what doing business in China is like when conducted and managed from the outside.

The continual research that FinanceFeeds considers of great importance within China to be able to provide vital information to industry participants in other regions is very much a priority and ongoing concern for the greater good of the business, with China being such a vital and futuristic nation in terms of the abilities and business understanding within the People’s Republic, as well as the quality of its market infrastructure and world-diminishing volumes, largely conducted by portfolio managers with over $25o million in assets under management that refer order flow via IB arrangements to Western firms.

Whilst the vast majority of the burgeoning FX industry within China is highly organized and operated by astute professionals with vast, in depth industry knowledge who are able via joint venture partnerships to propel the revenues of Western brokerages to stratospheric levels with very little effort or difficulties, there are still one or two flies in the ointment.

China’s ringfenced business environment which keeps it completely isolated from the rest of the world and at the same time totally domestic focused with its own isolated domestic market only internet, government intervention in all aspects of commercial life, internet censorship from the outside and almost complete lack of even single syllables of the English language, the dichotomy that exists is that everyone needs China rather than vice versa, yet from the outside, clarity and navigating any form of data is virtually impossible.

The amateurish counterfeit MetaTrader 4 platforms that proliferated the second tier development towns across provincial China are thankfully becoming a thing of the past as modernity and sophisticated corporate structure is paramount among large IBs that have in many cases more capital resources and are responsible for more client assets than many actual brokerages outside China,  however during the past few weeks a new pitfall has emerged that brokerages should be aware of.

Several sources from within mainland China have explained to FinanceFeeds during the course of the past week that some brokerages are being targeted by local Chinese agents that make the false claim that they are able to sell Australian Securities and Investment Commission (ASIC) licenses to brokerages, and that they are the authorized Chinese official for such a transaction.

This is completely bogus because there is only one method by which to obtain an ASIC license and that is by direct application to the Australian authorities, and with clear evidence that the company applying has operations in Australia and the correct responsible directors in place, on Australian territory.

Even with such a structure that complies with the criteria, ASIC has over the past two years begun to show reluctance to grant ASIC licenses to margin FX firms with retail client bases as part of its ultra-conservative view on OTC retail margin FX in Australia.

FinanceFeeds is aware of several instances of this practice prevailing in mainland China, and in some cases the impostors actually explain to the brokers that they wish to sell such counterfeit licenses to that once purchased, the brokerage would be authorised to handle client funds and conduct FX brokerage services as per the terms and conditions of a genuine ASIC license.

The reality is that rather than being an actual ASIC license, what the brokerage receives instead is a Special Administrative Region (SAR) license

which has very little value whatsoever.

The difficulty is that due to the almost complete lack of use of any aspect of the English language in China, many brokerages or Chinese divisions of Western brokerages believe the agent and actually buy the license, unaware that it is not real, with the agent taking between $10,000 to $20,000 as a one off fee.

Be very careful to avoid this practice because in this case, STP really does mean Straight To Pocket.