ASIC temporarily suspends AFS license of Direct FX

The Australian Securities & Investments Commission (ASIC) has temporarily suspended the Australian financial services (AFS) licence of retail Forex broker Direct FX Trading Pty Ltd (AFS licence 305539).

The suspension, which will last for a minimum of ten weeks and up to six months, is introduced after a review of the broker which started in October 2017. On October 10, 2017, the company reported a breach of s912AB(4)(b) of the Act to ASIC, relating to the requirement for Direct FX to have net tangible assets of $1,000,000. The regulator has since been reviewing Direct FX’s compliance with its financial obligations. As part of this review, ASIC required Direct FX to provide an audit report to ASIC by February 9, 2018 about its compliance with financial licence conditions. The audit report was provided to ASIC earlier this month.

Direct FX’s AFS licence was suspended after ASIC found:

• Direct FX had failed to comply with its Net Tangible Asset (NTA) requirements outlined in Class Order 12/752, including not having sufficient cash and cash equivalents to comply with its requirements on multiple occasions;
• Direct FX failed to comply with a s912C(3) Direction from 10 February until 12 April 2018 to give ASIC an audit report covering certain important matters, including information about Direct FX’s compliance with its financial obligations that would assist ASIC in making an assessment about Direct FX’s competence, attitude to compliance and financial soundness; and
• Direct FX failed to replace key persons named on its licence.

ASIC noted the number and nature of the failures and said they led it to believe that Direct FX is likely to contravene its general obligations as a licensee under s912A of the Corporations Act.

Commissioner Cathie Armour commented,

‘When ASIC was trying to conduct its enquiries, the entity did not cooperate in a timely and efficient fashion that we would expect of licensees, and failed to comply with ASIC directions.’

ASIC found that Direct FX should not be allowed to carry on a financial services business until key person competency arrangements are adequately addressed and Direct FX has demonstrated compliance with the financial conditions attached to its AFS licence. If these criteria are not satisfied by October 17, 2018, ASIC may consider further suspending or cancelling the AFS licence, subject to the usual procedural requirements.

Adding to the gloom, ASIC said the suspension will affect the financial services provided by Direct FX’s authorised representative, Core Liquidity Markets Pty Ltd, to the extent that they are provided under authorisations granted under Direct FX’s licence.

To minimise the impact of the suspension on its past and current clients, Direct FX will be:

• required to maintain its membership of an external dispute resolution scheme and adequate professional indemnity Insurance; and
• able to close out positions of existing clients.