ASIC warns some brokers try to avoid overseas CFD offering restrictions

Maria Nikolova

ASIC is worried that some AFS licensees may be soliciting clients located in China and Europe to open accounts with Australian-based brokers in an effort to avoid overseas intervention measures.

Sydney Australia

Recent changes concerning CFD and binary options regulations in Europe have not gone unnoticed by the Australian Securities and Investments Commission (ASIC). It is apparent that the conditions for offering CFDs to retail clients in Europe and Australia have become markedly different after the implementation of the product intervention measures by ESMA.

Whereas the CFD offering in Europe is now restricted by measures such as leverage caps, the Australian regulatory landscape is much less harsh. Today, ASIC has voiced its concerns that some Australian financial service (AFS) licensees may be taking advantage of the latest regulatory developments and are abusing the scope of their AFS licenses.

AFS licensees are warned that in addition to overseas consequences of potential breaches of overseas law, ASIC will consider whether breaching overseas law is consistent with obligations under Australian law to provide services ‘efficiently, honestly and fairly’. ASIC will also consider whether AFS licensee are making misleading or deceptive statements about the scope or application or effect of an AFS licence.

In particular, Chinese authorities have informed ASIC that: ‘some online platforms are illegally engaged in forex margin trading activities.’

Legal provisions have been implemented in China providing that ‘any unauthorized institution that conducts forex margin trading without approval [in China] shall be deemed to be in violation of the law. It is also illegal for any client (entity or individual) to entrust an unauthorized institution to conduct forex margin trading.’

AFS licensees with China-based clients may be conducting unlicensed or illegal activities in China if they are providing margin foreign exchange products to retail clients in China.

Temporary product intervention measures have recently been extended in Europe by the European Securities and Markets Authority (ESMA). Authorities in the United Kingdom and Germany have announced permanent measures.

ASIC is concerned that some OTC derivative issuers that hold AFS licenses (or their agents) may be marketing or soliciting clients located in China, Europe and other jurisdictions to open accounts with Australian-based AFS licensees on the basis doing so will avoid the overseas intervention measures.

Commissioner Armour said: ‘AFS licensees who break the law in overseas jurisdictions, or who mislead retail investors about their services undermine the integrity of the Australian licensing regime. ASIC will not tolerate that conduct.’

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