Fail to disclose plans to sell your FX brokerage? ASIC will shut your company down

Last week, FinanceFeeds reported in detail on the different methodologies by which national financial markets regulatory authorities in some of the most populous and highly respected regions for the FX industry, namely Cyprus, Britain, North America and Australia.

Our report covered specific aspects of progress made by the major regulators in those jurisdictions since the rise to prominence of retail FX, noting that, among many other things, ASIC, the Australian regulator, has positioned itself as the only financial markets regulatory authority outside of the United States which has criminal prosecution powers, as well as the ability to close down companies that do not behave, rather than just issue civil proceedings and fines.

devised two very important methodologies very early on- one was the implementation of First Derivatives’ real time surveillance system that continuously checks the activities of all firms with an ASIC license and has proven completely infallible, and the other being its ability to take companies to civil or criminal trial as well as actually wind their operations up – not just remove or suspend their license, but to send the bailiffs in and actually close the company down.

This has gained Greg Medcalf, Australia’s regulatory leader, tremendous respect and has engendered a very good environment for Australia’s top quality and highly respected companies, including giants such as Invast Global, whose Pure Prime service was launched recently, with Geoff Last’s 39 years of experience in the industry being a huge benefit, and AxiCorp with Rajesh Yohannan now at the helm, whom I spoke to in great detail last week, his enthusiastic and upbeat parlance pointing to a great future for the firm in Australia under his leadership, poised to expand globally.

Australia has protected its markets from abuse, takes a very dim view of margin FX firms that do not abide by the law, and has actually closed down several firms and disqualified their directors from ever operating a financial markets business, and in some cases sent them to jail.

Today, the Australian regulatory authority has demonstrated another facet of its stringent attitude toward retail FX firms that do not abide by what the regulator considers to be tenets of correct business practice.

For several years, small margin FX firms and their activities have been high on the agenda for ASIC, with the Australian authorities having closed down several entities over the past three years.

Today, Australia’s Administrative Appeals Tribunal (AAT) has rejected an application from retail FX firm IMS FX Services which sought confidentiality order and an interim order that prevented ASIC from amending the public AFS license register to record that ASIC had canceled IMS FX’s license.

Effectively, the firm was attempting to remove any record of having had its license revoked.

In this case, the actions by ASIC to put an end to IMS FX’s license came from what the regulator discovered to be an intention to sell the company immediately upon receipt of its license, which it applied for in March 2015.

The license was granted in September 2015, during a period in which ASIC was deliberately not issuing new licenses to FX firms as a matter of priority, instead prioritizing new applications from firms in other sectors of the financial services industry.

Subsequently, ASIC learned that the controllers of the licensee had reached an agreement on 7 August 2015 that IMS FX would be sold shortly after the licence is granted.

As the licence application did not disclose this intention to change ownership, directorships, intended business activities and resources, on 22 December 2015, ASIC convened a hearing to determine whether the licence should be cancelled.

The hearing took place on 3 February 2016 and an ASIC delegate found that the application lodged with ASIC was misleading in a material way and decided to cancel the licence.

The decision to cancel IMS FX’s licence was notified to the applicant on 24 February 2016. On 26 February 2016, IMS FX appealed ASIC’s decision and also sought to defer the effect of ASIC’s cancellation order and confidentiality orders. An interlocutory hearing was held on 11 March 2016 and on 31 August 2016, the AAT made a decision rejecting IMS FX’s interlocutory application.

The Appeals Tribunal stated “In the circumstances, I am satisfied that there is considerable risk to the public if the Decision is stayed. I consider that there is considerable merit in ASIC’s submission that the asserted misleading character of the application made by the Applicant goes to the heart of the risk to the public of allowing the Applicant to continue under its AFS license”

“Furthermore, there is, as submitted by ASIC, a further aspect of the public interest which lies in the general deterrent effect of [ASIC] publicising the fact that an AFSL obtained by means of a materially misleading application has been cancelled – which supports the role of ASIC in carrying out its function of protecting the public.”

In light of the the Appeals Tribunal’s decision, the AFS licence register will now reflect that IMS FX’s AFS licence has been cancelled. It is entirely possible of course that the firm may continue to operate on an unregulated basis from an offshore jurisdiction, however its days in Australia are over, and there will be no possible way of circumventing the cancellation of the license because ASIC’s surveillance system is so accurate that it would spot any activity immediately.

ASIC Deputy Chairman Peter Kell said, “It is paramount that any person seeking to obtain an AFS licence submits an application that accurately reflects the facts and circumstances as well as the financial services business the applicant intends to carry on under the licence.”

“This should be a salient reminder to applicants that should any material circumstances surrounding the application change, the applicant has a responsibility to disclose this to ASIC to ensure that ASIC’s decision is made on a fully informed and accurate basis. A failure to do so risks ASIC taking regulatory action, including, as in this instance, ASIC deciding to cancel the licence” – Peter Kell, Deputy Chairman, ASIC.

ASIC emphasizes that its’ decision in this case is consistent with the Commonwealth Government’s support of Recommendation 29 of the Financial System Inquiry – that ASIC approval should be required for any change in control of a licensee.