Aussie Regulator Hits TMGM for Lapses in CFDs Client Onboarding

Trademax Australia Limited, the entity that locally operates the TMGM brand, has become the latest contract for differences (CFDs) and margin forex broker to receive interim stop orders from the Australian regulator under the prevalent Design and Distribution Obligations (DDO).

Under the orders, the broker cannot open trading accounts or deal in CFDs and margin FX to retail investors for 21 days unless they are revoked earlier.

ASIC Busts Another CFDs Broker

Announced today (Thursday), the Australian Securities and Investments Commission (ASIC) issued two interim stop orders alleging that the broker had an inadequate retail investor questionnaire for compliance with its obligations and a lack of other controls in its onboarding process to assess whether clients are likely to be in its target markets.

“ASIC made the interim orders to protect retail investors from acquiring CFDs or margin FX from Trademax, where those products may not be suitable for their financial objectives, situation or needs,” the regulator noted, adding that the existing clients can still close their positions.

The TMGM brand has a global presence as it operates with licenses in Australia, New Zealand, Vanuatu, and Mauritius. It is to be noted that ASIC’s action is only against the operations of the Australia-regulated entity.

Detailing the lapses around the questionnaire, the regulator highlighted that the broker did not adequately enquire into the prospective clients’ financial situation, risk tolerance, and investment objectives to trade the risky CFDs and margin forex products. Further, the broker failed to ensure its prospective clients’ risk tolerance and technical understanding of CFDs over crypto assets.

ASIC further pointed out that TMGM's questionnaires had a significant design flaw that included warning messages prompting clients to review their answers and also allowed them two attempts every 24 hours indefinitely to pass them.

"TMGM has taken immediate action in response to this stop order," a TMGM representative told Finance Magnates. "We have temporarily ceased onboarding Australian clients and engaged an experienced external compliance lawyer to ensure we address ASIC's concerns promptly and effectively."

"We are actively working towards addressing the stop order and are committed to implementing the necessary changes to meet all regulatory requirements. It is important to note that this stop order only affects our Australian clients, and all other operations remain unaffected."

The Mandatory DDO Rules

ASIC implemented the DDO rules in October 2021 and has strictly enforced these obligations for financial services companies. It requires financial services providers to ensure products are designed with consumer needs in mind and distributed in a targeted manner. They must also monitor outcomes and reassess their product governance arrangements over time.

To date, the regulator has issued 86 interim stop orders for DDO breaches, which involve actions against several retail OTC derivative products issuers, including names like Saxo Capital Markets and Mitrade, but those were revoked after the lapses had been amended. It also sued eToro for DDO lapses in its CFDs offerings, which was its first lawsuit against a CFD broker for breach of such rules.

Meanwhile, the Aussie regulator wants to further tighten its DDO rules covering CFDs and crypto derivatives, as it found “significant room for improvement.”

Earlier this year, ASIC also obtained a court order to shutter troubled FX and CFDs broker Prospero Markets, which breached its licensing conditions. The court also appointed a liquidator to oversee the process of returning client funds.