The Australian Securities and Investments Commission (ASIC) announced today it has accepted what it refers to as an enforceable undertaking from the online FX broker, Forex Financial Services Pty Ltd (Forex FS).
Enforceable undertakings are formal pledges given to ASIC which are enforceable in court. They are generally accepted by the commission as an alternative to civil or administrative action where there has been a violation of regulations or laws.
In this case, ASIC’s investigation found that between March 2010 and October 2011, Forex FS offered an account known as an individually managed account (IMA) which was a managed discretionary account (MDA), said the regulator’s announcement.
Forex FS’s Australian Financial Services (AFS) licence prohibits it from offering a MDA service to retail clients except through a registered managed investment scheme. ASIC’s investigation found that the IMAs, which were opened by 34 clients and had funds totalling more than $2.6 million, were not operated in this way. Forex FS had been incorrectly classifying its IMA clients as wholesale clients as opposed to retail clients.
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Commissioner Greg Tanzer said in the announcement: “An MDA service allows a broker to enter and exit trades on behalf of a client without seeking the client’s approval. Consumers can face significant loss if the service is not provided appropriately.”
ASIC was also concerned that Forex FS made representations on its website and during presentations to potential clients that were misleading or deceptive. In particular, Forex FS made representations as to target returns in excess of 30% per year for certain products based on the past performance of those products, including the IMAs.
Mr. Tanzer commented: “Consumers place a heavy reliance on representations as to returns when selecting investments, especially where the represented returns are significantly greater than the norm. Companies must ensure they do not mislead people by implying that past returns are likely to be repeated in the future.”
The enforceable undertaking requires Forex FS to retain an independent compliance expert to conduct an assessment of its products and services and take appropriate remedial action following his assessment. Additionally, the firm is not allowed to offer MDA services to retail clients for a period of ten years, and must ensure the directors of Forex FS engage in continuing professional education within the next twelve months.