ASIC Preparing to Ban Toxic Products in August

Binary options and CFDs are under the looking glass from the regulator

Earlier today, the Australian Securities and Investments Authority (ASIC) announced that it is formally preparing to deploy its product intervention powers shortly. The Australian financial regulator is aiming to filter out products which it deems toxic to customers.

The regulator started consultations with the industry as it prepares to begin using its new powers as early as August. In a statement, the Deputy Chair of ASIC, Karen Chaster said that the watchdog is aiming to “respond to significant consumer detriment” swiftly.

Under the product intervention law passed by Parliament earlier this year, the Australian financial regulator has to consult before implementing every decision. The regulator has highlighted that the product intervention power is available for ASIC to use now. Only the design and distribution obligations do not apply to the industry until April 2021.

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According to the latest announcement, ASIC seeks public input on the product intervention power consultation documents by August 7, 2019. The regulator aims to release its final regulatory guide in September 2019. A further, separate ASIC consultation on its proposed guidance on the design and distribution obligations will commence later this year.

Binary Options and CFDs Under Review

Just as in Europe, the ASIC is reviewing some of the most popular products for retail investors, namely binary options and CFDs. According to local newspaper The Australian Financial Review, if the regulator deems certain products to be causing significant detriment to consumers, the consultation period is compressed to two-three weeks.

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As previously reported by Finance Magnates, one senior executive at a major brokerage company in the region shared that in his views, the ASIC is preparing for a fully fledged ban on CFDs to retail investors.

While there is no doubt about the faith of binary options, the attitude of the regulator towards the CFDs product is unclear. While a complete ban remains a far fetched outcome, it can not be ruled out.

Brokers operating from Australia are currently the only ones offering high leverage products to retail clients. If the ASIC is to take cues from other regulators worldwide, a leverage cap is a possible outcome from the consultation period.

Brokers Preparing with Offshore Subsidiaries

Throughout the past couple of weeks, we have seen many brokers informing their overseas clients about changes to their accounts. While some firms have rushed to offer options to their customers via offshore subsidiaries, others have continued awaiting further details from ASIC about the scope of the changes coming to the market.

The short consultation period contrasts with the relatively slow process which unfolded in the EU in the aftermath of ESMA’s product intervention measures last year. As the anniversary from the brisk regulatory changes in Europe approaches, national regulators across the EU have taken different views on how to best regulate the market.

While the FCA has imposed a strict cap on leverage for retail clients at 1:30, the CySEC introduced three tiers of categories for different clients. While customers some can use as high as 1:50, others are limited to 1:20.

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