Breaking: ASIC Warns Some Brokers are Breaking Overseas Laws

The Australian regulator issued a brisk statement highlighting operations of retail brokers in China and the EU

The Australian Securities and Investments Commission (ASIC) continues to be focused on retail forex and CFDs brokers. The regulator mentions overseas operations of local brokers and outlines that some of its licensees that offer OTC derivatives to retail traders might be breaking the law in China and the EU.

Just days after the regulator was granted product intervention powers, it requested a large amount of data from Australian financial service providers. Today, the ongoing reshaping of the local retail brokerage industry continues with a brisk warning from the ASIC.

Licensees have been officially put on notice by the Australian regulator that it will review any breaches of overseas laws. The watchdog states that it will consider whether breaching overseas law is consistent with obligations under Australian law to provide services ‘efficiently, honestly and fairly.’

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The ASIC is also reviewing whether AFS licensees are making misleading or deceptive statements about the scope or application or effect of an AFS license.

Commenting on the statement, Commissioner Cathie Armour said, “AFS licensees offering OTC derivatives to overseas retail clients should, as a matter of priority, seek advice on the legality of their offerings to these clients. Any non-compliant activities should cease immediately and be notified to ASIC and the relevant overseas authorities.”

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China Signals ASIC

The Australian regulator is taking action after Chinese authorities have informed it about companies that are offering forex trading on margin in China. The ASIC highlights that according to Chinese law, “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.” 

Chinese authorities have shared with the Australian watchdog that to date, no institution or agency has the approval to carry out margin foreign exchange trading in the country. As such, Australian brokers with China-based clients are said to be conducting unlicensed or illegal activities in the country by providing margin foreign exchange products to retail clients.

EU Product Intervention

Aside from the Chinese authorities, new EU regulations are also on the mind of the Australian regulator. The ESMA’s product intervention measures, which limit marketing of forex and CFDs, are said to have been sidestepped by some firms that are marketing to EU clients.

According to the ASIC, the EU’s regulatory framework for retail forex and CFDs includes anti-avoidance provisions. Companies that are actively soliciting clients to switch to a firm’s Australian subsidiary and firms that are promoting products outside of the ESMA’s guidelines regarding CFDs are said to be in violation of these provisions.

Elaborating on the matter, 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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