The Australian Financial Services Commission (ASIC) suspended the license of Direct FX over an issue dating to October of last year. At the time the company reported a breach to the regulator of related to a dispute resolution with a counterpart that has prevented Direct FX from having the required net tangible assets of $1,000,000.
At the time some owners of the company have left and so did senior management. ASIC has been reviewing the compliance of Direct FX and matching its books to financial obligations. After the regulator has demanded an audited report of the state of the company’s finances in February, such a report was delivered to the Australian watchdog on April 12, 2018.
Audit Forces ASIC to Act
The report that has been provided to the regulator two weeks ago has prompted a response on part of ASIC, as the company’s license has been suspended. The suspension is valid for a period of ten weeks and six months. Any subsequent action by ASIC will be taken only after a thorough review of some key compliance criteria.
According to the findings of the Aussie regulator, Direct FX had failed to comply with its Net Tangible Asset (NTA) requirements. The firm did not have enough funds to meet its obligations over a material period of time. Such violations are typically handled by regulators with a great deal of scrutiny.
In addition, the company did not manage to replace key personnel after directors and shareholders parted ways with the firm in October 2017. The firm took an extraordinarily long time to comply with ASIC’s request for an audit considering the counterparty problem that occurred in October.
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When commenting on the suspension of the license of the firm, ASIC Commissioner Cathie Armour said, “Direct FX was in breach of important financial conditions of its AFS license aimed at protecting investors from the higher operational and credit risks posed by the retail OTC derivative sector.”
“Direct FX also failed to replace key persons to ensure adequate organizational competence, supervision of financial services and compliance with Australian regulatory obligations. When ASIC was trying to conduct its inquiries, the entity did not cooperate in a timely and efficient fashion that we would expect from licensees and failed to comply with ASIC directions,” Armour elaborated.
Following the move by the Australian regulator, Direct FX is not allowed to provide financial services and also affects Core Liquidity Markets, a company which is providing its services using the permit of Direct FX.
The main highlight of ASIC’s announcement is that the firm needs to quickly fill key persons that are adequately competent to address the lack of compliance at Direct FX. Provided that the lack of some key appointments by the 17th of October 2018, ASIC has stated that it could consider further suspending or canceling the AFS license of the firm.
Positions of existing clients will have to be closed and the company will be required to maintain its membership in an external dispute resolution scheme to warrant that the interests of clients are represented.