Exclusive: Brokers Open Doors for EU Clients to Australian Subsidiaries

Several companies who are holding an EU and an Australian license are moving clients to their ASIC subsidiaries

Brokers which are regulated both in the European Union and in Australia are capitalizing on their diversified license exposure. With looming new European regulations, the firms which are holding ASIC (Australian Securities and Investments Commission) licenses are using a regulatory loophole to honor customer requests to trade with higher leverage.

Earlier this spring, the European Securities Markets Authority (ESMA) published an updated regulatory framework for retail brokers that closed the doors for clients willing to use leverage above 1:30. The news prompted an outcry on the part of the industry and some traders which are used to use higher leverage to maintain adequate exposure to the market.

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While EU-regulated brokers are looking for ways to divest their exposure to the new regulations, companies which are holding an Australian license are already taking action to accommodate client requests.

Key Compliance Details

From a compliance perspective, it is not very difficult for companies to be able to move their EU clients to Australia. There is one approach which could yield a result which is detrimental to the brokerage, and that is if the broker proactively solicits clients to switch their regulatory jurisdiction.

The existing regulatory framework in the EU doesn’t prohibit clients from choosing to work with a brokerage subsidiary which is located outside of the EU, but the company can not direct clients to move their accounts.

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While the ESMA is limiting some aspects of a broker’s operation, other concerns have topped the list of concerns for ASIC-regulated firms.

Client Interest to Move Outside of the EU

From the short survey that we made amongst brokers, their clients are very keen to move away from the EU to use higher leverage. Several companies have been experiencing a wave of customer requests to make the transition.

While Australia and the EU are cooperating closely to synchronize their regulatory frameworks on an institutional level, the retail market is not being treated in the same way, at least for now. European brokers are thoroughly looking into ways that allow them to meet their clients’ needs and this is just one of the solutions that are being contemplated.

Client Protection

Commenting to Finance Magnates the Director of Traction Fintech, Sophie Gerber, said: “Foreign clients are protected by Australian regulations. They have the right to make a complaint to the Financial Ombudsman Service (FOS), soon to become the Australian Financial Complaints Authority (AFCA) about services received from brokers regulated in Australia by ASIC. However what ASIC expects to see of Australian brokers is substantive, and not just notional operations in Australia for those regulated by them.”

“Those thinking of obtaining ASIC authorisation should be aware that ASIC have made it clear that paying lip service to being regulated in Australia but not actually being present in any significant way is insufficient,” Mrs Grace explained.

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