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.
1) But I thought the ASIC is not allowing anymore new forex brokerages for the last 2-3 years now (maybe longer). Maybe it has changed, but it had something to do with fake licenses being showcased to Chinese clients and they were buying them at 10,000% markup thinking they were getting a full brokerage license. So only existing brokers can offer services. Kind of a good thing, actually. Just stay away from AvaTrade as the Canadian regulator said. Also any broker tied to AFX group (Including DirectFx/STO) is likely on shaky ground. 2) “…..clients outside of Australia have no one… Read more »
Officially the function of ASIC is to look after the interests of clients based in Australia, they have been reinforcing this point on several occasions.
I agree with Jon Grah. ASIC (or any regulators in Australia) job is to ensure the companies under them adhere to the law. If a company breaks the law it doesn’t matter if it affects local or overseas customers, it will be taken to task. So your statement “clients outside of Australia have no one to complain to” is false. But obviously it can only act within Australia, e.g. Broker claimed deposit from bank in xxx country overseas has not been received, ASIC cannot compel the overseas bank to confirm the information. But if the funding bank is in Australia… Read more »
There is no ambiguity here. you are wrong. they do not protect non-australian residents.
The pretence of this article is incorrect is incorrect on two fronts. 1. Firms with FCA licensing are specifically prohibited from papering retail clients within the scope of the license outside of the FCA. So firms with dual EU and ASIC licenses are prohibited from allowing clients to open accounts with say an ASIC entity irrespective of what clients are asking for. Clients from outside of the scope of the license are not captured. 2. ASIC and FOS (soon to be AFCA) are separate entities – complaints from outside of Australia will be heard and enforced by AFCA outside of… Read more »