ASIC: Some Brokers Making “Deceptive” Claims About AFS Licenses

Commissioner Cathie Armour also said Australia is providing brokers with an opportunity for regulatory arbitrage

Cathie Armour, a commissioner at the Australian Securities and Investments Commission (ASIC), gave a speech this Tuesday in which she touched upon the regulator’s views on the retail trading industry.

There was nothing particularly groundbreaking in the speech. Still, reading between the lines, it provided some hints as to what ASIC might do next and, at the very least, what areas of the over-the-counter derivatives market the regulator is looking at.

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Like their European counterparts, it seems ASIC is focusing on client losses. According to Armour, the 350,000 retail trading clients that are using Australian brokers’ services lose money 80 percent of the time with binary options, 72 percent of the time with CFDs and 63 percent of the time when trading in foreign exchange.

Sadly, we here at Finance Magnates are not mind readers. Thus, we cannot say precisely why Armour decided to highlight client losses. But, last time a regulator got a bee in its bonnet about that particular problem, it translated into stiff regulations aimed at reducing its scope.

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Regulatory arbitrage

Having touched briefly on all the people losing money with retail brokers, Armour then highlighted the various regulatory structures that exist across the world to govern those brokers’ activities.

“Regulators in many jurisdictions, such as Europe, Japan, North America and China, have restricted or prohibited the provision to retail investors of certain OTC derivatives,” said the ASIC commissioner. “As there are not similar restrictions in Australia, there is a risk of regulatory arbitrage.”

Armour then touched upon some of the fears ASIC has regarding Aussie brokers doing business with clients overseas. Most significantly, she also said that the regulator is concerned some brokers are misleading their clients about their ASIC license.

“ASIC is also concerned some [Australian Financial Services] licensees may be making misleading or deceptive statements about the scope or application or effect of an AFS licence,” the ASIC commissioner said.

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