Australia gets cold feet about FX, becomes reluctant to process new license appl

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Exclusive: Australia gets cold feet about FX, becomes reluctant to process new license applications
By Andrew Saks-McLeod on Tuesday, 09.09.14
Following several subtle warnings by ASIC regarding the keen eye that is being kept on retail FX, LeapRate has learned that firms applying for ASIC licenses are being given a veritable cold shoulder
Australia has elevated itself to an enviable position as one of the most prominent and respected regions from which to operate a retail FX brokerage due to its position as a gateway to both Australian and Asian financial markets.
Indeed, such is the integrity of the nation’s business ethic, strength of its financial markets economy and reputation for good regulatory practice that many firms consider these important matters to be of great value, alongside its proximity and trade relationships with the all-important Asia Pacific region.
When considering these factors, the draw of Australia for many retail firms has been substantial over recent years, and the national regulatory authority, the Australian Securities and Investments Commission (ASIC) has been somewhat inundated with applications for ASIC’s AFS licenses.
LeapRate has learned today that ASIC has begun to dim its enthusiasm for issuing AFS licenses to retail online FX firms, with a number of applicants having experienced long delays in obtaining licenses already in process, with one company, wishing to remain anonymous, having explained to LeapRate that licenses are being issued without delay to companies in other business sectors, but not to retail FX firms.
Today, ASIC made subtle reference to its viewpoint concerning retail FX, having stated in a report which it issued relating to one specific FX firm having its license cancelled by the regulator, that “ASIC’s action in cancelling the AFS licence of GDS (Global Derivative Service) continues its focus on retail over-the-counter (OTC) derivative providers, including margin foreign exchange. Over the past two years, ASIC has seen an increase in the number of entities applying for an AFS licence authorizing the entity to operate a retail OTC derivative business, particularly in the area of retail margin foreign exchange services.”
ASIC’s highly diplomatic phraseology in this statement concurs with that explained to the aforementioned FX firm which explained to LeapRate that the regulator had cited inundation with applications as being a reason for the delay.
Whether this is the case, or whether Australian authorities are becoming averse to permitting large numbers of FX firms to establish themselves on Australian soil is perhaps a moot point.
Further alluding to the subtle and very passive disdain which ASIC may be taking toward FX firms is that the regulator issued a public warning recently which categorically explained what ASIC considers to be the perils of FX trading.
The regulator asserted in October last year that “FX trading, which is becoming more accessible via electronic trading platforms, is when you buy and sell foreign currencies to try to make a profit. It involves speculating on the value of one currency compared to another.”
“It is normally conducted through ‘margin trading’, where a small collateral (property or asset) deposit worth a percentage of a total trade’s value, is required to trade.”
“FX trading raises the stakes further by letting investors trade with borrowed money (leverage), but they are responsible for all losses, which may exceed their initial investment.”
“Forex trading is complex and risky. Even the most skilled and experienced forex traders have difficulty predicting movements in currencies. Trading in international currencies requires a huge amount of knowledge, research and monitoring. Like any investment, it is vitally important investors fully understand what they are getting into, and FX trading is no different. Unless you fully understand what investment you are making and the risks involved with that investment, don’t do it.” ASIC Commissioner Greg Tanzer concluded at the time.
LeapRate’s sources have further explained that ASIC openly admitted that there was a backlog in processing applications for online FX brokers only, and that other firms which require ASIC regulation for participation in other aspects of the financial services industry are being processed without delay.
Advocate and Notary Tal Itzhak Ron of Tal Ron, Drihem and Co. Law Firm, which represents several brokers who successfully obtained their ASIC licenses, confirmed the recent drop in application approval rates for ASIC licenses for online retail FX brokers.
Advocate Ron mentions this situation is prevalent in New Zealand as well, where there recently was a massive deregistration of existing brokers. Advocate Ron noted that this situation has led to an increase in applications for competing licenses in jurisdictions such as Cyprus and Malta, where the firm has seen applications approved in recent months with no significant backlog.
LeapRate intends to conduct further research into this matter and will update as necessary.

ASIC Takes Action against ‘Global Derivative Services’ for Multiple License Breaches
The Australian watchdog pulls the plug on the retail forex broker for failing to meet its AFS obligations, and takes a tough line on firms looking to offer derivatives products to retail investors.
Sep 9 2014
Posted on September 9, 2014 by George Tchetvertakov in Regulation,Retail Forex asic

The Australian Securities and Investment Commission (ASIC) has cancelled the Australian Financial Services (AFS) license of Global Derivative Services Pty Ltd (GDS) after an investigation found the broker had failed to comply with a number of its AFS license obligations.

Specifically, ASIC stipulated the following as failures to comply with conditions of its licence in an official media release earlier today:

The appointment and ongoing competency of the key person on the AFS licence; notification of changes to the responsible person; lodgement of account; payment of debts; adequacy of financial and human resources, by failing to maintain an Australian resident director and registered office; failing to provide up-to-date details with the Financial Ombudsman Service and on its website.

The company’s only director, ‘Brenton Nair’ also serves as the company’s CEO, but could not be reached for comment. Lacking an AFS license, GDS is now prohibited from operating in Australia.

Regulator Oversight

“Licensees must ensure they are up-to-date and actively complying with all current obligations,” said Greg Tanzer, ASIC Commissioner.

The latest action by ASIC underlines the regulator’s ongoing focus on over-the-counter (OTC) derivatives products offered by retail margin FX providers such as GDS and others. The Australian financial services industry has seen an increase in foreign broker participation attempting to tap the lucrative Asia/Pacific market. ASIC admits that “over the past two years, ASIC has seen an increase in the number of entities applying for an AFS licence authorizing the entity to operate a retail OTC derivative business, particularly in the area of retail margin foreign exchange services.”

The action taken against GDS and subsequent media communication suggests ASIC is actively monitoring the retail FX industry in Australia. According to the statement, “ASIC is continuing to conduct a surveillance of this industry and currently has several investigations into retail OTC derivative businesses on foot.”

Despite Spot FX being unregulated worldwide, FX derivatives are regulated. Several regulators such as the NFA, FCA and Finma are finding difficulties in regulating a market that reaches outside and overlaps their respective jurisdictions.


In July 2014, ASIC commenced action in the New South Wales Supreme Court to stop ‘Vault Market Pty Ltd’ and its sole director, Mr. Anamul Amin, from carrying on a financial services business without an Australian Financial Services (AFS) licence. The regulator also closed down a website with the domain name ‘’ (KiwiFx Bank).

In February 2014, ASIC accepted an enforceable undertaking from online foreign exchange broker, ‘Forex Financial Services Pty Ltd (Forex FS)’. ASIC’s investigation found that between March 2010 and October 2011, Forex FS had been offering a managed discretionary account (MDA) despite the firm lacking an MDA license authorizing it to offer discretionary managed account services.

- See more at:

The Australian Securities and Investments Commission (ASIC) has proposed a tightening of the rules around the financial requirements for issuers of over-the-counter derivative products.

ASIC stated that a review of over-the-counter (OTC) derivative products, such as contracts for difference (CFDs) and margin foreign exchange, came about as a result of the increase in interest from retail investors. ASIC stated that in light of this growth it wanted to ensure that issuers had adequate financial resources to manage their operating costs and risks, and that the owners of issuers were committed to the viability of the business.

“Increasing numbers of mum and dad investors are trading in these complex and risky products and it’s important the interests of all parties are aligned,” said ASIC commissioner, Greg Medcraft (pictured).

“We want issuers to be required to address operational risks with good cash flow forecasting and by holding sufficient liquid funds against losses and expenses that could arise from these risks.”

ASIC’s proposed changes include the requirement that issuers create rolling 12-month cash flow projections, and replacing the current requirements to hold surplus and adjusted surplus liquid funds with the requirement to hold net tangible assets of at least the greater of $1 million or 10 per cent of average revenue.

CFD provider Capital CFDs has welcomed the proposed changes, stating that retail investors would ultimately benefit. Capital CFDs managing director, Andrew Merry, said ASIC’s proposals were in step with the issue of segregated client funds, adding that issuers being sufficiently capitalised had the added benefit of providing retail investors with greater confidence.

“Currently, under the Corporations Act, Australian financial services licensees dealing in OTC derivatives are legally allowed to use client funds to hedge positions,” said Merry. “This sends a confusing message to trading clients and we have long advocated for change in the law.”

He added that the proposed changes would create a level playing field among issuers and align Australia with global standards.

ASIC Warns Against FirstForex, Fifx and FIFX Global: “Not Regulated in Australia”
Another cloned broker gets a warning from a global regulator. This time ASIC is warning investors about FirstForex that it is in fact an unregulated broker and not registered in Australia.
Sep15 2014
Posted on September 15, 2014 by George Tchetvertakov in Brokers,Regulation,Retail Forex

In another example of a an unregulated forex broker promoting itself as a licensed entity, the Australian financial services regulator, ASIC, has issued a public warning to consumers to be wary of foreign exchange broker, FirstForex. Marketing itself to Chinese and other Asian clients, according to ASIC, FirstForex, and related entities Fifx and FIFX Global using the domain are falsely claiming that their services are “under the regulation of Australia (Regulation No. 290600).” The claimed license is that of home loan financing firm, FirstMac, which doesn’t offer brokerage services.

Commenting in the public warning, ASIC Commissioner Greg Tanzer said, “Neither First Forex, FiFx or FiFX Global are registered Australian companies, nor are their services regulated as a financial services business under Australian law.”

Only last week the regulator took action against Global Derivative Serives (GDS) for multiple license breaches and has issued several public warnings over the course of 2014 regarding vigilance over margin foreign exchange providers and discretionary advisory services.

The current warning follows an ongoing trend where we are seeing unregulated brokers marketing themselves falsely as licensed entities, often cloning another firm’s regulatory status as their own. In this case, we can surmise that FirstMac was chosen to be cloned due to the similarity in their name

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ASIC Continues Ongoing Fight with Malpractice in the Financial Markets
Market regulation operates on a self-regulatory model, leaving ASIC no choice but to play cat-and-mouse with market participants. With workload remaining elevated ASIC is pushing for dialogue rather than court dates
Aug21 2014
Posted on August 21, 2014 by George Tchetvertakov in Brokers,Regulation,Retail Forex

The latest Market Supervision Report conducted by ASIC, the Australian financial markets regulator, details the specific actions conducted by the agency in their attempt to supervise and regulate financial firms in Australia.

The 405 ASIC Supervision of Markets and Participants: January-June 2014 report published today paints a vivid picture of the day-to-day activities carried out by ASIC as the agency tries to reduce the amount of ‘breaches’ of Australia’s Corporations Act 2001 allowed by regulated firms.

A statistical summary of ASIC’s activities in the first 6 months of 2014 include:

5 significant enforcement outcomes
8 infringement notices issued by the Markets Disciplinary Panel
21 matters referred for further investigation
17,091 trading alerts
122 market inquiries
35 risk-based assessment visits
55 participant compliance reviews
17 industry presentations.
Other Notable Highlights

The ‘ASIC Market Integrity Enforcement’ team typically had over 80 matters under investigation at any one time. As part of these investigations, ASIC conducted 66 formal interviews with persons of interest, issuing 326 notices to obtain information. The agency executed 4 search warrants in partnership with the Australian Federal Police.

ASIC Commissioner, Cathie Armour, praised the agency’s efforts saying, “The impact of ASIC’s early intervention program should not be underestimated.” Ms. Armour was also supportive of the self-regulatory model adopted by ASIC whereby financial firms are encouraged to regulate their own activities via clear guidelines and objectives prescribed by ASIC, adding, “By engaging with market participants about inappropriate conduct or poor compliance practices before they manifest in a breach, we can prevent potential damage to market integrity and consequential investor losses.”

In terms of big scalps, the report mentions the recent enforcement outcome relating to Newcrest Mining for contravening its continuous disclosure obligations and leading to a $1.2 million penalty by the Federal Court. The report states the outcome was “significant for investor confidence” and currently stands as the highest civil penalty awarded in Australia for a continuous disclosure matter. The conviction was obtained just over 12 months after the relevant conduct occurred.

In her comments, Ms. Amour was keen to make Newcrest an example for the wider market saying: “The statement of facts in the Newcrest matter provides useful guidance for listed companies on the risks of selective disclosure and the care that needs to be taken when briefing analysts.”

The report also highlights ‘future areas of focus’ for the regulator for the forthcoming 6 months. The three stated areas of focus are correcting deficiencies in the treatment of confidential information by listed companies, suspicious activity reporting and execution of orders by designated trade representatives.

Online trading providers and financial brokers should take note of the latter as Managed accounts operated under Power of Attorney agreements by third parties has been a significant growth area for most FX and CFD brokers not just in Australia but worldwide. Money managers have become a staple feature of the retail trading industry assisted by effective technology and easier market accessibility. The popularity of managed accounts, ‘copy trading’ services, automated strategies, signals and social trading has risen significantly and it would appear that ASIC has not ignored this market trend.

- See more at:
It's nice to see the ASIC cracking down.. they should have been this slap-happy years ago (back when they had more of a 'toothless tiger' reputation.)
rod178 said:
Currently, under the Corporations Act, Australian financial services licensees dealing in OTC derivatives are legally allowed to use client funds to hedge positions,” said Merry. “This sends a confusing message to trading clients and we have long advocated for change in the law.”

Yes, it would be very good if ASIC tightened up quite a few things actually. This ridiculous practice should certainly be outlawed.
It is very good to see ASIC actually doing something to clean up the activities of brokers in Australia. It is a worry that so many breaches have had to result in ASIC actions. They generally operate by advising and warning with mere letters. (They seem to think their letterhead carries some weight.) So when they list actual actions taken it means that quite a lot of other lower-level efforts will have been made first. Taken together this doesn't paint a very good picture of the industry.

Unfortunately the relevant laws are completely inadequate. Both the UK and USA revised similar areas of legislation over the last few years but all we got was a very lame Enquiry, and that was overseen by a Labor government, specifically by a drip called Shorten, so it actually achieved absolutely nothing. We need a thorough revision of the laws and regulations so ASIC has some more teeth.
ASIC's funding has been cut, so that does not bode well for future action.

On the positive side, they have asked the government to approve 'industry recovery funding'. I am supposing that this is similar to the ACCC model, which seems to have been effective.
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