Online brokers lure investors, flout rules: Says dumb ASIC

Sydney Morning Herald June 20, 2016 - 6:54PM

Georgia Wilkins


Australian consumers are being lured into high-risk financial products by online brokers that are flouting the country's financial licensing rules. 

A report by the Australian Securities and Investments Commission revealed "serious and widespread" compliance failures in the over-the-counter derivatives industry, including foreign exchange trading. 

More than 70 per cent of the 55 companies probed by ASIC – all holding Australian financial services licences – were found to be in breach of licensing requirements. 

The breaches included misleading consumers, mishandling client money and obscuring changes in ownership – sometimes through the use of "managers for hire".

"This report highlights some serious compliance failures in this industry," ASIC Commissioner Cathie Armour said. 

"Many of these investment products may not be appropriate for average investors, who are often caught out by the complexity and may not understand the heightened risk profile."

ASIC has been monitoring the industry for several years and taken action against several traders including FX Primus, AGM Markets and Australian Capital Markets Advisory Services. 

It said companies were increasingly targeting retail investors through the use of aggressive marketing tactics such as cold calling and unsolicited emails.

Retail investors were more exposed to the industry due to the prevalence of online trading platforms and smartphone aps, it warned. 

ASIC said it was concerned that companies were mishandling client money by depositing it into an non-trust account to enable it to accrue interest. 

It was also concerned that foreign-owned companies were flouting their obligations in Australia by buying existing licences to avoid being "vetted" by the regulator. 

"Of particular concern are new owners that have failed to demonstrate to ASIC that they have adequate business and operational arrangements as part of a previous unsuccessful AFS licence application," it said. 

ASIC also noted the use of "managers for hire" who appeared on a number of licences but "seem to have little operational responsibility or understanding of the respective businesses or Australian regulatory obligations".