ASIC calls on OTC derivatives sector to improve practices
The Australian Securities and Investments Commission (ASIC) has called on participants in the retail over-the-counter (OTC) derivatives sector to improve their practices after identifying a number of risks associated with these products.
ASIC said its review found that client losses in retail OTC derivatives trades were high, with the percentage of unprofitable traders up to 80 per cent for binary options, 72 per cent for contracts for difference (CFD) traders and 63 per cent for margin FX traders.
Following this, the most concerning practices of the sector included:
- Actual client profits being inconsistent with marketing materials,
- A lack of transparency around pricing,
- Risk management practices that relied on the use of client money were outdated and needed to be reviewed,
- Some referral arrangement that may be in breach of conflicted remuneration requirements and referral selling prohibitions,
- Some issuers that were providing wholesale services or allowing third parties to “white label” their products did not have adequate risk management practices and operational capital to supervise counterparties and support their exposures.
According to ASIC commissioner, Cathie Armour, the retail OTC derivatives sector in Australia was a growing market, with an annual turnover of $11 trillion and attracting over 450,000 investors.
“The integrity of the retail OTC derivatives sector is a key focus for ASIC,” she said.
“ASIC expects licensed issuers to conduct themselves appropriately and ensure consumers trade in retail OTC derivatives with a clear understanding of the products and the risks to which they’re exposed.
“We will be working with issuers to raise industry standards and improve compliance with their Australia financial services licence obligations.”
The products offered by this sector in Australia include binary options, margin foreign exchanges and contracts for difference, the regulator said.
Recommended for you
Sharing his reasoning in joining the FSC board, WT Financial chief executive, Keith Cullen, believes “product and advice cannot be separated” from each other in the current environment.
The Emerge Foundation, a charity run by financial advisers and fund managers, has announced a scholarship program to help veterans transition into tertiary education.
In an open letter, Sequoia chief executive Garry Crole has hit out against shareholders “with a personal axe to grind” as he fights for his job ahead of an EGM.
The JAWG has announced it is in talks with Treasury around five “core principles” to strengthen the education standards for new entrants to the financial advice space.
