ASIC warns brokers on high-risk products
The Australian Securities and Investments Commission (ASIC) has warned brokers to be careful about or reconsider offering high-risk products and services to retail investors.
The regulator has noted an increase in the number of brokers offering securities trading since the onset of the Covid pandemic. However, as retail investor activity has been dampened by recent market conditions, it said some brokers are seeking to broaden their revenue base by seeking to offer high-risk products or services that may be unfair, inappropriate or result in poor outcomes.
Such products and services include securities lending, crypto-assets and offers of ‘zero’ or ‘low-cost’ brokerage, where ASIC said the true cost is marked.
“We will intervene or take action where we see unfair or inappropriate offers of securities lending to retail clients,” said Danielle Press, commissioner at ASIC.
“Australian financial services licensees may be liable for substantial civil penalties if they do not do all things necessary to ensure the financial services covered by their licence are provided efficiently, honestly and fairly.”
The regulator noted that securities lending is typically a practice limited to institutional investors who have the size, scale and sophistication to understand and manage the risks. It added that its complexity may make it difficult for retail investors to understand.
With the growth in unregulated crypto-assets over recent years, ASIC said some brokers have, or are seeking to, offer these products alongside shares and other regulated financial products through their trading apps.
In a statement, ASIC said it is concerned this may give investors a “false sense of security”, leading them to believe crypto-assets have the same protections as regulated financial products or they may underestimate the risks.
“Crypto-assets are high-risk, volatile and complex,” said Press. “Brokers should think very carefully before offering crypto-assets through their share trading apps.
“The differences in risks and protections must be made clear to investors. We expect brokers to do the right thing by their clients.”
In terms of misleading or deceptive statements about brokerage, Press said: “We are concerned that ‘zero brokerage’ claims may not be true to label where the service is ‘bundled’ with other products or services that effectively subsidise brokerage and cause retail investors to take on additional risk.
“We strongly encourage retail investors to carefully consider what they are signing up for and make sure they understand the potential risks.”
Brokers that claim to offer zero or low-cost brokerage should carefully consider whether they may be in breach of the law, the statement from ASIC added.
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