ASIC still very intent on cleaning up the retail FX market

Interesting seminar in Sydney last night on the Global Code of Conduct for the FX market. Guy Debelle from the RBA has worked on this from the beginning and he outlined the progress to date and the plans for the future. The challenges remain the same; last-look, anonymous trading, pre-hedging etc.

Cathie Armour from ASIC was the keynote speaker and she spent a lot of time outlining what she sees as ASIC’s role in the retail FX space. There are over 60 licensed providers of derivative products in Australia and over 80% of these clients come from overseas, mainly China. Some of the main points that I garnered from her interesting speech were:

  • If an activity is illegal in an overseas jurisdiction, then a licensed Australian entity is obliged to obey and respect these overseas laws.
  • Using leverage levels ranging from 100:1 to 400:1 is not a practical investment strategy.
  • ASIC does not want its licenses to be seen as a guarantee or confirmation that a particular product line is safe and reasonable.
  • The levels of complaints in the retail FX space are extraordinarily high and she stressed heavily that many of these complaints are ‘heartbreaking’ in nature.

Ms Armour was asked if ASIC planned to follow overseas leads by restricting leverage to lower levels such as the maximum 25:1 now legislated by the FCA in the UK. She did not directly answer this question but she said that all options are on the table.

Just last week we heard secondhand that a major legal firm here in Australia issued an opinion to some of the biggest derivatives brokers which at its core opined that ASIC licensees are not in breach of their license so long as they are not actively using that license to source and attract overseas clients. From what I heard last night, I don’t think ASIC will be in agreement with this particular opinion.