What Message Is ASIC' s Latest Announcement Sending?

Australian Securities and Investment Commission(ASIC) made an announcement on April 11th, 2019, expressing continuous concerns about retail Forex and CFD(Contract For Difference) brokers under its regulation. Meanwhile, it stated that some AFS licensees may have violated China and the European Union' s legislation when offering OTC derivatives to retail investors.

ASIC posted the following announcement on their website:

Here, WikiFX will interpret for you what message ASIC aims to send through this announcement.

The announcement, above all, underlines the following facts:

1. All illegal practices in oversea jurisdictions will be held accountable;

2. ASIC will also consider whether the AFS licensees violate Australian legislation in their illicit conducts overseas, as well as whether they provide customers with misleading or deceptive statements about their licenses.

3. ASIC quoted China' s specific legal provision that “Any unauthorized institution that conducts Forex margin trading without approval [in China] shall be deemed to be in violation of the law. It is also illegal for any client (entity or individual) to entrust an unauthorized institution to conduct Forex margin trading.”

4. As no institution has been authorized to conduct Forex margin trading in China so far, any AFS licensee that offers Forex margin trading service to retail investors in China could be breaching the law.

5. ASIC is also considering new measures of the European Union, besides the ones of China. Some companies targeting EU customers are already trying to avoid the product intervention measures on Forex and CFD products, taken by the European Securities and Markets Authority (ESMA).

6. ASIC Commissioner Armour pointed out that “AFS licensees who break the law in oversea jurisdictions, or who mislead retail investors about their services undermine the integrity of the Australian licensing regime. ASIC will not tolerate such practices”.

So does the statement suggest all AFS licensees will have to terminate their current businesses in China？

We think the answer is: not necessarily.

First of all, it' s clear that the intention of ASIC' s statement is to crack down non- compliant brokers under its regulation. In other words, although some brokers operating in China hold AFS license, actually they doesn' t keep user' s deposit in the segregated account per regulation.

As ASIC' s main targets of attack, they violated its interest and principle. Therefore, according to the statement, AFS licensees should put user' s money in regulated account, which, to some degree, makes investor' s capital safer.

Secondly, the feasibility of statement is uncertain, per which AFS licensees are not allow to offer financial services to institutions or individuals that don' t pay tax in Australia.

Dose it mean that brokers under ASIC' s regulation have to give up their international business, which makes it impossible to carry out the statement due to perceivable objection from brokers.

It' s also worth noting that ASIC just released a statement about AFS licensees in oversea jurisdictions without any detailed implementation plan. Generally, the plan comes out as early as July. If doesn' t, there will be no plan later, and the statement cannot be carried out.

In addition, AFS licensees in overseas jurisdictions will probably violate regulation if they set up offices or offer account service for users locally. But their activities like oversea marketing, education and training remain legal.

In conclusion, ASIC emphasized in the announcement that AFS licensees should comply with local legislation when conducting their businesses overseas, which will not affect their current business structure.