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Abstract:ASIC cancels XTrade.AU's AFS license after findings of client exploitation and regulatory breaches, leaving the company under review by AAT.
The Australian Securities and Investments Commission (ASIC) has canceled the Australian financial services (AFS) license of retail over-the-counter (OTC) derivatives issuer XTrade.AU Pty Ltd (XTrade) in a major regulatory move. The choice was made after an examination that turned up many cases of misbehavior, especially involving vulnerable individuals.
XTrade was found to have participated in a number of unethical activities during ASIC's June 2018–September 2022 examination. Some customers suffered significant losses as a result of the key findings, which included encouraging novice clients to trade in foreign exchange contracts (FX contracts) and contracts for difference (CFDs) despite their limited trading expertise and financial ability.
According to the regulating agency, XTrade has a history of unethical behavior by failing to fulfill its basic responsibilities as an AFS licensee. More precisely, XTrade did not do enough to guarantee that its agents followed the rules governing financial services. The business neglected to guarantee that the distribution of its retail products matched its target market determination and lacked appropriate procedures to handle conflicts of interest.
Furthermore, ASIC emphasized that XTrade did not behave in good faith and placed its own interests ahead of those of its customers, which was below the requirements of an AFS licensee. The study also found that XTrade had not given its agents enough training or taken any steps to stop them from misbehaving over a number of years.
ASIC's ruling was reviewed, and a stay was sought by XTrade with the Administrative Appeals Tribunal (AAT) on April 29, 2024. However the AAT rejected XTrade's stay motion at an interlocutory hearing on May 31, 2024; therefore, the AFS license is still revoked until the AAT decides on the substantive review case.
As a member of the global XTrade Group, XTrade has been licensed under AFS number 343628 since April 12, 2010. Leveraged derivative contracts, known as CFDs, the main product of the firm, let customers bet on changes in the value of underlying assets such as stock market indexes, specific stocks, commodities, and cryptocurrency assets.
The action by ASIC against XTrade is a component of a larger investigation into wrongdoing in the retail OTC derivatives industry. This involves taking legal action to shield customers from high-risk derivative products and collecting substantial fines from other companies. ASIC, for instance, obtained penalties of $75 million against AGM Markets and its authorized agents and $20 million against Forex Capital Trading Pty Limited.
Apart from the disciplinary procedures, ASIC has concentrated on regulatory initiatives meant to safeguard consumers. These include the CFD product intervention order (PIO) being implemented and extended to place limitations on CFDs given to retail consumers. This injunction, which was in force starting on March 29, 2021, has been extended until May 23, 2027, therefore lowering the possibility of serious injury to retail clientele.
ASIC's monitoring has also made it possible to pay out over $17.4 million in total compensation to more than 2,000 retail customers who were the victims of violations of financial services legislation by a number of retail OTC derivatives issuers. ASIC's September 6, 2023, Report 770 also highlights areas for improvement and summarizes the main findings on how issuers of retail OTC derivatives are fulfilling their design and distribution responsibilities.
Financial product issuers and distributors have responsibilities for design and distribution that call on them to make sure that products are made with the requirements of consumers in mind and delivered strategically. Furthermore, issuers have to keep an eye on results and periodically review their product governance structures.
ASIC's swift action against XTrade emphasizes the need to follow legal requirements and the consequences of neglecting to safeguard vulnerable customers in the financial services industry. While the AAT's review process is ongoing, consumers and industry stakeholders will be keenly watching the result.
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The views in this article only represent the author's personal views, and do not constitute investment advice on this platform. This platform does not guarantee the accuracy, completeness and timeliness of the information in the article, and will not be liable for any loss caused by the use of or reliance on the information in the article.
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