On June 5 this year, Forex Capital Trading Pty Ltd (Forex CT), a foreign exchange broker, ignored the main obligations of the licensee and engaged in unreasonable conduct in the provision of financial services business, such as misleading and fraud, and failed to resolve customer complaints. In light of this, the Australian Securities and Investments Commission (ASIC) has decided to revoke its licence.
Forex CT provides Contract for Difference (CFD) and foreign exchange margin trading services to its clients and is headquartered in Melbourne with AFS license number 306400.
ASIC found that Forex CT lacked sound ethical values and judgment in its communications with clients, failed to ensure that its representatives were adequately trained and complied with financial services regulations, and failed to ensure that licensed financial services were provided efficiently, honestly and fairly.
The investigation found that many of Forex CT's clients had lost hundreds of thousands of dollars investing in retail Forex and CFD products, including some pension funds.
Forex CT's customers suffer
CFDS and foreign exchange margin instruments are over-the-counter derivatives and are classified as high-risk by ASIC, with clients making speculative trades based on changes in the value of the underlying asset. ASIC's investigation found that many customers had lost hundreds of thousands of dollars investing in these products, some of them in superannuation accounts.
ASIC Commissioner Cathie Armor said: "ASIC will continue to monitor the conduct of licensees and assess whether these operating models are harming traders."
To protect client funds, ASIC obtained an interim injunction from the Federal Court on 12 March 2019 against retail ForexCT and froze the bank accounts of ForexCT and its principals, with an extension of the injunction announced in June 2019. To prevent the principal of the company from transferring all company assets, including client funds, from Australia.
Forex CT's AFS licence will remain valid until 31 July 2020 to allow time for any disputes to be resolved, in line with the Australian Financial Complaints Authority's dispute resolution mechanism. During this period, Forex CT will close existing client positions in an orderly manner and will not open new client positions.
The number of complaints from these Forex brokers was high, and Forex CT's license was revoked
ASIC banned former Forex CT employee Steven Marsh from providing financial services for the next three years after his licence was revoked. The reason why ASIC imposed the ban on Steven Marsh mainly lies in the improper conduct, misleading and fraudulent conduct in his contact with clients when he was an account manager, as well as the effectiveness of the management of conflicts of interest.
The ASIC investigation found that Steven Marsh was responsible for trading CFDS and margin forex contracts with clients in his capacity as a relationship manager between February 19, 2018 and March 20, 2019. The following misconduct was found:
1. failing to comply with financial services regulations, not receiving adequate training or not having the ability to provide financial services;
2. making misleading statements to clients, such as claiming that they were able to trade profitably on the Forex CT platform, despite the fact that CFD products were speculative and classified as high-risk investments;
3. He told the client that increasing the deposit would reduce the risk of trading losses, but in fact, the deposit would expose the client to more capital losses.
Marsh was found to have engaged in unethical conduct, including pressuring sales tactics and engaging in unfair practices that encouraged customers to deposit funds or delay/cancel customer withdrawal requests.
Complaints from brokers are high
The Australian OTC retail foreign exchange derivatives market has grown significantly in recent years, and the number of related complaints received by ASIC has also increased significantly.
According to data from the Australian Financial Complaints Authority (AFCA), KP International Group Australia was the top company on the complaint list between July and December 31, 2019. The company, which is an operator of managed discretionary accounts, had 245 complaints and 0 resolutions during the above-mentioned statistical period.
In second place was Forex Financial Services Pty Ltd, with 162 complaints and zero resolutions, although the complaints against the company appear to be slightly more complex. AFCA had previously warned the forex trader about the number of complaints it had received, but the firm responded that a clone company had fraudulently copied the company's name and Australian licence information while collecting customer funds through an online trading site.
In addition, complaints were also made against CMC Markets Stockbroking LIMITED, Plus500au Pty Ltd and IG Markets Limited, with 23,22 and 19 complaints received, respectively.
Of course, ACY Securities had 11 complaints, Pepperstone Group had 10, and Forex CT had 10.
Last month, ASIC's Retail Investor Trading Report on COVID-19 Market Volatility revealed a significant increase in CFD trading activity amid high market volatility during the pandemic period.
Due to the high leverage of CFDS and forex margin trading, investment risks and market volatility sensitivity are easily magnified, and ASIC cautions that retail customers should be particularly cautious when investing in leveraged products during this period.
