In 2020, a major investigation by The Age and The Sydney Morning Herald detailed how a gang of international criminals had wreaked havoc in Australia between 2010 and 2019 by taking advantage of the weakness in Australian laws.
Australia’s new rules reduce the maximum leverage allowable on certain types of CFDs to 30 times.
The new rules will also ban operators from offering sign-up or ongoing inducements like iPads or bonus ‘trades’ (sometimes valued at more than $10,000) to lure in customers.
But the work is not yet finished. Liquidators like Krecji and Cummins are still cleaning up the mess created by Australia’s loose laws. They were appointed as liquidators to USG on request by ASIC which has separately taken civil action against the entities involved. It’s one of several actions ASIC has taken since 2015 to stamp out bad actors in the sector.
Erin Turner, campaign manager at consumer advocacy group CHOICE, says it’s likely some operators will move into new, lightly regulated products and sectors.
“We’re probably going to see some companies pivot to cryptocurrency and ICOs (initial coin offerings), or even just to a straight investment scam,” Turner says.
“If these companies exist only to rip people off – and that is the current state of some of these companies, that’s what this is designed to do – it’s not too far a step to assume that they will extend that if they’re prevented from working in contracts for difference and binary options.”
Turner says ASIC will be hampered in shutting down some of these schemes because the way the laws have been drafted force ASIC to consult with the relevant industry players before it can ban or restrict the sale of products.
“This is the way we’ve designed the product intervention power and the way it’s been implemented. It is tying the regulator up in red tape on issues that are causing deep harm to Australian investors. The regulator isn’t allowed to move as quickly as it should be able to as other regulators are able to.”
A large number of operators have all either pushed or supported the new restrictions, believing that removing rogue operators from the sector will improve the market overall.
Calls and emails to the Australian CFD and FX Association, which wrote a major two-part submission to ASIC’s review on the products backing restrictions on some products, went unanswered this week.
Australian Financial Markets Association has also supported the restrictions in its eight-page submission to ASIC’s industry consultation process.
David Lynch, AFMA’s chief executive, says AFMA no longer has many members that sell CFDs, but still welcomed the restrictions.
“We agree with ASIC’s objectives in relation to CFD regulation,” he says.
“These intervention orders are not a surprise; they’re very similar to what they’ve got in Europe, the UK and elsewhere.”
Lynch says it is important for operators to have consistency in the laws regarding leverage limits with other key jurisdictions like the United Kingdom and Europe.
“They’re working to a set of standards that have been effective in ensuring the market operates in the right way.”
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Sarah Danckert is a business reporter who specialises in investigations and corporate wrongdoing. She is a two-time Walkley Award winner, and has won four Quill Awards and two Kennedy Awards.