ASIC has commenced civil penalty proceedings in the Federal Court against Union Standard International Group Pty Ltd (Union Standard) (in liquidation) (trading as usgfx) and its former corporate authorised representatives, Maxi EFX Global AU Pty Ltd (trading as EuropeFX) and BrightAU Capital Pty Ltd (trading as TradeFred) (in liquidation).
ASIC alleges Union Standard provided financial services including trading in margin FX products to clients in China in circumstances where it was illegal for Chinese residents to deal or trade in those foreign exchange contracts. ASIC alleges Union Standard’s conduct placed its China-based clients at risk of contravening Chinese law, and thereby exposed them to potential administrative and criminal penalties under Chinese law.
ASIC alleges that Union Standard failed to comply with its obligation to do all things necessary to ensure that the financial services covered by its licence were provided efficiently, honestly and fairly (s912A(1)(a) of the Corporations Act).
ASIC also alleges that each of EuropeFX and TradeFred:
- provided personal advice to clients when not licensed to do so;
- made false or misleading representations to clients including about the level of risk to which clients’ funds were exposed and the profits which clients could expect to generate; and
- engaged in unconscionable conduct, including by:
- using high-pressure sales tactics to encourage clients to deposit more money, open more positions or discourage clients from withdrawing funds;
- facilitating trading by clients who were at a disadvantage, for example, by virtue of the client’s trading inexperience, low level of income and lack of understanding of the complex products issued by Union Standard; and
- failing to adequately explain or disclose to clients the risks involved in investing in its financial products.
ASIC also alleges Union Standard:
- as the Australian financial services licensee, is liable for the above conduct of its corporate authorised representatives by operation of the general responsibility provisions of the Corporations Act and ASIC Act; and
- made false or misleading representations to potential clients.
ASIC is seeking a range of relief including declarations of contraventions and pecuniary penalties.
A case management hearing is set for 8 March 2021.
Prohibition on retail OTC products by overseas regulators
Regulators in many jurisdictions have restricted or prohibited the provision to retail investors of certain OTC derivatives, such as binary options, margin foreign exchange and other contracts for difference (CFDs).
In April 2019, ASIC put AFS licensees on notice that in addition to overseas consequences of potential breaches of overseas law, ASIC will consider whether breaching overseas law is consistent with obligations under Australian law to provide services ‘efficiently, honestly and fairly’ (19-088MR).
Product Intervention Order
ASIC has made a product intervention order imposing conditions on the issue and distribution of contracts for difference (CFDs) to retail clients.
ASIC’s order strengthens consumer protections by reducing CFD leverage available to retail clients and by targeting CFD product features and sales practices that amplify retail clients’ CFD losses. It also brings Australian practice into line with protections in force in comparable markets elsewhere (20-254MR).
Union Standard Background
Union Standard was a Sydney-based retail over-the-counter (OTC) derivatives issuer offering clients opportunities to trade in margin foreign exchange contracts and contracts-for-difference (CFDs). Union Standard and its former corporate authorised representatives, EuropeFX and TradeFred operated under Union Standard’s Australian financial services (AFS) licence 302792.
In December 2019, ASIC obtained asset restraint orders in the Federal Court against EuropeFX and TradeFred to protect customers’ funds while an investigation was underway. Union Standard gave an undertaking to the Court to keep specified monetary amounts in a separate bank account (19-373MR). On 8 July 2020, Union Standard entered into voluntary administration; liquidators were appointed on 3 September 2020. On 10 March 2020, TradeFred went into liquidation.
In July 2020, ASIC suspended the AFS licence of Union Standard and in September 2020, ASIC cancelled its AFS licence (20-216MR).