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14-342MR ASIC action restrains FX business and sole director from carrying on a financial services business
Foreign exchange (FX) business, Monarch FX Group Pty Ltd (Monarch FX) and its former director and general manager, Quinten Hunter, have been restrained from carrying on, either directly or indirectly, a financial services business for four years following action by ASIC.
Monarch FX and Mr Hunter have been removed from the financial services industry after the Federal Court in Victoria made a declaration that Monarch FX carried on a financial services business without holding an Australian Financial Services Licence (AFSL) or being authorised by an AFSL holder to provide certain financial services.
Monarch FX provided FX trading signals to consumers who purchased memberships with the company. The signals were automatically executed on members' trading accounts.
The Court found that Monarch FX was not licensed or authorised to:
- provide a service where it had the discretion and power to execute trades (such as entering into foreign exchange contracts) using a client's funds without obtaining instructions for each and every trade from the client (described as a Managed Discretionary Account (MDA) service); and
- make recommendations in relation to superannuation products. The Court accepted that Monarch FX recommended to members that they establish a self-managed superannuation fund (SMSF) to purchase its memberships, and then use money from their SMSF to trade in foreign exchange contracts.
Neither Monarch FX or Mr Hunter held an AFSL. While they were authorised representatives at various times of Audrn Financial Group Pty Ltd, Avestra Capital Pty Ltd and Forex TG Pty Ltd, all of which hold their own AFSL's, the Court accepted that they were acting beyond the scope of those authorisations by dealing in MDA services and making recommendations in relation to SMSFs.
ASIC's investigation found that many clients of Monarch FX set up their own SMSF and from the superannuation funds, deposited funds into trading accounts with FX brokers, Vantage FX Pty Ltd and AxiCorp Financial Services Pty Ltd. The deposits ranged from $5,000 to $40,000, but were typically $10,000. The court was told that losses to the SMSF clients averaged out at 40 to 50 per cent.
ASIC Commissioner Greg Tanzer said, 'ASIC continues to focus on the retail foreign exchange industry. We are concerned about the number of companies operating similar business models to Monarch FX which use trading software to automatically execute trades in foreign exchange contracts on clients' accounts without instructions for each transaction. In many instances, we believe the companies do not hold the appropriate licences or authorisations.
'FX trading can be extremely risky with the potential for large losses to be incurred. The margin contracts that are needed to be entered into to generate a small profit require significant leverage. For example, one contract, after leverage, of $5 million may only generate a profit or loss of $525.
'Given the complexity of foreign exchange trading, consumers should understand the risks before investing, and particularly, before establishing a self-managed superannuation fund in order to trade in foreign exchange', Mr Tanzer said.
ASIC's action continues its focus on retail over-the-counter (OTC) derivative providers, including foreign exchange contracts. Over the past two years, ASIC has seen an increase in the number of entities applying for an AFS licence authorising the entity to operate a retail OTC derivative business, particularly in the area of retail margin foreign exchange services.
ASIC has recently taken the following action in relation to retail margin FX licensees:
- shutting down Vault Market Pty Ltd and removing its sole director, Mr MD Anamul Amin, from the financial services industry (refer: 14-309MR)
- Pepperstone has agreed to cease providing financial services in Japan following inquiries by ASIC that revealed they were not licensed by the Japanese Financial Services Agency (refer: 14-267MR)
- commencing proceedings in the Federal Court of Australia to stop Monarch FX, and its former director and general manager, Quinten Hunter, from carrying on a financial services business (refer: 14-266MR)
- cancelling the Australian financial services (AFS) licence of online FX broker Global Derivative Services Pty Ltd, after an investigation found it failed to comply with a number of its AFS licence obligations (refer: 14-226MR)
- accepting an enforceable undertaking from online FX broker Forex Financial Services Pty Ltd prohibiting it from operating managed discretionary accounts (refer: 14-036MR)
ASIC has also issued an alert cautioning Australian investors against dealing with the company or group YoutradeFX for trading in margin FX (refer: 14-036MR) and issued a more general warning to retail investors about the dangers of FX trading (refer: 13-283MR).
Monarch FX was an authorised representative of Forex TG Pty Ltd (ACN 113 616 032)(AFSL 290108), and was previously an authorised representative of Avestra Capital Pty Ltd (ACN 114 266 698)(AFSL 292464) and Audrn Capital Pty Ltd (ACN 138 918 288)(AFSL 411323).
Quinten Hunter also goes by the names of James Sonny Quinten Hunter and Quinten Hann.
The Federal Court handed down its decision on Wednesday, 17 December 2014.