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15-108MR ASIC cancels FX company’s licence
Following an investigation, ASIC has cancelled the Australian financial services (AFS) licence of FX provider Rainbow Legend Group Pty Ltd (Rainbow Legend) for failing to comply with its obligations, including making false and misleading statements.
The move is part of ASIC’s ongoing crackdown on the margin FX industry and work around retail investment in foreign exchange which has resulted in a number of outcomes recently. There are several more investigations on foot.
ASIC’s investigation found the company falsely promoted on a number of websites an insurance compensation scheme for clients of up to $2.5 million. The scheme does not exist in Australia, and would not apply to clients based in Australia or to services covered under Rainbow Legend’s licence.
The use of ASIC’s logo on the websites could have led clients to wrongly believe the company was in some way endorsed or approved by ASIC.
The company had also not complied with a number of its reporting obligations, including failing to lodge financial statements for the years ended 30 June 2013 and 30 June 2014, and an auditor’s report for two financial years.
ASIC Commissioner Greg Tanzer said, ‘In a global market it is necessary to recognise that an AFS licence only covers financial services offered in Australia.
‘It is also vital an entity holding a AFS licence complies with their reporting requirements to ensure users of financial reports, such as creditors and investors, have the proper information to make informed decisions.’
Rainbow Legend promotes itself as a global Forex and CFD brokerage company specialising in derivative trading. It operates the following websites:
The cancellation of its licence took effect on 30 April 2015.
Outcomes in the FX space
Product distribution and financial market innovation and complexity, which includes the retail margin foreign exchange market, has been identified as a focus area for ASIC. Recent outcomes include:
- following an investigation, Advanced Markets agreeing to change potential misleading statements on its website (refer: 15-085MR)
- following an investigation, suspending the AFS licence of FX provider AGM Markets Pty Ltd (AGM) (refer: 15-075MR)
- warning investors not to deal with Grandegoldens (refer: 15-066MR). It is not licensed to trade in margin FX in Australia.
- cancelling Enfinium’s AFS licence because, among other things, concerns around inadequate risk management systems (refer: 15-026MR)
- following a surveillance, Calibre Investment changed the way it offers FX services to retail clients (refer: 14-327MR)
- restraining Monarch FX and its former director and general manager, Quinten Hunter, from carrying on a financial services business (refer: 14-342MR)
- shutting down Vault Market and removing its sole director, Mr MD Anamul Amin, from the financial services industry (refer: 14-309MR)
- warning investors not to deal with YoutradeFX (refer: 14-306MR). It is not licensed to trade in margin FX in Australia
- Pepperstone agreeing to stop providing financial services in Japan following inquiries by ASIC that revealed they were not licensed by the Japanese Financial Services Agency (refer: 14-267MR)
- cancelling the AFS licence of online FX broker Global Derivative Services after an investigation found it failed to comply with a number of its licence obligations (refer: 14-226MR)
- accepting an enforceable undertaking from online FX broker Forex Financial Services prohibiting it from operating managed discretionary accounts (refer: 14-036MR)
- banning Robert Lloyd Wilson from providing financial services and warning the public against dealing with him for his promotion of a program that showed ‘when to get in and when to get out’ of trades. These trades included, among other things, FX trades (refer: 13-282MR).
ASIC has also issued a more general warning to retail investors about the dangers of FX trading (refer: 13-283MR).
Editor's note 1:
Rainbow Legend made an application to the Administrative Appeals Tribunal (AAT) for a review of ASIC's decision. On 31 August 2016 the AAT handed down its decision and made the following order:
(a) the applicant’s Australian Financial Services Licence is suspended pursuant to s 915C of the Act for a period of nine months from the date of this decision;
(b) ASIC may lift the suspension before the nine month period has elapsed if the applicant is able to establish to ASIC’s reasonable satisfaction that:
(i) the applicant has engaged a compliance officer, based in Australia, with sufficient experience and skill to ensure the applicant’s activities are conducted in accordance with its obligations under s 912A of the Act; and
(ii) the applicant complies with, or is capable within a reasonable time of complying with, ASIC Class Order [CO 12/752]; and
(c) if the applicant fails within nine months to establish to ASIC’s reasonable satisfaction the matters in subparagraphs (b)(i) and (ii), the applicant’s licence shall be cancelled.