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Tuesday 25 February 2014

14-036MR ASIC accepts enforceable undertaking from online FX broker operating managed discretionary accounts

ASIC has accepted an enforceable undertaking from online foreign exchange broker Forex Financial Services Pty Ltd (Forex FS).

ASIC’s investigation found that between March 2010 and October 2011, Forex FS offered an account known as an individually managed account (IMA) which was a managed discretionary account (MDA).

Forex FS’s Australian financial services (AFS) licence prohibits it from offering a MDA service to retail clients except through a registered managed investment scheme. ASIC’s investigation found the IMAs, which were opened by 34 clients and had funds totalling more than $2.6 million, were not operated in this way.

ASIC was concerned that Forex FS had received advice which resulted in it incorrectly classifying its IMA clients as wholesale clients as opposed to retail clients.

Commissioner Greg Tanzer said, ‘An MDA service allows a broker to enter and exit trades on behalf of a client without seeking the client’s approval. Consumers can face significant loss if the service is not provided appropriately.’

ASIC was also concerned that Forex FS made representations on its website and during presentations to potential clients that were misleading or deceptive. In particular, Forex FS made representations as to target returns in excess of 30% per annum for certain products based on the past performance of those products, including the IMAs.

‘Consumers place a heavy reliance on representations as to returns when selecting investments, especially where the represented returns are significantly greater than the norm.

‘Companies must ensure they do not mislead people by implying that past returns are likely to be repeated in the future’, Mr Tanzer said.

The enforceable undertaking requires Forex FS to:

  • engage an independent compliance expert to conduct an assessment of the products and services offered by Forex FS

  • take appropriate remedial action as necessary following the independent compliance experts assessment

  • not offer MDA services to retail clients for a period of 10 years, and

  • ensure the directors of Forex FS engage in continuing professional education within the next 12 months.

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ASIC has issued Regulatory Guide 179 Managed Discretionary Account Services (RG 179) and several class orders setting out how MDA services for retail clients must be operated.