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18-315MR ASIC cancels AFS licence of retail OTC derivative issuer Direct FX Trading Pty Ltd* for serious compliance failures
ASIC has cancelled the Australian financial services (AFS) licence of Direct FX Trading Pty Ltd (AFS licence 305539) (Direct FX) following serious and continued compliance failures.
Direct FX’s AFS licence was cancelled after ASIC found that Direct FX:
- failed to comply with client money reporting rules requiring the company to provide to ASIC daily and monthly reconciliations of client money held by Direct FX;
- continued to carry on a financial services business while suspended (refer: 18-126MR) by continuing to allow clients to enter into trades;
- failed to comply with its Net Tangible Asset (NTA) requirements provided in Class Order 12/752, including not having sufficient cash and cash equivalents to comply with its obligations. Specifically, Direct FX continued to enter into transactions when its NTA was less than 75% of the required NTA of $1 million in breach of its obligations;
- did not maintain the competence required to provide the financial services covered by its AFS licence by failing to replace key persons named on its licence;
- did not fully understand its obligations as an AFS licensee and cannot be relied upon to discharge the duties and obligations imposed by the financial services laws on a licensed provider of financial services;
- resources were not sufficient to enable Direct FX to provide financial services efficiency, honestly and fairly given the possible magnitude of its financial services business and the risks associated with the trading of derivatives; and
- failed to comply with an ASIC s912C(3) Direction to give ASIC an audit report about Direct FX’s compliance with various financial licence conditions.
ASIC Commissioner Cathie Armour said, ‘Direct FX was in breach of multiple conditions of its AFS licence, which are aimed at protecting investors from the higher operational and credit risks posed by the retail OTC derivative sector. Direct FX ignored key conditions of the notice of suspension by continuing to open new trading positions and failed to comply with its client money reporting obligations whilst suspended. The ongoing and demonstrated disregard for meeting their obligations has resulted in ASIC acting to remove the company from the industry’.
ASIC notes the cancellation will affect the financial services provided by Direct FX’s authorised representative, Core Liquidity Markets Pty Ltd, to the extent that they are provided under authorisations granted under Direct FX's licence.
To minimise the impact of the cancellation on its past and current clients, Direct FX will be required to maintain its membership of an external dispute resolution scheme and adequate professional indemnity Insurance until 30 April 2019.
ASIC notes that Direct FX was placed into external administration and a liquidator appointed, by the Supreme Court of NSW on the 11 October 2018, after the cancellation of the AFSL which was effective on 8 October 2018.
Direct FX has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC's decision.
On 17 April 2018 ASIC suspended the AFS licence of Direct FX for a period of up to six months, expiring 17 October 2018. Direct FX’s AFS licence was suspended because ASIC found that Direct FX hads contravened, and was likely to contravene, both financial and non-financial obligations as set out in s912A.
This work continues ASIC's focus on the retail OTC derivative sector, including margin FX, CFDs and binary options.
* ASIC’s action relates to the Australian-registered AFS licence holder Direct FX Trading Pty Ltd (AFSL 305539) and not a New-Zealand registered entity, Direct FX Ltd, which also holds an AFS licence in Australia (AFSL 291471).