ASIC has intervened to improve outcomes for a new wave of retail investors, disrupting potentially harmful offers of financial products and services by online trading providers.
During the COVID-19 pandemic, there was a significant increase in retail investor participation in financial markets, with one in five Australian investors starting to invest in exchange traded products (ASX Australian Investor Study 2023). In response to this growth, the range of online trading providers offering trading in regulated investment products expanded. Collectively, these online trading providers have over one million retail clients and hold billions of dollars in client money and assets.
In a report released today, ASIC highlighted its observations from its surveillance of online trading providers in 2022-23 and clarified its regulatory expectations. The report identifies a range of regulatory interventions ASIC has made, including court actions, stop orders and infringement notices, in relation to:
- high-risk offers;
- inadequate supervision of representatives;
- misleading or deceptive statements;
- use of digital engagement practices, such as gamification and influencer marketing; and
- holding client assets and money.
ASIC Commissioner Simone Constant said, ‘ASIC has taken multiple actions to protect retail investors from high risk offers and business practices that may be unfair, inappropriate or result in poor outcomes. Our more proactive approach to identifying and disrupting emerging risks and harms is in response to the rapid pace of change we have observed in recent years. Today’s report and our recent consumer warning campaign are reflective of this.
‘Licensed online trading providers are required to meet important licensee obligations as gatekeepers for offers of investment products and services to retail clients. Where we identify significant harm, we will continue to take strong regulatory action including, where appropriate, commencing court proceedings.’
The report follows ASIC’s warning to online trading providers last year against high-risk offerings to retail investors such as securities lending and provision of crypto-asset trading (22-239MR). This also included offers of ‘zero’ or ‘low-cost’ brokerage where the true cost is masked.
Online trading providers are encouraged to assess their own arrangements and consider how the observations and areas for improvement outlined in the report apply to their business.
ASIC’s regulatory actions in relation to the practices referred to in the report are ongoing, including some matters that are currently before the courts.
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Report 778 Review of online trading providers (REP 778)
Background
Online trading providers encompass a range of firms including emerging fintech companies who operate as an authorised representative of an Australian financial services (AFS) licensee, CFD issuers, large stockbrokers and other AFS licensees. Some of these emerging providers position themselves as low-cost alternatives to traditional brokers, offering low brokerage fees, streamlined trading apps and innovative products.
Research released by ASIC during the COVID-19 pandemic confirmed the prominence of digital and social channels as sources of information for retail investors, and the diversity in trading platforms they use (22-215MR).
In 2022-23, ASIC increased its supervision of online trading providers and took a proactive and risk-based approach to our supervision of this cohort. ASIC assessed the practices, business structures and product offerings of a range of online trading providers to assess potential risks, as well as testing their compliance with the financial services laws.
REP 778 follows ASIC’s recent consumer campaign to raise awareness of the risk associated with investment hype to coincide with the Australian release of Dumb Money, a new film about the GameStop short squeeze episode in 2021 (23-284MR). The campaign and cinema advertisement urged retail investors to carefully research online investment opportunities.