Australia has elevated itself to an enviable position as one of the most prominent and respected regions from which to operate a retail FX brokerage due to its position as a gateway to both Australian and Asian financial markets.
Indeed, such is the integrity of the nation’s business ethic, strength of its financial markets economy and reputation for good regulatory practice that many firms consider these important matters to be of great value, alongside its proximity and trade relationships with the all-important Asia Pacific region.
When considering these factors, the draw of Australia for many retail firms has been substantial over recent years, and the national regulatory authority, the Australian Securities and Investments Commission (ASIC) has been somewhat inundated with applications for ASIC’s AFS licenses.
LeapRate has learned today that ASIC has begun to dim its enthusiasm for issuing AFS licenses to retail online FX firms, with a number of applicants having experienced long delays in obtaining licenses already in process, with one company, wishing to remain anonymous, having explained to LeapRate that licenses are being issued without delay to companies in other business sectors, but not to retail FX firms.
Today, ASIC made subtle reference to its viewpoint concerning retail FX, having stated in a report which it issued relating to one specific FX firm having its license cancelled by the regulator, that “ASIC’s action in cancelling the AFS licence of GDS (Global Derivative Service) continues its focus on retail over-the-counter (OTC) derivative providers, including margin foreign exchange. Over the past two years, ASIC has seen an increase in the number of entities applying for an AFS licence authorizing the entity to operate a retail OTC derivative business, particularly in the area of retail margin foreign exchange services.”
ASIC’s highly diplomatic phraseology in this statement concurs with that explained to the aforementioned FX firm which explained to LeapRate that the regulator had cited inundation with applications as being a reason for the delay.
Whether this is the case, or whether Australian authorities are becoming averse to permitting large numbers of FX firms to establish themselves on Australian soil is perhaps a moot point.
Further alluding to the subtle and very passive disdain which ASIC may be taking toward FX firms is that the regulator issued a public warning recently which categorically explained what ASIC considers to be the perils of FX trading.
The regulator asserted in October last year that “FX trading, which is becoming more accessible via electronic trading platforms, is when you buy and sell foreign currencies to try to make a profit. It involves speculating on the value of one currency compared to another.”
“It is normally conducted through ‘margin trading’, where a small collateral (property or asset) deposit worth a percentage of a total trade’s value, is required to trade.”
“FX trading raises the stakes further by letting investors trade with borrowed money (leverage), but they are responsible for all losses, which may exceed their initial investment.”
“Forex trading is complex and risky. Even the most skilled and experienced forex traders have difficulty predicting movements in currencies. Trading in international currencies requires a huge amount of knowledge, research and monitoring. Like any investment, it is vitally important investors fully understand what they are getting into, and FX trading is no different. Unless you fully understand what investment you are making and the risks involved with that investment, don’t do it.” ASIC Commissioner Greg Tanzer concluded at the time.
LeapRate’s sources have further explained that ASIC openly admitted that there was a backlog in processing applications for online FX brokers only, and that other firms which require ASIC regulation for participation in other aspects of the financial services industry are being processed without delay.
Advocate and Notary Tal Itzhak Ron of Tal Ron, Drihem and Co. Law Firm, which represents several brokers who successfully obtained their ASIC licenses, confirmed the recent drop in application approval rates for ASIC licenses for online retail FX brokers.
Advocate Ron mentions this situation is prevalent in New Zealand as well, where there recently was a massive deregistration of existing brokers. Advocate Ron noted that this situation has led to an increase in applications for competing licenses in jurisdictions such as Cyprus and Malta, where the firm has seen applications approved in recent months with no significant backlog.
LeapRate intends to conduct further research into this matter and will update as necessary.