ASIC boasts of successful disruption activities targeting high-risk traders

The Australian Securities and Investment Commission (ASIC) has outlined its various actions taken post-Covid to disrupt potentially harmful offers of financial products and services by online trading providers deemed “unfair, inappropriate or [resulting] in poor outcomes” for retail investors.

The corporate and financial services regulator highlighted its numerous activities to protect investors over the 2022-23 period, including various court actions, stop orders and infringement notices issued to online traders.

ASIC commissioner Simone Constant hailed the watchdog’s more “proactive approach to identifying and disrupting emerging risks and harms”, seeking to match, she added, the “rapid pace of change we have observed in recent years”.

Citing Australian Securities Exchange (ASX) data, ASIC recorded a significant uptick in retail investor participation in financial markets during the Covid-19 pandemic, with one in five Australian investors starting to invest in exchange traded products.

However, this rapid growth of retail securities trading – with average daily turnover peaking at $3.5 billion (or 20.15% of total turnover) in February 2021 – reportedly declined by more than half by September 2023, sinking to $1.6 billion (or 11.61% of total turnover).

ASIC argued that, to make up the rapid shortfall and broaden their revenue base, “some online trading providers now offer, or are seeking to offer, high-risk products or services to retail investors”.

“These products may be inappropriate for retail investors and result in poor investor outcomes.”

Among ASIC’s activities targeting high-risk online traders include:

• Disrupting proposals to offer retail securities lending products that carry significant risks and are inappropriate for retail clients.
• Disrupting proposals to offer trading in unregulated crypto-assets alongside trading in regulated securities that may have led retail clients to underestimate risk or believe that investor protections apply where they do not.
• Improving licensee oversight of authorised representatives to ensure that trading providers have the expertise and supervision required to protect retail client assets and prevent misconduct.
• Engaging with online trading providers to rectify misleading or deceptive statements that may result in retail clients choosing to use a product or service based on inaccurate depictions of fees, safety or security.
• Promoting informed decision making by retail investors, by encouraging trading providers to enhance disclosure of product features and risks, including custody of client assets.
• Engaging with online trading providers to rectify their arrangements for holding client money, reducing the risks to investor funds by correctly segregating client funds from operational funds.

“Licensed online trading providers are required to meet important licensee obligations as gatekeepers for offers of investment products and services to retail clients,” Constant said.

“Where we identify significant harm, we will continue to take strong regulatory action including, where appropriate, commencing court proceedings.”

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, contract for differences (CFD) issuers, large stockbrokers and other AFS licensees.

ASIC notes that some emerging providers may position themselves as “low-cost alternatives to traditional brokers”, offering retail investors low brokerage fees, streamlined trading apps and innovative products.

According to the regulator, collectively, these online trading providers have over one million retail clients and hold billions of dollars in client money and assets.