ASIC designates CFDs as ‘risky business’
The Australian Securities and Investments Commission (ASIC) has revealed that it has hit the Contracts for Difference (CFD) sector hard, securing the return of nearly $40 million to more than 38,000 retail investors.
ASIC has released a new report (REP 828) Risky business: Driving change in CFD issuers’ distribution practices in which it said it found widespread weaknesses in how CFD issuers complied with their design and distribution obligations (DDO), ASIC’s CFD product intervention order (PIO) and regulatory reporting requirements.
It said it found that more than half the CFD sector had contravened the PIO by offering ‘margin discounts’ to retail clients who took on opposing long and short positions.
“These investors incurred higher funding costs but could not profit from their opposing CFD positions,” it said.
Commenting on the report findings, ASIC Commissioner, Simone Constant said thousands of Australians are losing money trading CFDs.
“These are complex, high-risk products, where most investors face losses, and even profitable trades can be entirely eroded by trading costs,” she said.
Constant said ASIC’s direct intervention has driven widespread improvements in CFD issuers’ target market determinations, client onboarding questionnaires, reporting compliance and monitoring of client trading outcomes.
Key changes in CFD issuers’ distribution practices and compliance arrangements achieved in ASIC’s review include:
- 39 issuers made changes to their target markets
- 46 issuers improved website content, with one issuer amending almost 1,000 webpages
- 44 issuers improved their client onboarding questionnaires, with many issuers making substantial changes
- 42 issuers implemented new processes for ongoing monitoring of client trading outcomes and behaviours, or made significant improvements to existing processes
- 48 issuers implemented changes to comply with their over-the-counter (OTC) derivative transaction reporting requirements, after the review identified over 70 million erroneous reports
- Reportable situations lodged by issuers increased by 127% compared to the previous year, reflecting greater compliance awareness and responsiveness.
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