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October 24, 2018 | 05:12 PM
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02.07.2018Regulating the world of online trading: the Australian approach

Unscrupulous brokers who fail to make clear the risk of loss can give traders unrealistic expectations about outcomes. As a result, Australian regulators have taken steps to ensure that online traders are adequately protected.


Online trading has revolutionised the investment world in recent years. From the rise in platforms which offer contracts for difference (or CFDs) to the way investors can now speculate on commodities like gold, cryptocurrency and forex in a matter of seconds – there are lots of ways that traders can profit from market movements without having to take the slower, old-school routes.

But there are also some potential pitfalls to online trading, too. Unscrupulous brokers who fail to make clear the risk of loss, for example, can give traders unrealistic expectations about outcomes. Some platforms lack adequate measures to cover lender deposits in the event of the platform’s collapse can also cause real hardship.

As a result, Australian regulators have taken steps to ensure that online traders are adequately protected.

ASIC – the regulator

The main body providing regulation and oversight of the online trading world here in Australia is the Australian Securities and Investments Commission (ASIC). It is an independent organisation, but it is still influential. It has the power to do everything from issue lists of firms which are not adhering to financial regulations, to ensuring that company directors who don’t play by those rules are prohibited from managing companies in the future. Most companies which operate in Australia are subject to ASIC’s regulations – and that includes online trading platforms.

The rules

Companies which offer online trading services have to possess one of two licenses - either an Australian Financial Services (AFS) license, or an Australian Credit licence. There are lots of rules that trading platforms must follow in order to have their licenses maintained: they must, for example, ensure that the managers at the firm are responsible, while they also have to ensure that staff receive the appropriate training to do the job. 

Naming and shaming

When it comes to dealing with rogue online trading platforms, ASIC has a number of options at its disposal. But by far one of the most interesting– and, arguably, useful – methods it employs is the periodic releasing of highly public lists of trading platforms which failed to secure the appropriate license to operate. 

ASIC also points out the specific ways in which these firms have acted against licensing laws, such as by sending out unrequested marketing materials without the relevant Australian Financial Services licence.

Usually, these lists can be found on ASIC’s public-facing websites, such as MoneySmart. The advantage of this kind of information distribution is that it’s technologically savvy: a trader who is considering using a particular platform is likely to search the Internet for information about the company behind the platform. By publishing its advice in the same space as platform reviews, ASIC is ensuring that their lists receive maximum exposure.

License revocation

In the first instance, it’s not likely that a complaint against a broker will lead to immediate heavy-handed sanctions. While ASIC can be strict with rogue platforms, its investigations are thorough rather than knee-jerk. But in the event that a broker has completely failed to carry out reforms or if they have committed a particularly egregious rule breach, then ASIC has the power to seriously damage a platform. By publicly revoking the license of a trading platform (as it did in 2015 with the firm Enfinium Pty Ltd for not having appropriate risk management tools), the platforms in question can receive significant reputational damage. 

Online trading is a fast-moving industry. Many traders and regulators are still getting to grips with it. But there’s an important debate to be had about the ethics of these platforms – and that’s where regulators like ASIC play an important role. By monitoring everything from platform staff behaviour to marketing decisions, ASIC ensures that traders are comprehensively protected as consumers.


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