ASIC cancels AFS licence of retail OTC derivative issuer XTrade.AU Pty Limited

ASIC has cancelled the Australian financial services (AFS) licence of retail over the counter (OTC) derivatives issuer XTrade.AU Pty Ltd (XTrade).

XTrade offered clients opportunities to trade in contracts for difference (CFDs) and foreign exchange contracts (FX contracts).

ASIC cancelled XTrade’s AFS licence after its investigation found that several vulnerable clients were encouraged to trade in CFDs in circumstances where they could not afford to do so or had limited trading experience resulting in significant losses to some consumers.

ASIC’s investigation found that between June 2018 and September 2022, XTrade failed to comply with its general obligations as an AFS licensee and:

  • engaged in unconscionable conduct;
  • did not take reasonable steps to ensure that its representatives complied with financial services laws;
  • did not have adequate arrangements for the management of conflicts of interest;
  • failed to take reasonable steps to ensure its retail product distribution was consistent with its target market determination;
  • did not do all things necessary to ensure that financial services were provided efficiently, honestly and fairly.

ASIC also found that XTrade put its own interests above those of its clients and did not act in good faith, falling short of the standards expected of an AFS licensee.

Further, ASIC found that XTrade failed to prevent its representatives engaging in misconduct over many years and failed to ensure that they underwent adequate training.

XTrade applied to the Administrative Appeals Tribunal (AAT) on 29 April 2024 for a review and stay of ASIC’s decision to cancel the AFS licence.

Following an interlocutory hearing on 31 May 2024, the AAT refused XTrade’s stay application. This means that XTrade’s AFS licence remains cancelled until a final decision is made by the AAT on the substantive review application.


The AAT’s decision on XTrade’s stay application


XTrade has held AFS licence 343628 since 12 April 2010. XTrade is part of the international XTrade Group.

Contracts for difference (CFDs) are leveraged derivative contracts that allow a client to speculate in the change in value of an underlying asset, such as foreign exchange rates, stock market indices, single equities, commodities or crypto-assets.

ASIC has pursued a range enforcement actions against retail OTC derivatives issuers addressing misconduct in the sector, including:

  • obtaining a $75 million penalty against AGM Markets and its authorised representatives OT Markets and Ozifin, along with compensation for approximately 10,000 former clients (20-246MR);
  • securing a $20 million penalty against Forex Capital Trading Pty Limited, with its sole director fined $400,000 and disqualified for eight years (21-120MR);
  • commencing civil penalty proceedings in the Federal Court against Union Standard International Group and its former corporate authorised representatives (20-319MR);
  • imposing additional conditions on the AFS licence of AxiCorp Financial Services Pty Ltd to ensure that it has adequate compliance arrangements in place for its OTC derivatives business. (21-044MR); and
  • the suspension of the AFS licence (23-352MR) and winding up on just and equitable grounds of Prospero Markets Pty Ltd after it failed to comply with the statutory obligations required of an AFS licensee (24-070MR).

In addition to its enforcement actions, ASIC has also taken regulatory action to protect consumers from high-risk OTC derivative products, including:

  • enacting the CFD product intervention order (PIO) from 29 March 2021, imposing restrictions on CFDs issued and distributed to retail clients (ASIC Corporations (Product Intervention Order – Contracts for Difference) Instrument 2020/986);
  • extending the CFD PIO until 23 May 2027, which has been effective in reducing the risk of significant harm to retail clients resulting from CFDs (Report 724 Response to submissions on CP 348 Extension of the CFD product intervention order);
  • releasing Report 770 Design and distribution obligations: Retail OTC derivatives on 6 September 2023 which summarises ASIC’s key observations on how issuers of retail OTC derivatives were meeting these obligations and highlights areas for improvement; and
  • overseeing more than $17.4 million in combined compensation payments to over 2,000 retail clients affected by breaches of financial services laws by eight retail OTC derivatives issuers 23-298MR.

The design and distribution obligations also require financial product issuers and distributors to ensure products are designed with consumer needs in mind and distributed in a targeted manner. Financial product issuers are also required to monitor outcomes and reassess their product governance arrangements over time.

ASIC’s Moneysmart website has further information about forex trading and CFDs.

© Australian Securities and Investments Commission. Reproduced with permission.