ASIC (Australian Securities & Investments Commission)

Australian Securities & Investments CommissionBefore 2001, the Forex business was self-regulated in Australia. The brokers only had to register themselves with the Reserve Bank of Australia (RBA). Following the enactment of the Financial Services Reform Act and the Australian Corporations Act, the retail foreign exchange dealers are now required an Australian Financial Services (AFS) license from the ASIC (Australian Securities and Investments Commission) to conduct business in Australia.

In 2000's and 2010's, Australia became a major destination for retail Forex brokers where sensible rules with almost no restrictions offered perfect conditions to work with the global audience. More recently, this began to change with some significant restrictions applied by the ASIC on retail Forex offerings.

Since May 3, 2021, offering trading in binary options to Australian retail traders is forbidden by the ASIC.

Role of ASIC

Being the country’s financial services regulator, the ASIC has the following responsibilities:

  • Facilitate the improvement of the financial system and ensure market transparency.
  • Promote investors' confidence.
  • Administer the law with minimum enforcement requirements.
  • Receive, store, process, and make available information provided to the ASIC by regulated entities.
  • Enforce the law through variety of actions.
  • Make information about companies publicly available.

Who should register?

  • People and businesses engaging in consumer credit activities (including banks, credit unions, finance companies, and mortgage and finance brokers).
  • Financial services businesses that deal and advise in investments, superannuation, and insurance.
  • Australian companies, which are involved in managed investment schemes.
  • Auditors and liquidators.
  • Market infrastructure operators.

Registration and compliance requirements

  • According to the ASIC regulation, only a Forex broker who has at least 10% of its revenue (or a minimum of A$1 million) as net tangible assets (NTA), of which at least 50% in cash or cash equivalent is allowed to operate in Australia. The requirement was 5% of revenue (minimum of A$500,000; 50% cash or cash equivalent) before February 2014. Before 2013, a Forex broker with a capital of A$50,000 could apply for the ASIC regulation. The tough measures were imposed after the regulators started following Basel III norms for revenue and capital. However, it has deterred many brokers from setting up a business in Australia.
  • The 50% cash or cash equivalent rule ensures that unexpected losses can be met quickly.
  • At the end of every year, the NTA details should be provided to ASIC along with other financial statements.
  • Prepare quarterly projections of its cash flows over the next 12 months based on reasonable estimates of revenues and expenses.
  • If the licensee does not have the requisite NTA for a minimum of two months, then within three days the ASIC should be informed about the matter. In such a case, the licensee is forbidden to enter into new transactions, which could potentially create liabilities for the company.
  • As soon as a broker becomes aware that its NTA had fallen below 110% of the stipulated NTA requirement, the ASIC should be informed. A report on the NTA level should be submitted at the beginning of every month as long as the NTA level remains below the 110% threshold.
  • A fall below 110% of the stipulated NTA serves as a caution to the clients. The ASIC, on their part, would start monitoring (risk-based surveillance) the activities of the Forex broker closely. On the other hand, if the NTA falls below 10% (minimum A$1 million) of the revenue, then the broker will be issued a cease-and-desist order by the ASIC.
  • A broker should compulsorily have a physical office in Australia.
  • Forex brokers that have an AFS license and operate from Australia should have Australian citizens as majority clients.
  • In case a Forex broker accepts clients from some other country, a license from the regulating authority in the client’s jurisdiction is a must. Forex broker Pepperstone is a classic example of this rule. Nearly 40% of Pepperstone’s revenue in 2014 was earned from the Japanese clients. When the rule was enforced, Pepperstone, which did not have a license from the Japanese regulatory authority, stopped accepting Japanese clients after a warning from the ASIC.
  • Client’s money cannot be used as working capital. This means that Forex brokers should hedge risk with their own capital. Furthermore, clients’ funds should be held in a trust.
  • In addition to the internal dispute resolution scheme, a broker must become a member of the Australian Financial Complaints Authority (AFCA).
  • A Responsible Manager who meets the experience and qualifications criteria should be assigned by a company. The company should also implement all the appropriate policies and procedures to comply with the ASIC requirements.
  • Normally, once all the requirements are met, it takes about 120–240 days for a broker to receive the ASF license from the ASIC. The fees usually range from A$35,000 to A$50,000.

Powers at ASIC’s disposal

  • Gather information about regulated market participants.
  • Grant licenses to companies that must be regulated.
  • Grant relief from some parts of the legislation on a case-by-case basis.
  • Amend or create rules to ensure the integrity of the financial markets. On March 29, 2021, ASIC's new CFD (Forex) restrictions took effect, which limited maximum leverage to 1:30, standardized stop-out practices, introduced negative balance protection, and forbade the use of bonuses and promotions in CFD trading.
  • Halt the issue of financial products under the rule of defective disclosure documents.
  • Conduct investigation into breaches of regulation. In November 2019, the ASIC launched an investigation of Westpac Ltd, Australia's oldest bank, for money laundering compliance breaches.
  • Issue infringement notice in case of breach of the law. In June 2021, Life Trading Pty Ltd has been served an infringement notice and made to pay A$200,000 due to supervision and risk management failures in the futures market.
  • Ban people from providing financial services. In March 2021, the ASIC banned Shlomo Yoshai, the director of ForexCT, for 10 years because of a serious "lack of understanding or regard for compliance" in his work.
  • Commence civil penalty proceedings in the court. For example, in March 2021, the ASIC commenced civil penalty proceedings against Statewide Superannuation Pty Ltd due to false or misleading representations in their business operations.
  • Conduct prosecutions in minor criminal matters. On August 3, 2021, the ASIC prosecuted 10 companies for failures to submit financial reports.
  • Intervene with financial products. On April 1, 2021, the ASIC announced a product intervention order to ban the sale of binary options to retail traders in Australia.

The ASIC isn't shy of using its enforcement powers. In 2020 (see the first report and the second report), the regulator charged 45 individuals in criminal proceedings, achieved 14 custodial sentences, prosecuted 392 individuals for strict liability offenses, banned 124 persons, served 2 infringement notices (restoring A$160 million in compensation and remediation), and commenced 206 investigations.

Conclusion

The ASIC's regulatory environment became a lot stricter during the 2020-2021 period. The era of nearly unconditional FX trading conditions is over now, making the brokerages registered in Australia less attractive to retail traders. However, the professional approach to keeping the industry safe for traders should attract those traders who prefer lower risk over higher leverage. Until retail CFD trading is totally banned in Australia, the ASIC's regulation will remain highly respectable and even prestigious in the eyes of knowledgeable Forex traders.

If you want to share your opinion, observations, conclusions, or to ask a question regarding the Australian Securities & Investments Commission (ASIC), feel free to start a discussion on our Forex forum.


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Forex trading bears intrinsic risks of loss. You must understand that Forex trading, while potentially profitable, can make you lose your money. Never trade with the money that you cannot afford to lose! Trading with leverage can wipe your account even faster.

CFDs are leveraged products and as such loses may be more than the initial invested capital. Trading in CFDs carry a high level of risk thus may not be appropriate for all investors.