Australian brokers with better protection of clients' funds

The Australian Securities & Investments Commission (ASIC), the Australian equivalent of the Polish PFSA, issued a message to its licensed entities about the entry into force of new legal provisions. The guidelines cover consumer protection for over-the-counter (OTC) financial service licensees. At the beginning of April 2018, reforms were introduced in the tax act and corporate regulations, which will primarily benefit retail investors.

The new rules are designed to force brokers to separate customer funds from broker's money. In other words, the Australian government introduces compulsory segregation of capital resources, which is supposed to increase the level of investment safety in derivative instruments in Australia.

Reform, not revolution

There are several changes and all of them can be considered a plus for traders. The new rules provide that the ASIC licensed entity can not use the retail client's derivative money from its account to settle any financial obligations. The exception are situations where:

• these funds have been or will be settled through an authorized clearing and settlement mechanism, or
• the licensee has already incurred an obligation related to the derivative instrument in accordance with the rules of its operation.

In addition, the licensed entity may not rely on verbal or written instructions from customers regarding the use of their derivatives:

• as equity or revolving capital,
• in order to meet the obligations assumed by the licensee in a different way than on behalf of the client,
• in order to enter into or fulfill obligations resulting from transactions consisting in securing, counteracting or equalizing the risk associated with a transaction.

Legal changes also impose new obligations regarding reports sent by licensees. The implemented reforms, according to ASIC, are primarily intended to strengthen the protection of retail clients' money as well as the confidence in the Australian financial system.

Cathie Armor, Commissioner of ASIC

Cathie Armor, ASIC Commissioner:

ASIC cooperates with the industry on an ongoing basis and we are sure that a sufficiently long transitional period has passed to ensure that the licensee of OTC financial services is aware of the new system and new obligations. From 4 April 2018 we assume that these entities have read and prepared to operate in the new system.

Brokers from Australia in the interest of traders from Europe

Increasingly, Forex / CFD investors from Europe decide to transfer their trade to Australian brokers. There are at least several reasons for this.

Above all, regulations. ASIC is an independent state body supervising the financial market in Australia. Interestingly, it is considered one of the best on the world scale in terms of efficiency and meticulousness of the activities undertaken. Australia itself is perceived as a modern country and open to innovation. These factors meant that the local market created an environment of Forex brokers with competitive terms of trade and high quality services.

Australia is also a country with no laws in place to limit the use of leverage. Consequently, even the kangaroo country FX / CFD brokers are still successfully offering traders leverage of even the order 1:500. An example is the ECN broker IC Markets.

The disadvantage of Australian regulations is the lack of any guarantee fund from the government from which the investor would be able to claim compensation in the event of bankruptcy of the Forex / CFD broker. But is it necessary, or only necessary, to help us maintain inner peace with adequate supervision and separation of client funds from the broker's resources?