TMGM faces an ASIC ban! Temporarily suspended for 21 days for failing to properly assess clients.

The Foreign exchange market transaction volumeAustralian Securities and Investments Commission (ASIC) has issued two interim stop orders, prohibiting Trademax Australia Limited from opening trading accounts or dealing in Contracts for Difference (CFDs) or margin FX contracts for retail investors.

ASIC took action due to concerns that Trademax had failed to take reasonable steps to ensure its retail product distribution activities complied with two target market determinations (TMDs).

ASIC's concerns are primarily focused on Trademax relying on an inadequate retail investor questionnaire to fulfill its obligations, and the lack of other control measures in Trademax's client onboarding process to assess whether customers meet its target market criteria.

ASIC believes the questionnaire used by Trademax is poorly designed and insufficient:

• It does not adequately inquire about potential customers' financial situation, risk tolerance, and investment objectives, failing to effectively assess whether these customers align with its high-risk, leveraged CFDs, and margin FX products' target market;
• It fails to thoroughly investigate potential customers' risk tolerance and technical understanding of crypto-asset CFDs, inadequately assessing if these customers match the target market for its crypto TMD;
• It has significant design defects, including warning messages prompting customers to review their answers, allowing potential customers to submit alternative responses to fit the target market;
• It allows retail investors to retake the questionnaire twice every 24 hours indefinitely, and prompts potential customers to tick checkboxes confirming they possess certain attributes.

The design and distribution obligations require financial product issuers and distributors to take reasonable steps to ensure their retail investor-related distribution activities are, or are reasonably likely to be, consistent with the product's TMD.

These interim stop orders are effective for 21 days, unless revoked earlier. ASIC issued these interim stop orders to safeguard retail investors from acquiring CFDs or margin FX from Trademax that may not align with their financial objectives, circumstances, or needs. These orders do not prevent existing Trademax clients from modifying or closing their CFD positions.

Background Information:

On September 6, 2023, ASIC released Report 770 "Design and Distribution Obligations: Retail OTC Derivatives" (REP 770), outlining how retail OTC derivatives issuers should meet DDO and highlighting areas needing improvement, including the overreliance on customer questionnaires as the primary distribution filter and better use of available data to assist distribution arrangements.

CFDs and margin FX are leveraged derivative contracts that allow customers to speculate on changes in the value of underlying assets, such as forex rates (in the case of margin FX), stock market indices, individual stocks, commodities, or crypto assets.

ASIC's product intervention orders on CFDs were strengthened following reviews in 2017, 2019, and 2020 to enhance consumer protection, as most retail clients lose money trading CFDs (see 20-254MR). In April 2022, ASIC extended this order for five years until May 23, 2027 (see 22-082MR).

So far, ASIC has issued 86 interim stop orders and one final stop order under the DDO, including the orders against Trademax.

If a company acts improperly, ASIC can take swift action under the DDO to stop misconduct and prevent potential consumer harm.

ASIC's Moneysmart website provides more information about forex trading and CFDs.

The original penalty text is as follows:

Risk Warning and Disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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