Brokers Refund AU$4.3M Over Leverage Rules Breach

Today, the Australian financial markets regulator announced that seven different issuers of contracts for difference (CFDs) have compensated retail clients with a total of AU$4.3 million. This refund, dating back to March 2021, is due to CFDs issued with a leverage ratio above the acceptable level.

Capital.com, CMC Markets, Eightcap, IG, Pepperstone, Saxo Markets, and City Index, all operating in Australia under local entities, are the seven CFD brokers named. Violating the Product Intervention Order (PIO) leverage ratio limits led these retail brokers to self-report and propose a redemption program to the Australian Securities & Investments Commission (ASIC).

The most significant compensation, totalling AU$13.1 million, was paid to clients of Binance Derivatives Australia, also known as Oztures Trading. This crypto derivative issuer misidentified retail clients as wholesale clients, breaching several financial services laws.

ASIC also proceeded to cancel Binance Australia’s operating license last April, following the company’s voluntary request for cancellation.

CFDs Observe Strict Leverage Limit

In March 2021, ASIC imposed strict leverage ratio restrictions, setting the maximum limit at 30:1, with this limit dropping to as low as 2:1 depending on the underlying assets.

The latest announcement reveals that clients of the CFD brokers encountered losses on over 150,000 CFD trades involving more than 100 different CFD instruments, breaching the maximum leverage.

The underlying causes of these breaches, identified by some CFD brokers, include “weaknesses in change management, as well as failures in post-trading platform updates-testing and reviewing of IT systems, and manual errors when setting leverage ratio limits on CFD instruments and retail client accounts.”

According to ASIC, three unspecified brokers out of the seven names estimated retail client losses due to the breaches using behavioural assumptions, thereby reducing the compensation amount. These three brokers and another unnamed one did not compensate for the fees and charges incurred during trading.

This review by the regulator has led to an additional compensation of over AU$ 2.8 million paid to the affected retail clients by these four CFD brokers.

Sarah Court, the Deputy Chair at ASIC, emphasized the importance of retail clients receiving the protections they are legally entitled to when dealing with risky products. She mentioned that these protections include the CFD product intervention order, design and distribution obligations, and access to external dispute resolution through the Australian Financial Complaints Authority.