ASIC has stopped Mitrade Global Pty Ltd from allowing people to open trading accounts, or from trading in Contracts for Difference (CFDs) or foreign exchange (forex) with borrowed money, temporarily.
ASIC took action because it was worried Mitrade did not do enough to make sure it was following its goals for the people it was targeting.
This is the first time ASIC has used its legal powers to stop something from happening in response to a violation of the laws regarding a financial product since the Design and Distribution Obligations (DDO) rules became active in October 2021.
ASIC was worried that Mitrade’s questionnaire used to identify whether a retail investor was suitable for its products was inadequate. When applying for a trading account, Mitrade would provide prompts for prospective investors to assess if they weren’t suitable for its products. Furthermore, Mitrade allowed those investors to take the questionnaire multiple times.
ASIC had worries that the measures Mitrade had taken to stop its CFD trading from being against the TMD lacked enough assessment of whether ordinary investors intended to use the CFDs. ASIC thought that Mitrade’s questionnaire did not have sufficient questions to decide this.
1. Did not ask enough questions to understand the needs and expectations of the retail investors in order to decide if they met the criteria for complex, high-risk CFDs and margin FX products mentioned in the TMD.
2. Didn’t provide enough precise details to decide if retail investors had enough knowledge and experience to be able to trade in CFDs and margin FX safely.
Protecting Retail Investors: ASIC’s Use of DDO to Stop Products Unsuitable for Their Financial Goals
Under the (DDO) an issuer and those who distribute a financial product must make sure retail investors are getting the right product to match their own aims and circumstances.
This temporary stop order, which is in place for 21 days, was issued by ASIC to protect retail investors from buying (CFDs) and margin (FX) products from Mitrade which may not suit their financial goals, situation or requirements. The order does not apply to existing Mitrade customers who can still change or close their CFD investments.
ASIC has released forty-one temporary stop orders under DDO. Of those, thirty-three have been removed following corrective behavior by the firms or withdrawal of the products. Eight orders remain. To ensure compliance, ASIC is conducting surveys. If there is unacceptable behavior, ASIC can use DDO to stop it and protect consumers.
Read more: FCA Announces End of US Dollar LIBOR Panel | Brokers Times
