91AV

ASIC has cancelled the Australian financial services (AFS) licence of Direct FX Trading Pty Ltd (AFS licence 305539) (Direct FX) following serious and continued compliance failures.

Direct FX’s AFS licence was cancelled after ASIC found that Direct FX:Ìý

• failed to comply with clientÌýmoney reporting rules requiring the company to provide to ASIC daily and monthly reconciliations of client money held by Direct FX;
• continued to carry on aÌýfinancial services business while suspended (refer: 18-126MR) by continuing to allow clients to enter into trades;
• failed to comply withÌýits Net Tangible Asset (NTA) requirements provided in Class Order 12/752, including not having sufficient cash and cash equivalents to comply withÌýits obligations. Specifically, Direct FX continued to enter intoÌýtransactions when its NTA was less than 75% of the required NTA of $1 million in breach of its obligations;
• did not maintain the competenceÌýrequired to provide the financial services covered by its AFS licence byÌýfailing to replace key persons named on its licence;
• did not fully understand itsÌýobligations as an AFSÌýlicensee and cannot be relied upon toÌýÌýdischarge the duties and obligations imposed by the financial servicesÌýlaws on a licensed provider of financial services;
• resources were not sufficient to enable Direct FX to provide financial services efficiency, honestly andÌýfairly given the possible magnitude of its financial services business andÌýthe risks associated with the trading of derivatives; and
• failed to comply with an ASICÌýs912C(3) Direction to give ASIC an audit report about Direct FX’sÌýcompliance with various financial licence conditions.Ìý

ASIC Commissioner Cathie Armour said, ‘Direct FX was in breach of multiple conditions of its AFS licence, which are aimed at protecting investors from the higher operational and credit risks posed by the retail OTC derivative sector. Direct FX ignored key conditions of the notice of suspension by continuing to open new trading positions and failed to comply with its client money reporting obligations whilst suspended. The ongoing and demonstrated disregard for meeting their obligations has resulted in ASIC acting to remove the company from the industry’.

ASIC notes the cancellation will affect the financial services provided by Direct FX’s authorised representative, Core Liquidity Markets Pty Ltd, to the extent that they are provided under authorisations granted under Direct FX's licence.

To minimise the impact of the cancellation on its past and current clients, Direct FX will be required to maintain its membership of an external dispute resolution 91AV and adequate professional indemnity Insurance until 30 April 2019.

ASIC notes that Direct FX was placed into external administration and a liquidator appointed, by the Supreme Court of NSW on the 11 October 2018, after the cancellation of the AFSL which was effective on 8 October 2018.

Direct FX has the right to appeal to the Administrative Appeals Tribunal for a review of ASIC's decision.

Background

On 17 April 2018 ASIC suspended the AFS licence of Direct FX for a period of up to six months, expiring 17 October 2018. Direct FX’s AFS licence was suspended because ASIC found that Direct FX hads contravened, and was likely to contravene, both financial and non-financial obligations as set out in s912A.

This work continues ASIC's focus on the retail OTC derivative sector, including margin FX, CFDs and binary options.Ìý

* ASIC’s action relates to the Australian-registeredÌýAFS licence holderÌýDirect FX Trading Pty Ltd (AFSL 305539) and not a New-Zealand registered entity, Direct FX Ltd, which also holds anÌýAFS licence in Australia (AFSL 291471).

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