Union Standard International Group (USG), a now-closed contracts for differences (CFDs) broker, and its two former affiliates, TradeFred and EuropeFX, engaged in “systemic unconscionable conduct” between 2018 and 2020, resulting in a loss of over AUD 83 million (about USD 51.7 million) to customers, an Australian federal court found today (Friday).
Shady Practices by CFD Providers
The court’s conclusion followed evidence from customers of EuropeFX and TradeFred, who were misled, deceived, and advised by unlicensed advisors.
While USG held an Australian Financial Services (AFS) licence to offer CFDs, TradeFred, operated by BrightAU Capital, and EuropeFX, operated by Maxi EFX Global, acted as its corporate authorised representatives. This meant they onboarded clients and offered USG’s products.
USG’s troubles came to light in mid-2020 when it entered voluntary administration, followed by the cancellation of its licence. However, the Australian Securities and Investments Commission (ASIC) acted against EuropeFX and TradeFred in December 2019 by obtaining asset-restraining orders to protect customers’ funds and initiating an investigation.
The latest regulatory announcement on the court findings revealed that the companies directly profited from customers’ losses. They incentivised account managers to pressure investors into depositing more funds and targeted inexperienced and vulnerable traders who lacked an understanding of the risks of trading complex CFDs.
These companies took opposite positions to customer trades, a practice known as B-booking, leading to losses for 95 to 99 per cent of their clients.
“I have no hesitation in concluding that EuropeFX’s conduct was so far outside societal norms of acceptable behaviour in respect of the provision of financial services as to warrant condemnation as conduct that is offensive to conscience,” Justice Wigney stated.
Australian Laws Apply to Overseas Customers
The Australian court also found that USG breached its licence obligations to act ‘efficiently, honestly, and fairly’ by offering services to customers in China, where CFD instruments fall into a grey area.
Although ASIC issued a warning in 2019 that breaches of overseas laws could be considered violations of its licence obligations, this is the first court ruling to confirm it.
“This outcome sets an important precedent for Australian-based financial services licensees providing services such as margin forex trading to overseas customers under their AFS licence where such offerings are prohibited,” said ASIC’s Deputy Chair, Sarah Court.
“The conduct of licensees providing services to overseas customers under their AFS licences has attracted considerable attention from regulators globally, and this judgment is important in protecting the reputation of Australia’s financial services licensing regime.”
ASIC noted that offering CFDs to Chinese customers could lead to potential civil and criminal liability in China. However, it is important to note that China does not explicitly criminalise or regulate CFDs. Many brokers, particularly those with offshore licences, continue to onboard and offer services to Chinese traders.
ASIC started proceedings against Union Standard, TradeFred, and EuropeFX in December 2020 for offering products in China. TradeFred went into liquidation in March 2020, and the regulator banned EuropeFX’s sole director for five years.
Union Standard International Group (USG), a now-closed contracts for differences (CFDs) broker, and its two former affiliates, TradeFred and EuropeFX, engaged in “systemic unconscionable conduct” between 2018 and 2020, resulting in a loss of over AUD 83 million (about USD 51.7 million) to customers, an Australian federal court found today (Friday).
Shady Practices by CFD Providers
The court’s conclusion followed evidence from customers of EuropeFX and TradeFred, who were misled, deceived, and advised by unlicensed advisors.
While USG held an Australian Financial Services (AFS) licence to offer CFDs, TradeFred, operated by BrightAU Capital, and EuropeFX, operated by Maxi EFX Global, acted as its corporate authorised representatives. This meant they onboarded clients and offered USG’s products.
USG’s troubles came to light in mid-2020 when it entered voluntary administration, followed by the cancellation of its licence. However, the Australian Securities and Investments Commission (ASIC) acted against EuropeFX and TradeFred in December 2019 by obtaining asset-restraining orders to protect customers’ funds and initiating an investigation.
The latest regulatory announcement on the court findings revealed that the companies directly profited from customers’ losses. They incentivised account managers to pressure investors into depositing more funds and targeted inexperienced and vulnerable traders who lacked an understanding of the risks of trading complex CFDs.
These companies took opposite positions to customer trades, a practice known as B-booking, leading to losses for 95 to 99 per cent of their clients.
“I have no hesitation in concluding that EuropeFX’s conduct was so far outside societal norms of acceptable behaviour in respect of the provision of financial services as to warrant condemnation as conduct that is offensive to conscience,” Justice Wigney stated.
Australian Laws Apply to Overseas Customers
The Australian court also found that USG breached its licence obligations to act ‘efficiently, honestly, and fairly’ by offering services to customers in China, where CFD instruments fall into a grey area.
Although ASIC issued a warning in 2019 that breaches of overseas laws could be considered violations of its licence obligations, this is the first court ruling to confirm it.
“This outcome sets an important precedent for Australian-based financial services licensees providing services such as margin forex trading to overseas customers under their AFS licence where such offerings are prohibited,” said ASIC’s Deputy Chair, Sarah Court.
“The conduct of licensees providing services to overseas customers under their AFS licences has attracted considerable attention from regulators globally, and this judgment is important in protecting the reputation of Australia’s financial services licensing regime.”
ASIC noted that offering CFDs to Chinese customers could lead to potential civil and criminal liability in China. However, it is important to note that China does not explicitly criminalise or regulate CFDs. Many brokers, particularly those with offshore licences, continue to onboard and offer services to Chinese traders.
ASIC started proceedings against Union Standard, TradeFred, and EuropeFX in December 2020 for offering products in China. TradeFred went into liquidation in March 2020, and the regulator banned EuropeFX’s sole director for five years.
This post is originally published on FINANCEMAGNATES.
