ASIC

The Australian Securities and Investments Commission regulates financial services, markets and companies in Australia. A broker offering CFDs or margin forex to Australian retail clients must hold an Australian Financial Services Licence with the appropriate authorisations, and ASIC has been an unusually interventionist regulator in this sector.

The 2021 product intervention order

Australia was for years a high-leverage jurisdiction with a tier-one reputation, which made it a favoured base for brokers serving Asian markets. That ended on 29 March 2021, when ASIC's product intervention order took effect: retail leverage capped at 30:1 on major currency pairs, 20:1 on non-major pairs, gold and major indices, 10:1 on other commodities and non-major indices, 5:1 on individual equities and 2:1 on cryptocurrencies.

The order also mandated margin close-out at 50% of required margin, negative balance protection on a per-account basis, and a ban on inducements such as bonuses and cash rebates offered to open an account. ASIC has since extended it, and its own review reported a substantial fall in aggregate retail client losses.

What the licence requires

An AFS licensee must meet financial resource requirements, appoint responsible managers with demonstrated competence, hold professional indemnity insurance, keep client money in designated trust accounts under the Corporations Act client money rules, and belong to the Australian Financial Complaints Authority — a free external dispute resolution scheme a client can escalate to without going to court.

If a broker fails

This is where Australia is weaker than the UK or Cyprus. There is no investor compensation scheme covering retail forex. Client money rules and the firm's own capital are the protection, and where a broker's records are poor an administrator's reconstruction of entitlements is slow and incomplete. AFCA can order compensation from a solvent firm; it cannot pay out for an insolvent one.

Verifying a licence

ASIC Connect publishes a professional registers search showing the licence number, the authorisations attached and any conditions. Also check the Moneysmart investor alert list of entities ASIC has warned about. As everywhere, confirm the licensed entity is the one named in your client agreement: Australian groups routinely operate a Vanuatu or Seychelles company for non-Australian clients, and the ASIC number on the homepage does not follow them there.