ASIC suspects that TMGM relies on an “inadequate retail investor questionnaire for compliance with its obligations” and lacks other controls in its onboarding process to assess whether clients are likely to be in its target markets.
Trademax Australia Limited, the FX/CFD brokerage firm operating the renowned TMGM brand, has been subject to two interim stop orders from ASIC, Australia’s financial watchdog.
The interim stop orders prevent TMGM from opening trading accounts or dealing in contracts for difference (CFDs) or margin foreign exchange contracts (margin FX) to retail investors.
“Inadequate retail investor questionnaire for compliance”
The enforcement action followed concerns that the FX/CFD broker failed to take reasonable steps likely to result in its retail product distribution conduct being consistent with two target market determinations (TMDs).
ASIC suspects that TMGM relies on an “inadequate retail investor questionnaire for compliance with its obligations” and lacks other controls in its onboarding process to assess whether clients are likely to be in its target markets.
The Australian regulator further explained that Trademax’s use of a poorly designed and inadequate questionnaire:
- did not adequately enquire into the prospective client’s financial situation, risk tolerance, and investment objectives to enable Trademax to adequately assess whether the prospective clients are likely to be in the target markets described in its TMDs for the complex, high-risk, leveraged CFDs and margin FX products;
- did not adequately enquire into the prospective clients’ risk tolerance and technical understanding of CFDs over crypto assets to enable Trademax to adequately assess whether the prospective clients are likely to be in the target market described in its crypto TMD;
- had significant design flaws, including warning messages prompting clients to review their answers, allowing prospective clients to submit alternative responses so they would meet the target markets; and
- permitted retail investors two attempts to pass the questionnaire every 24 hours for an indefinite period and prompted prospective clients with a tick-box acknowledgment that they had certain attributes.
Interim stop orders are valid for 21 days unless revoked earlier
ASIC argued that it made the interim orders to protect retail investors from acquiring CFDs or margin FX from Trademax, where those products may not be suitable for their financial objectives, situation, or needs. Interim stop orders are valid for 21 days unless revoked earlier.
TMGM’s existing clients are still able to vary or close their CFD positions.
A recent report by ASIC highlighted areas for improvement, including brokers’ over-reliance on client questionnaires as a primary distribution filter and making greater use of available data to assist the distribution arrangements.
CFDs and margin FX are leveraged derivative contracts that allow a client to speculate in the change in value of an underlying asset, such as foreign exchange rates (in the case of margin FX), stock market indices, single equities, commodities or crypto assets.
