The Australian financial market regulator revealed today (Thursday) that it had overseen a combined compensation payment of AU$4.3 million to over 1,500 retail clients of seven different issuers of contracts for difference (CFDs). The compensation has been made since March 2021 due to issuing the CFDs with a leverage ratio exceeding the permitted limit.

Major CFDs Brands Breached Aussie Rules

The seven named CFDs brokers consist of Capital.com, CMC Markets, Eightcap, IG, Pepperstone, Saxo Markets, and City Index, all operating in Australia with their local entities. These retail brokers self-reported the breach of leverage ratio limits in the Product Intervention Order and proposed redemption program to the Australian Securities & Investments Commission (ASIC).

However, the largest compensation amount of AU$13.1 million was handed out to the clients of Binance Derivatives Australia, operating as Oztures Trading. The crypto derivative issuer incorrectly classified retail clients as wholesale clients, breaching various financial services laws.

ASIC also investigated the operations of Binance Australia and canceled its operating license last April following the voluntary cancellation of the request by the company.

Strict Leverage Limitation on CFDs

The Australian regulator restricted the offered leverage ratio in March 2021, reducing it to a maximum of 30:1. The levels vary from the underlying assets and go as low as 2:1. According to the latest announcement, the clients of the CFDs brokers suffered losses on more than 150,000 CFD trades across 100 different CFD instruments that exceeded the maximum leverage.

Some of the CFDs brokers also identified the underlying cause of the breaches as “change management weaknesses, including failures to adequately test and review IT systems after trading platform updates; and manual errors when applying leverage ratio limits to CFD instruments and retail client accounts.”

According to ASIC, three unspecified CFDs brokers from the seven names used behavioral assumptions to estimate retail client losses caused by the breaches to lower the compensation amount. These three brokers, joined by another unspecified one, did not compensate for the fees and charges incurred during the trading.

The review by the regulator has resulted in these four CFDs brokers “paying and agreeing to pay” an additional compensation of over AU$2.8 million to the affected retail clients.

“It is important that retail clients get the protections they are entitled to under the law when dealing with these risky products,” said Sarah Court, the Deputy Chair at ASIC. “These protections include the CFD product intervention order, design and distribution obligations, and access to external dispute resolution through the Australian Financial Complaints Authority.”