It seems that regulators in jurisdictions popular with brokers are getting tougher recently, proactively going over the websites of related firms and forcing changes to be made, instead of just waiting for complaints after the fact. The Australian Securities and Investments Commission (ASIC) has today notified the public that IronFX was forced to remove online marketing statements and change a disclosure document that suggested certain financial services were regulated in Australia, which ASIC determined was not the case.
ASIC explains that it was concerned that statements published on the website of IronFX Cyprus, the parent company of IronFX Australia, as well as its disclosure document, gave the impression that some IronFX Cyprus services are regulated by ASIC. IronFX Australia's licence only covers the financial services provided by that entity in Australia - it does not cover financial services provided outside of this jurisdiction or directly by other entities in the IronFX group. This last statement by the regulator also shows that it does not want to have to deal with complaints from international clients which is important to note beyond the effects on this case.
Credit Risk
An issue raised by traders whenever a broker claims to be STP/ECN is, are the counterparties to their transactions independent of the broker (such as banks, hedge funds, etc), or are they somehow related to the broker. ASIC revealed today that IronFX Australia has also updated its Product Disclosure statement (PDS) to include material information about its hedging arrangements and has updated its PDS to clearly disclose that its sole hedging counterparty is its own parent company in Cyprus.
ASIC Commissioner Cathie Armour said: "Licensees need to ensure that any marketing materials, including those produced within their group, do not create the impression that the entity making those statements is licensed to issue the product. In terms of disclosure, retail investors need to be given sufficient information in the PDS in order to ensure that they can make informed decisions including information on counterparties. Licensees should therefore review their marketing and disclosure documentation to ensure it meets these requirements."
The watchdog details that IronFX Australia currently hedges each transaction with its Cyprus parent and has a general policy of using all Client Money for the purposes of funding those positions. Investors have no recourse against a hedge counterparty and their recourse is therefore limited to IronFX Australia's actual recovery against its hedge counterparty.
ASIC warns that investors should ensure that they understand their contractual rights and Obligations and carefully assess all relevant risks. In particular, investors should understand the credit risk posed by the hedging arrangement with IronFX Cyprus before entering into any transactions with IronFX Australia.
