Are ASIC intervention measures in the best interest of traders?

Following in the footsteps of ESMA, Australia's Securities and Investments Commission (ASIC), plans to add restrictions on trading CFDs and completely ban binary options. While this latter measure is not surprising, are ASIC's CFD measures in the best interest of Australia's traders?

In a letter to Australia's special commission on financial and regulatory technology, Pepperstone, a forex broker, argues that this may not be the case.

In particular, Pepperstone's T. Szabo, said in his presentation to the committee that he was concerned that Australia would move away from its main advantage which is "a regulatory environment based on principles, which is flexible and which supports innovation."

ASIC measures will make Australia less attractive

In particular, Szabo stresses that intervention measures on ASIC products are likely to have "a real impact on the fact that Australia is a jurisdiction of choice for innovative products". He also points out that the measures appear to contradict their original intention.

When intervention measures on products were first considered by the financial systems investigation ("FSI") in 2014, the authority declared that the measures should only be used as a last resort. In addition, the FSI says: "If power is used effectively, it should not affect innovation significantly".

However, the Pepperstone president says that there is evidence that ASIC has not met these requirements since it inherited its product intervention powers.

"No financial services company, particularly a FinTech company, can operate in a regulatory environment that imposes unexpected rules. This is particularly harmful when regulatory intervention has an impact on the essential characteristics of the products that can be offered to traders".

ASIC needs to watch its step!

Pepperstone is not alone in saying that ASIC regulation could harm the nation's financial sector and stifle innovation. Sophie Gerbers, a manager at Sophie Grace, says the measures proposed by the regulator could harm innovation in Australia.

"I think Pepperstone's arguments are valid", says Gerbers. "I think that in the long run, the ASIC as a regulator should be cautious in the way they use their powers, because if you consider that they use it harshly and arbitrarily, I think it could really hurt innovation and the willingness to establish businesses here by both Australians and foreigners."

Gerbers argues that ASIC focuses on the wrong issues and believes that leverage is very unlikely to be the enemy that the watchdog seems to believe.

"I do not agree with the use of power by ASIC at this point. ASIC and the government need to be careful what this power means for Australia and its traders. I do not see any justification at this stage for the measures to be more severe than those of Europe's ESMA. My observation is that ASIC has powers and tools to deal with some of the underlying market problems without resorting to this nefarious type of intervention on financial products."

"I don't think the underlying problem is leverage, I think the underlying problem is that companies operating outside of the current regime (unlicensed or with an incorrect license, inappropriate sales practices, conflicting remuneration to name a few) are rarely fined or punished".