The ASIC’s Role in Fighting Forex Fraud in Australia

Chris Lee

As stated on their website, the ASIC is “Australia’s corporate, markets and financial services regulator”.

The stated mission of the ASIC is to contribute to Australia’s economic reputation by ensuring that the Australian financial markets are fair and transparent.

The commission was set up under the Australian Securities and Investments Commission Act or ASIC act of 2001. It acts as an independent Commonwealth Government body which carries out its work under the Corporations Act of Australia.

ASIC: A Brief History

The Australian Securities and Investment Commission was original established by the ASIC Act of 1989.

The Commission began operations in Australia as of January of 1991 as the Australian Securities Commission or ASC. This organization replaced both the National Companies and Securities Commission or NCSC and the Corporate Affairs Offices of the States and Territories.

The ASC eventually became the Australian Securities and Investments Commission or ASIC in July of 1998. In doing so, it assumed responsibility for consumer protection in the areas of superannuation, insurance, deposit taking and credit.

How the ASIC Regulates the Forex Market

Before Australia passed the Financial Services Reform Act or FSRA in 2001, foreign exchange dealers had to be registered with the Reserve Bank of Australia or RBA.

Since its enactment in 2001, the ASIC took on its role of enforcing the FSRA regulations. By March of 2006, the ASIC had wrested complete authority for the regulation of the foreign exchange market from the RBA.

Prior to the passing of the FSRA, forex dealing in Australia was largely self regulated with virtually no oversight or other forms of regulation from a centralized foreign exchange board.

Presently, foreign exchange dealers operating in Australia must hold either an Australian Financial Services License or AFS, or they must be otherwise authorized by a Licensee.

The AFS License is required primarily because of the Australian Corporations Act of 2001.

This legislation categorized foreign exchange dealings as dealings in financial products since currencies are not immediately exchanged, but they instead require a two day settlement period and financial risk is involved.

AFS Licensing Requirements and Obligations

A number of requirements for obtaining an AFS License include:

  • Financial Requirements – cash and solvency
  • Qualifications and experience of Responsible Managers
  • Monitoring and training of representatives, which include authorized representatives
  • Compliance and Risk Management
  • Technological and Human Resources
  • Management of conflict of interest issues
  • Dispute Resolution
  • Compensation and Insurance
  • Indemnity Insurance and Compensation Arrangements and
  • Conduct and Disclosure.

While most forex brokers doing business in Australia must be AFS Licensed, some exceptions to the licensing regime have been implemented. In January of 2005, for example, the ASIC allowed some foreign exchange dealers dealing in derivatives to operate without an AFS License or to be authorized by a licensee.

Exemptions From Regulation

According to an ASIC ruling entitled: “Licensing relief for some overseas dealers or market makers in derivatives and foreign exchange contracts”, relief from regulation “applies to foreign companies that meet the equivalent requirements in Regulation 7.6.01(1)(ma) under the Corporations Act 2001.”

Furthermore, these requirements for exemption state that:

  • “the derivative or foreign exchange contract is issued, acquired or disposed of under an agreement that sets out the terms and conditions for future dealing in a derivative or foreign exchange contract between the two parties to the agreement”
  • and that the other party to the agreement is a wholesale client in Australia and that the Australian party
  • initiated the agreement and that they hold a Australian Financial Services license which permits them to deal or make markets in the financial product and that
  • the person with whom the agreement is made is out of the Australian jurisdiction and finally that
  • each party is dealing on their own behalf.

Current Role of the ASIC in Preventing Forex Fraud

The ASIC plays an important role in the regulation of all aspects of financial regulation in Australia, much like the CFTC does in the United States.

As such, the regulatory organization provides Australian forex traders with recourse in the case of insolvency or fraud on the part of their regulated forex brokers.

An ASIC affiliation is especially valuable if the forex broker also operates with an Australian Financial Services License or is authorized by a Licensee.

Chris Lee

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