ASIC has overseen $17.4 million in compensation payments to over 2000 retail clients due to financial services law breaches by eight retail over the counter (OTC) derivative issuers.

In a media release, the regulator said $4.3 million was for violating leverage ratio limits, with $13.1 million paid to 523 derivatives clients of Binance Australia Derivatives for misclassification issues.

Binance compensated wrongly labelled retail clients, paying $7.8 million in May and June 2023, and an additional $5.2 million in September 2023.

Binance misclassified clients, depriving them of consumer protections during OTC derivative trading, resulting in compensation for net losses and fees from July 2022 to February 2023.

In response to retail client losses in contracts-for-difference (CFD) trading, ASIC introduced leverage ratio limits and extended them until May 2027. The regulator emphasised designing consumer-centric products and rigorous monitoring.

ASIC also reviewed compensation payments and methodologies, finding that seven CFD issuers exceeded leverage limits, reporting breaches voluntarily. Weaknesses in change management and manual errors contributed to these breaches.

The affected clients suffered losses on more than 150,000 CFD trades across 100 different CFD instruments that exceeded the maximum leverage permitted by the product intervention order in the Corporations Act.

The seven CFD issuers were Capital Com Australia, CMC Markets Asia Pacific, Eightcap, IG Australia (IG Markets and IG Australia), Pepperstone Group, Saxo Capital Markets (Australia), and StoneX Financial (trading as City Index).

Issuers compensated affected consumers, but some utilised behavioural assumptions, leading to lower payouts. Four issuers paid over $2.8 million in additional compensation after ASIC’s review.

CFDs are leveraged derivative contracts that allow a client to speculate in the change in value of an underlying asset, such as foreign exchange rates, stock market indices, single equities, commodities or crypto-assets. ASIC reviews in 2017, 2019 and 2020 found that most retail clients lose money trading CFDs.