ASIC has made two interim stop orders preventing Trademax Australia from opening trading accounts or dealing in contracts for difference (CFDs) or margin foreign exchange contracts (margin FX) to retail investors.
ASIC acted following concerns that Trademax failed to take reasonable steps likely to result in its retail product distribution conduct being consistent with two target market determinations (TMDs) which is a requirement under the design and distribution obligations (DDO).
The regulator’s concerns related to Trademax’s reliance on an inadequate retail investor questionnaire for compliance with its obligations and a lack of other controls in Trademax’s onboarding process to assess whether clients are likely to be in its target markets.
ASIC considered that Trademax’s use of a poorly designed and inadequate questionnaire:
- Did not adequately enquire into the prospective clients’ financial situation, risk tolerance and investment objectives to enable Trademax to adequately assess whether the prospective clients are likely to be in the target markets described in its TMDs for the complex, high risk, leveraged CFDs and margin FX products;
- Did not adequately enquire into the prospective clients’ risk tolerance and technical understanding of CFDs over crypto assets to enable Trademax to adequately assess whether the prospective clients are likely to be in the target market described in its crypto TMD;
- Had significant design flaws, including warning messages prompting clients to review their answers, allowing prospective clients to submit alternative responses so they would meet the target markets; and
- Permitted retail investors two attempts to pass the questionnaire every 24 hours for an indefinite period and prompted prospective clients with a tick-box acknowledgement that they had certain attributes.
DDO requires issuers and distributors of a financial product to take reasonable steps that will result in the distribution of those product to the appropriate target market.
The interim stop orders are valid for 21 days unless revoked earlier.
To date, ASIC has issued 86 interim stop orders and one final stop order under DDO, including the orders for Trademax.