ASIC Warns Brokers for Offering High-Risk Products to Retail Investors

The Australian Securities & Investments Commission (ASIC) also defined high-risk products and services that include offerings of securities lending and crypto-assets. It also covers marketing claims of ‘zero’ or ‘low-cost’ brokerage.

The warning came as several brokers are broadening their offerings post-pandemic to increase the revenue base. Though the so-called high-risk products and services are not entirely prohibited, brokers should be cautious while offering them to retail investors as they might be “unfair, inappropriate, or result in poor outcomes.”

Danielle Press, ASIC’s Commissioner, said: “Australian financial services (AFS) licensees may be liable for substantial civil penalties if they do not do all things necessary to ensure the financial services covered by their license are provided efficiently, honestly, and fairly.”

High-Risk Products

Securities lending, for instance, is a complex financial instrument usually offered to institutional investors. The regulation highlighted that some of the design features of these instruments may be difficult to understand and not appropriate for retail investors.

“We will intervene or take action where we see unfair or inappropriate offers of securities lending arrangements to retail clients,” Press added.

Cryptocurrency offerings to retail investors also fall in a grey area in Australia. The sector is unregulated, so ASIC is alarmed about the offerings of crypto assets alongside regulated financial products.

“Crypto-assets are high-risk, volatile, and complex,” said Press.

“Brokers should think very carefully before offering crypto-assets through their share trading apps. The differences in risks and protections must be made clear to investors. We expect brokers to do the right thing for their clients."

Marketing Tactics

The Aussie regulator was also specific on the marketing gimmicks of the brokerage industry. Many trading platforms highlight offerings of ‘zero’ or ‘low-cost’ brokerage to attract retail customers. However, the true cost is often masked within the offered spreads or somewhere else.

“We are concerned that ‘zero brokerage’ claims may not be true to label where the service is ‘bundled’ with other products or services that effectively subsidize brokerage and cause retail investors to take on additional risk,” the Commissioner said.