When reporting on the recent settlement reached between IronFX and the Cypriot regulator CySEC, we had mentioned the certainty that the IronFX saga would undoubtly soon produce more episodes. This prediction was confirmed through an announcement that was recently made by ASIC, the Australian watchdog.
In its announcement the Australian Securities and Investments Commission (ASIC) notifies the public that IronFX was forced to remove online marketing statements and change a disclosure document that suggested certain financial services were regulated in Australia, which ASIC determined was not the case.
This is yet another example that supervisory and licensing authorities, especially in jurisdictions which are popular with brokers and serve as hubs are tightening their leash on brokers and are even taking more proactive measures, in order to try to avert and prevent problems before they occur instead of trying to alleviate them after they occur. This is surely a more effective method in protecting investors and traders.
According to ASIC, its intervention in the case of IronFX continues its “focus on financial services compliance in the retail OTC derivative sector, including margin FX, CFDs and binary options” and this is why the Australian regulator also mentions several other cases, warnings issued and steps taken in this regard in the recent period.
Perhaps worried due to the several complaints voiced against IronFX and the investigation launched against the firm by CySEC, ASIC explains in its announcement that following concerns raised by ASIC, retail OTC derivative issuer, IronFX Global Australia Pty Ltd (IronFX Australia) has taken steps to remove references from an associated website and a disclosure document that suggested certain financial services were regulated by ASIC, when this was not the case.
ASIC further explains that it was concerned that statements published on the website of IronFX Australia’s parent company, Cyprus-based IronFX Global Ltd (http://www.ironfx.com/en), (IronFX Cyprus), as well as from the IronFX Cyprus disclosure document, gave the impression that the financial services provided by IronFX Cyprus are regulated by ASIC.
The announcement of the Australian watchdog clarifies that IronFX Australia’s Australian financial services licence only covers the financial services provided by that entity in Australia, stressing hence that it does not cover financial services provided outside of this jurisdiction or directly by other entities in the IronFX group and making clear that IronFX Cyprus is neither licensed nor otherwise regulated by ASIC.
ASIC also informs the public that following discussions with the company, IronFX Australia has also updated its Product Disclosure statement (PDS) to include material information about its hedging arrangements and has updated its PDS to clearly disclose that its sole hedging counterparty is its parent company, IronFX Cyprus.
Commenting on this case the ASIC Commissioner Cathie Armour said that: “Licensees need to ensure that any marketing materials, including those produced within their group, do not create the impression that the entity making those statements is licenced to issue the product. In terms of disclosure, retail investors need to be given sufficient information in the PDS in order to ensure that they can make informed decisions including information on counterparties. Licensees should therefore review their marketing and disclosure documentation to ensure it meets these requirements.”
The announcement of the Australian watchdog makes it clear that IronFX Australia currently hedges each transaction with its Cyprus parent and has a general policy of using all client money for the purposes of funding those positions, while it also points out that investors have no recourse against a hedge counterparty and their recourse is therefore limited to IronFX Australia’s actual recovery against its hedge counterparty (which is currently IronFX Cyprus).
In view of all the above, ASIC urges investors to ensure that they understand their contractual rights and obligations and carefully assess all relevant risks. In particular, investors should understand the credit risk posed by the hedging arrangement with IronFX Cyprus before entering into any transactions with IronFX Australia.
As a concluding comment and to tie this into the whole IronFX saga, let us simply point out that claiming to be regulated in several high-profile jurisdictions and never having been fined or reprimanded by any of them has long been one of IronFX’s strongest marketing propositions. Perhaps, then, this statement by ASIC helps to clarify the situation a bit better. As always, we will remain vigilant and inform you accordingly.