Product intervention power - regulatory action sooner than expected

This article was originally authored by Toby Blyth. For further details or assistance, please reach out to Michael Bracken.

In brief - ASIC sets its sights on binary options, margin foreign exchange and contracts for difference

Regulatory action under the new product intervention power may happen sooner than expected.

A summary of the power and law changes are available in our April 2019 article New Design and Distribution Obligations and Product Intervention Powers for Financial Products. 

According to an article in The Australian (May 24, 'ASIC closer to clamp on risky investments'), comments from ASIC (the Australian Securities and Investments Commission) at the Stockbrokers and Financial Advisers Association conference indicated that it was thinking really hard about binary options, margin foreign exchange (FX) and leverage in margin FX and CFDs (contracts for difference).

Bans on binary options in Europe and UK, and restrictions on CFDs in Europe already in place 

Product intervention and the comments from ASIC in respect of margin products and CFDs shouldn't really be a surprise given the focus on binary options and CFDs internationally (and their high risk nature generally).

In July 2018, the European Securities and Markets Association, supported by the UK FCA (Financial Conduct Authority), implemented:

• a prohibition on the marketing, distribution or sale of binary options to retail investors
• a restriction on the marketing, distribution or sale of CFDs to retail investors

In March of this year, the UK FCA announced a permanent ban on the sale of binary options to retail consumers, and is still to decide on a permanent approach for the sale of CFDs to retail consumers.

What to consider if ASIC makes a product intervention order

In making any product intervention decision ASIC will need to proceed in accordance with administrative processes, including a prior consultation.

If implemented, the practical effect will be significant. Trade and commerce is on a global basis, and Australian retail clients have convenient access to the Asia-Pacific financial markets and further abroad. International businesses would need to ensure appropriate measures are in place to not contravene any order. This can be difficult where Australian residents have access to markets hosted overseas and on that basis Australia asserts jurisdiction over such markets. 

Even if an intervention order is not made ASIC could instead rely on its other regulatory powers, including those for licensing and disclosure.