Obligations for CFDs Brokers: ASIC Seeks to Tighten DDO Rules Further

<p>The Australian Securities and Investment Commission (ASIC) has found “significant room for improvement” in the design and distribution obligations (DDO) around the distribution of over-the-counter (OTC) derivatives and other high-risk retail products. These products include contracts for differences (CFDs) and crypto derivatives.
</p><p>ASIC Sees Room for Improvement around DDO
</p><p>Announced today (Wednesday), the Aussie regulator concluded that financial services providers offering these complex investment instruments over-rely on client questionnaires as a primary distribution filter, must review their mass marketing of OTC derivatives, and use “available data” to improve obligations.
</p><p>“Product issuers should not simply rely on client questionnaires to meet their distribution obligations. These are high-risk products, which mean a range of controls are likely needed to ensure they get to the right consumers in their ‘niche’ target markets,” said the Deputy Chair of <a href="https://www.financemagnates.com/tag/asic/">ASIC</a>, Karen Chester. “We know the stakes are high for resulting harms if they end up with consumers outside of their stated target markets.”
</p><p>“We are also concerned to see mass-market advertising of these high-risk financial products. Absent robust distribution controls, such mass advertising is likely to see these products end up in the wrong hands – consumers they are not intended or appropriate for.”
</p><p>Protecting the Interest of Retail Traders
</p><p><a href="https://www.financemagnates.com/forex/aussie-firms-should-meet-design-and-distribution-obligations-asic/">ASIC implemented the DDO rules</a> in October 2021 and has strictly enforced these obligations for financial services companies. It requires financial services providers to ensure products are designed with consumer needs in mind and distributed in a targeted manner. They must also monitor outcomes and reassess their product governance arrangements over time.
</p><p>To date, it has taken action against five issuers of retail OTC derivative products for DDO breaches, including names like <a href="https://www.financemagnates.com/forex/saxo-amends-cfds-target-market-determination-amid-asics-stop-order/">Saxo Capital Markets </a>and <a href="https://www.financemagnates.com/forex/asic-revokes-interim-stop-order-against-cfds-broker-mitrade/">Mitrade</a>. Last month,<a href="https://www.financemagnates.com/forex/brokers/asic-sues-etoro-for-lapses-around-identifying-cfds-investors/"> ASIC sued eToro</a> for DDO lapses in its CFDs offerings. It was the first lawsuit brought by ASIC against a CFDs broker for the breach of DDO rules.
</p><p>“ASIC is disappointed that some high-risk retail product issuers have changed little in response to their design and distribution obligations,” Chester added.
</p><p>Apart from the DDO rules, ASIC heavily <a href="https://www.financemagnates.com/forex/regulation/asic-extends-leverage-restrictions-on-cfds-for-another-five-years/">restricted the leverage brokers </a>offer to retail traders until May 2027. It even <a href="https://www.financemagnates.com/binary-options/regulation/asic-extends-binary-options-ban-until-october-2031/">banned binary options</a>, which will be in effect until October 2031.
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This article was written by Arnab Shome at www.financemagnates.com.