ASIC warns brokers considering high-risk offers on securities lending
31 August 2022 Australia
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The Australian Securities & Investments Commission (ASIC) has warned brokers to reconsider offering high-risk products and services to retail investors.
These high-risk products include securities lending, crypto assets and offers of ‘zero’ or ‘low-cost’ brokerage — where the true cost is masked.
The ASIC has experienced an increase in the number of brokers offering securities trading since the onset of the COVID-19 pandemic. However, recent changes in the market have dampened retail investor activity.
To broaden their revenue base, some brokers are seeking to offer retail investors high-risk products or services that may be unfair, inappropriate or result in poor outcomes, according to the Australian securities markets regulator.
Design features that may be classed as unfair or inappropriate include the bundling of securities lending with other services, or automatic opt-in of clients to securities lending.
In Australia, securities lending has generally been limited to institutional investors that have the size, scale and sophistication to understand and manage the risks.
ASIC suggests that securities lending is complex and may be difficult for retail investors to understand, therefore, they should be aware of features where there is no pre-qualification or vetting of investors, and a fee split that is heavily skewed in favour of the provider.
Commenting on the findings, ASIC commissioner Danielle Press says: “We will intervene or take action where we see unfair or inappropriate offers of securities lending arrangements to retail clients.
“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 licence are provided efficiently, honestly and fairly.”
These high-risk products include securities lending, crypto assets and offers of ‘zero’ or ‘low-cost’ brokerage — where the true cost is masked.
The ASIC has experienced an increase in the number of brokers offering securities trading since the onset of the COVID-19 pandemic. However, recent changes in the market have dampened retail investor activity.
To broaden their revenue base, some brokers are seeking to offer retail investors high-risk products or services that may be unfair, inappropriate or result in poor outcomes, according to the Australian securities markets regulator.
Design features that may be classed as unfair or inappropriate include the bundling of securities lending with other services, or automatic opt-in of clients to securities lending.
In Australia, securities lending has generally been limited to institutional investors that have the size, scale and sophistication to understand and manage the risks.
ASIC suggests that securities lending is complex and may be difficult for retail investors to understand, therefore, they should be aware of features where there is no pre-qualification or vetting of investors, and a fee split that is heavily skewed in favour of the provider.
Commenting on the findings, ASIC commissioner Danielle Press says: “We will intervene or take action where we see unfair or inappropriate offers of securities lending arrangements to retail clients.
“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 licence are provided efficiently, honestly and fairly.”
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