The Australian Securities and Investments Commission (ASIC) has barred the foreign exchange (FX) business, Monarch FX Group and its former director and general manager, Quinten Hunter, from carrying on a financial services business for four years.
Monarch FX and Mr Hunter have been removed from the financial services industry after the Federal Court in Victoria made a declaration that Monarch FX carried on a financial services business without holding an Australian Financial Services Licence (AFSL) or being authorised by an AFSL holder to provide certain financial services.
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Monarch FX provided FX trading signals to consumers who purchased memberships with the company. The signals were automatically executed on members’ trading accounts.
The Court found that Monarch FX was not licensed or authorised to:
- provide a service where it had the discretion and power to execute trades (such as entering into foreign exchange contracts) using a client’s funds without obtaining instructions for each and every trade from the client (described as a Managed Discretionary Account (MDA) service); and
- make recommendations in relation to superannuation products. The Court accepted that Monarch FX recommended to members that they establish a self-managed superannuation fund (SMSF) to purchase its memberships, and then use money from their SMSF to trade in foreign exchange contracts.
Neither Monarch FX or Mr Hunter held an AFSL. While they were authorised representatives at various times of Audrn Financial Group Pty Ltd, Avestra Capital Pty Ltd and Forex TG Pty Ltd, all of which hold their own AFSL’s, the Court accepted that they were acting beyond the scope of those authorisations by dealing in MDA services and making recommendations in relation to SMSFs.
ASIC’s investigation found that many clients of Monarch FX set up their own SMSF and from the superannuation funds, deposited funds into trading accounts with FX brokers, Vantage FX Pty Ltd and AxiCorp Financial Services Pty Ltd. The deposits ranged from $5,000 to $40,000, but were typically $10,000. The court was told that losses to the SMSF clients averaged out at 40 to 50 per cent.
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By GlobalDataASIC Commissioner Greg Tanzer said, ‘ASIC continues to focus on the retail foreign exchange industry. We are concerned about the number of companies operating similar business models to Monarch FX which use trading software to automatically execute trades in foreign exchange contracts on clients’ accounts without instructions for each transaction. In many instances, we believe the companies do not hold the appropriate licences or authorisations.
‘FX trading can be extremely risky with the potential for large losses to be incurred. The margin contracts that are needed to be entered into to generate a small profit require significant leverage. For example, one contract, after leverage, of $5 million may only generate a profit or loss of $525.
‘Given the complexity of foreign exchange trading, consumers should understand the risks before investing, and particularly, before establishing a self-managed superannuation fund in order to trade in foreign exchange’, Mr Tanzer said.
