The Australian financial market regulator has disclosed that it compensates payment of AU $4.3 million to over 1,500 retail clients of seven different issuers of contracts for difference (CFD) clients. This compensation started in March 2021 due to the issuance of CFDs with leverage ratios exceeding the permitted limits.

The seven named CFD brokers involved in this compensation scheme include Capital.com, CMC Markets, Eightcap, IG, Pepperstone, Saxo Markets, and City Index, all of which operate in Australia through their local entities. These retail brokers voluntarily reported the breach of leverage ratio limits in the Product Intervention Order and proposed redemption program to the Australian Securities & Investments Commission (ASIC).

The largest compensation amount, totaling AU$13.1 million. This was given to clients of Binance Derivatives Australia, which operates as Oztures Trading. The crypto derivative issuer had incorrectly classified retail clients as wholesale clients, thus breaching various financial services laws. In response to ASIC’s investigation, Binance Australia had its operating license canceled last April following the company’s voluntary cancellation request.

Australian Regulator Compensates CFD Clients

To ensure the stability of the financial market and protect retail clients, the Australian regulator had previously restricted the offered leverage ratio in March 2021, reducing it to a maximum of 30:1. These limitations vary depending on the underlying assets and can go as low as 2:1. The compensation has been provided to clients of the CFD brokers who incurred losses on more than 150,000 CFD trades across 100 different CFD instruments that exceeded the maximum leverage.

Several CFD brokers identified the underlying causes of the breaches as “change management weaknesses, including failures to adequately test and review IT systems after trading platform updates, and manual errors when applying leverage ratio limits to CFD instruments and retail client accounts.”

In its investigation, ASIC discovered that three of the seven CFD brokers used behavioral assumptions to estimate retail client losses resulting from the breaches, leading to lower compensation amounts. These three brokers, along with an additional unspecified one, failed to compensate clients for the fees and charges incurred during their trading activities.

Sarah Court, the Deputy Chair at ASIC, emphasized the importance of protecting retail clients when dealing with risky products. She stated, “It is important that retail clients get the protections they are entitled to under the law when dealing with these risky products. These protections include the CFD product intervention order, design and distribution obligations, and access to external dispute resolution through the Australian Financial Complaints Authority.”

This compensation effort represents a significant step toward ensuring fair and transparent trading practices in the Australian financial market, safeguarding the interests of retail clients.

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