Australian securities regulator calls for improvement in retail crypto derivatives

The Australian Securities and Investments Commission (ASIC) is intensifying its focus on the distribution of “high-risk” over-the-counter derivatives to retail clients, including crypto derivatives.

According to a report titled “Design and Distribution Obligations: Retail OTC Derivatives,” the regulator is concerned about issuers offering unregulated digital assets alongside regulated financial products.

The report, published on Tuesday, states that such a practice risks confusing retail investors, who may wrongly assume the same consumer protections apply to both regulated and unregulated products.

It follows last month’s lawsuit by the regulatory against trading platform eToro, alleging violations in design and distribution requirements related to its CFD offerings, which have allegedly resulted in substantial losses for retail investors.

“We are closely monitoring offers to retail investors of high-risk crypto-linked products that constitute financial products or the provision of financial services,” ASIC said in its report. “Retail investors may also underestimate the risks.”

ASIC’s Deputy Chair, Karen Chester, expressed the regulator’s dissatisfaction with how issuers, especially those dealing in crypto derivatives and CFDs, are adhering to design and distribution obligations.

“We will not hesitate to take further action, from stop orders through to court proceedings, especially where we see egregious failures,” Chester said in a statement.

A CFD is a contract between an investor and a broker to exchange the difference in the value of an asset between the time the contract is opened and closed. CFDs are typically used for speculative trading and hedging.

ASIC sought an intervention into such products three years ago when it imposed conditions on their issuance and distribution in an attempt to strengthen retail consumer protections.

Those included limiting the leverage retail clients can use for CFDs to just 2:1 for crypto, meaning for every dollar the retail client has in their trading account, they can only take a position up to twice that amount.