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Slater and Gordon concern on online broking report

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Law firm Slater and Gordon has urged consumers to be aware of the potential risks of investing in products offered by the online broking industry.

The warning comes after the release of an ASIC report into the over-the-counter (OTC) derivatives industry in Australia, including its impact on retail investors and everyday consumers.

The industry provides financial services in potentially high risk products including ‘binary options’ foreign exchange (FX) contracts and ‘contracts for difference’ (CFDs), among others.

Slater and Gordon Practice Group Leader Mark Walter said the report was concerning as it highlighted serious and widespread compliance failures by a number of the companies licensed in Australia by ASIC to conduct this form of trading. 

“We have seen a recent trend where these potentially high risk financial products are marketed to retail investors using slick marketing and buzzwords,” Mr Walter said.

“The ASIC report reveals a darker side to the industry which is cause for considerable concern.

“We have been contacted by investors who have made significant losses through high risk trading, including binary options.

“We are concerned that the AISC report into this trading reveals a widespread problem that potentially puts consumers at risk - namely that a large proportion of the companies reviewed by ASIC were found to be non-compliant.

“What is particularly troubling is that the industry is often focused on retail investors. The report identified that in some cases the risk of this type of trading is not being properly disclosed to everyday consumers.”

Slater and Gordon has previously voiced concerns in relation to binary options trading websites, including our concern that in retail investors in Australia have been trading on these websites without fully appreciating the risks.*

ASIC also identified in its report that some of the product disclose statements issued by the investigated companies did not consistently disclose the risk that the products pose and that consumers are being targeted by cold calling and unsolicited emails. 

“Aggressive marketing tactics by issuers of retail derivative products increase the exposure of these types of products to Australian consumers who may not be aware of the dangers of such investments,” Mr Walter said.

“We are highly concerned that retail investors would be cold called by marketers in these circumstances.”

ASIC also raised concerns that companies licensed by ASIC were using the fact that they were licensed as a marketing tool.

“Many investors are under the impression that they are protected because the entity holds an AFS licence,” Mr Walter said.

“The licence indicates that a company is regulated by ASIC, it does not mean that ASIC or the government considers the company or investment strategy posed to be safe.

“If an entity holds an AFS licence that does not mean investors should disregard the risks involved in trading in retail OTC derivatives.

“If consumers consider that they have been misled or improperly advised, they should seek independent legal advice.”