MIU - Issue 151 - August 2023

Further action warned against market misconduct

Market participants are warned that strong, targeted enforcement action will continue in the coming months as part of our focus on protecting consumers from harm, and upholding market integrity.

Our recent enforcement and regulatory update highlighted over $109.1 million in civil penalties for the half year to 30 June 2023, along with a number of significant outcomes aimed at maintaining market integrity. This included insider trading charges, the sentencing of an individual for market manipulation and cancelling the AFS licence used by Binance Australia Derivatives. We’ve also banned an individual who engaged in naked short selling and continue to monitor compliance with the short selling regime.

We’ve embedded core functionality from our insider trading detection project into our surveillance processes, to more efficiently identify suspicious trading by connected parties proximate to market sensitive announcements. This facilitates more efficient investigation of insider trading matters.

Promoting market integrity and addressing misconduct that places consumers and investors at risk is one of our enduring priorities.

• Read the media release

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eToro sued in first design and distribution action to protect consumers from high-risk CFD products

We’ve commenced proceedings in the Federal Court against online investment platform, eToro Aus Capital Limited (eToro), regarding its contract for difference (CFD) product.

The case focuses on the appropriateness of eToro’s target market, and the screening test used by eToro to assess whether a retail client fell within the target market for the CFD product.

We allege that from October 2021:

• eToro’s CFD target market was far too broad. For example, if a retail client had a medium-risk tolerance but was not an experienced investor and had no understanding of the risks of trading CFDs, that client still fell within the target market
• eToro’s screening test was very difficult to fail and of no real use in excluding customers for who the CFD product was not likely to be appropriate. For example, clients could amend their answers without limitation and clients were prompted if they selected answers which could result in them failing.

We further allege eToro failed to do all things necessary to ensure that the financial services covered by its licence were provided efficiently, honestly and fairly by applying the screening test to determine whether to issue the CFD product to retail clients.

CFD issuers are reminded that target markets should be narrowly defined given the significant risk that retail clients may lose all their deposited funds. CFD issuers must comply with the design and distribution regime and cannot simply reverse engineer their target markets to fit existing client bases.

• Read the media release

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Duncan Stewart charged for alleged insider trading

Duncan Stewart has been charged with multiple insider trading offences in connection with share market purchases made in Kidman Resources Ltd (Kidman) in 2019.

We allege that Mr Stewart engaged in insider trading on two occasions in April 2019, when he purchased shares in Kidman while in possession of inside information regarding a proposal by Wesfarmers Ltd to acquire Kidman prior to this information being announced to the market.

We further allege that Mr Stewart procured another person to commit insider trading on two occasions in March and April 2019, by encouraging a family member to buy Kidman shares while in possession of confidential information about the Wesfarmers proposal and a second, earlier takeover offer that had been considered by the company.

When the Wesfarmers proposal was announced to the market on 2 May 2019, Kidman’s share price jumped from $1.29 to $1.84. We allege this resulted in Mr Stewart realising profits of $68,114.

Kidman was ultimately acquired by Wesfarmers in September 2019 in a deal worth $776 million. It was subsequently delisted from the ASX and is now known as Australian Light Minerals Pty Ltd.

The matter is next listed for mention at the Melbourne Magistrates Court on 4 December 2023.

• Read the media release

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Cyber Pulse Survey highlights areas for improvement

Our recent survey – designed to measure cyber resilience in Australia’s corporate and financial markets – has revealed areas for improvement for market intermediaries.

Initial findings from the Cyber Pulse Survey indicate most participating market intermediaries have made progress towards developing their cyber resilience capabilities, including having:

• cyber incident response plans in place that are regularly reviewed and updated
• a well-developed understating of their organisation’s cyber risk landscape
• a high level of regulatory compliance with cyber security obligations.

However, more than half of market intermediaries indicated they did not test their cyber security incident response with critical third-party suppliers. A reasonable proportion also didn’t have a data destruction policy in place and had failed to map confidential information flows between systems.

We’ll publish a public report later this year with our findings from the survey, including sectoral insights, better practices identified and areas for improvement.

Participating organisations that opted into receiving an individual report should have received an email (to their nominated email address) with the report attached.

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ASX CHESS replacement project update

ASX Advisory Group

We welcome the establishment of a new Advisory Group to advise ASX Clear and ASX Settlement on strategic clearing and settlement issues. Importantly, this includes input into the governance of the ASX CHESS replacement project.

On 2 August, ASIC Chair Joe Longo hosted a roundtable, comprised of a small group of recognised industry leaders, and including ASIC Commissioner Danielle Press and the Deputy Governor of the Reserve Bank of Australia, Michele Bullock.

The roundtable was convened to address longstanding industry concerns over the CHESS replacement project and the adequacy of ASX’s stakeholder engagement and governance, including ASX’s management of intragroup conflicts of interest. During the roundtable, ASX announced the appointment of Alan Cameron AO as Independent Chair of the Advisory Group.

We expect ASX and the Advisory Group to work together in the best interests of the market, including for the replacement of CHESS. The Advisory Group will provide important input to the governance of the CHESS replacement project.

ASIC and the RBA will shortly advise ASX of the regulators’ expectations in respect of the Advisory Group. A public response from the boards of ASX Clear and ASX Settlement is expected.

We’re prepared to use a range of regulatory options to ensure that ASX Clear and ASX Settlement adhere to the regulators’ expectations with respect to the Advisory Group.

• Read the media release

Release of Special Report and Audit Report

On 17 August, ASX released the Special Report and the Audit Report in response to recommendations and findings identified in the CHESS Replacement Program External Review Report (the External Review).

The Special Report details ASX’s response plan, including remediation actions and timelines. The Audit Report found that the ASX Special Report met the requirements of the relevant notices we issued on 21 February 2023 – however, it included four recommendations to support the timely, quality delivery of the ASX response plan.

The External Review was published by the ASX on 17 November 2022 and resulted in a pause of the CHESS replacement program while ASX revisited the solution design. It contained 45 recommendations for ASX to implement to deliver the CHESS replacement program in a way that aligned with its objectives.

Together, the reports will assist ASIC in its assessment of whether any further regulatory action is required, including ASIC’s regulatory options, to ensure that ASX Clear and ASX Settlement adhere to the regulatory expectations and comply with its clearing and settlement facility licence obligations.

• Read the news item

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ASIC Annual Forum comes to Melbourne, registrations open

Registrations are open for the ASIC Annual Forum and dinner to be held on 21–22 November 2023 in Melbourne.

The event brings together regulators, industry and thought leaders from Australia and abroad under the theme, Navigating disruption.

This year’s program reflects the need to understand how we respond ambitiously and effectively to disruption drivers such as geo-political and economic change, AI, and cyber.

There will be a diverse program that covers our regulatory and enforcement priorities, as well as current topics such as major changes in sustainable finance, including implications for consumers and markets, regulating disruptive and advanced technologies, and the influence of social media.

The Annual Forum and dinner will be held at the Sofitel Melbourne on Collins.

Early bird ticket discounts are available until 10 October 2023. Group discounts are also available.

• Register now

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AFS licence suspensions

Navigate Global Payments AFS licence suspended

We’ve suspended the Australian financial services (AFS) licence of Navigate Global Payments Pty Ltd (Navigate) until 18 October 2023, after it was placed into voluntary administration on 30 June 2023.

On 30 June 2023, Nick Combis of Vincents Chartered Accountants was appointed as voluntary administrator of Navigate. On the same day, David Hardy, Sarah Seeckts and Ryan Eagle of KPMG were appointed as receivers and managers of Navigate.

We encourage clients of Navigate to carefully monitor and watch for updates from Navigate, as well as from the administrator, and receivers and managers.

Navigate may apply to the Administrative Appeals Tribunal for a review of our decision.

Probis Financial Services AFS licence suspended

We’ve suspended the Australian financial services (AFS) licence of Probis Financial Services Pty Ltd (Probis) after it was placed into voluntary administration on 17 July 2023.

The suspension includes a provision that requires Probis to continue as a member of Australian Financial Complaints Authority, with arrangements for compensating retail clients in place until the end of 30 October 2023.

On 17 July 2023, Richard Albarran, Brent Kijurina, Cameron Shaw and Aaron Dominish, of Hall Chadwick, were appointed as voluntary administrators of Probis.

Prior to suspension, Probis’ licence permitted it to:

• provide general advice and deal in specified financial products
• make a market in foreign exchange contracts and derivatives
• operate a registered managed investment scheme in financial assets
• provide custodial and depository services to retail and wholesale clients.

Probis may apply to the Administrative Appeals Tribunal for a review of our decision.

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