Australia's financial markets regulator recently revealed that it has overseen the payment of a combined $4.3 million in compensation to more than 1,500 retail customers of seven different contract for difference (CFDs) issuers.。Since March 2021, it has issued CFDs with leverage ratios in excess of the allowed limit and has therefore paid compensation。

Major CFDs brands breach Australian rules

The seven named CFD brokers include Capital.com, CMC Markets, Eightcap, IG, Pepperstone, Saxo Markets and City Index, all of which operate as local entities in Australia。These retail brokers self-reported breaches of leverage ratio limits in product intervention orders and proposed redemption plans to the Australian Securities and Investments Commission (ASIC).。

However, the largest award of A $13.1 million went to customers of Binance Derivatives Australia, which operates under the name Oztures Trading.。The crypto derivatives issuer incorrectly classified retail customers as wholesale customers, violating multiple financial services laws.。

ASIC also investigated Binance Australia's operations and cancelled its operating licence in April last year after the company voluntarily cancelled its application.。

Tight leverage limits for CFDs

Australian regulators limited the leverage ratio offered in March 2021, reducing it to a maximum of 30: 1. The leverage ratio varies depending on the underlying asset, with a minimum of 2: 1。According to the latest announcement, clients of CFD brokers have suffered losses in excess of the maximum leverage ratio in more than 150,000 CFD transactions across 100 different CFD instruments.。

Some CFD brokers also noted that the root cause of the breach was "weak change management, including failure to adequately test and review IT systems after the trading platform update; and manual errors in applying leverage limits to CFD instruments and retail client accounts."。

Of the seven brokers, three unspecified CFD brokers used behavioral assumptions to estimate losses to retail customers caused by violations to reduce the amount of compensation, ASIC said.。The three brokers, as well as another unspecified broker, did not compensate for fees and charges incurred in the course of the transaction.。

As a result of the regulator's review, the four CFD brokers "paid and agreed to pay" more than $2.8 million in additional compensation to affected retail customers.。

Sarah Court, vice-chairman of ASIC, said: "It is important that retail customers are protected by law when trading these high-risk products.。"These protections include CFD product intervention orders, design and distribution obligations, and access to external dispute resolution through the Australian Financial Complaints Authority."。