Australia's financial markets regulator has cancelled the licence of retail foreign exchange and contracts for difference (CFDs) issuer XTrade.AU Pty Ltd, which operates under the name XTrade, for a series of breaches.

Revocation of XTrade licence

On 29 April, XTrade applied to the Administrative Appeals Tribunal (AAT) for a review and stay of the Australian Securities and Investments Commission's (ASIC) decision to cancel its Australian Financial Services (AFS) licence. However, the AAT refused to issue a stay, meaning that XTrade's licence will remain suspended until a final decision is made.

XTrade is a retail OTC derivatives issuer that offers risky CFDs and FX contracts to its clients. CFDs provide leveraged trading opportunities that allow traders to speculate on changes in the value of underlying assets.

While the company will not be able to offer its services in Australia due to the revocation of its AFS licence, the brand will continue to operate in overseas markets with licences in Belize and South Africa.

Serious non-compliance

It is alleged that between June 2018 and September 2022, XTrade failed to comply with the general obligations of AFS licence holders and engaged in "unconscionable conduct".

The regulator further stated that XTrade failed to "take reasonable steps to ensure that its representatives complied with financial services law" and "did not have appropriate arrangements in place to manage conflicts of interest". In addition, the broker failed to ensure that its "retail product distribution was consistent with the identification of its target market" and that the services it provided were "effective, honest and fair".

In addition to operational failures, the regulatory investigation found that the broker "put its own interests ahead of those of its customers and failed to act in good faith." In addition, the broker's representatives had engaged in misconduct over a number of years and had failed to ensure they had received adequate training.

ASIC has recently become very strict with CFD brokers, especially when it comes to providing services to retail traders. The broker has introduced strict restrictions within the industry, reducing the leverage offered to a maximum of 30:1.

The regulator has also issued interim cease and desist orders to several popular CFD brands for breaches of design and distribution obligations (DDOs), including TMGM, Saxo and Mitrade. the regulator has sued eToro for violating the DDOs, which is the first time that such action has been taken against a broker.