Interactive Brokers Repays $1.5 Million To Australian Customers

ASIC Forex Broker Regulatory Action

Following an Enforceable Undertaking agreed to between Interactive Brokers and the Australian Securities & Investments Commission (ASIC), Interactive Brokers has:

  • refunded approximately $1.5 million in commissions and fees to Australian retail customers
  • paid $150,000 for financial services consumer education
  • employed Price Waterhouse Coopers to ensure that refunds were calculated and reimbursed appropriately

In performing these activities, Interactive Brokers have met the terms of the Enforceable Undertaking, as described in the ASIC media release.

Background:

Interactive Brokers had been providing financial services in Australia since year 2000. They had been operating under Australian Financial Services License (AFSL) number 245574 since 2004. This permitted Interactive Brokers to deal in foreign exchange contracts, among other things. However, the AFSL did not allow for the provision of margin lending facilities. 

In 2010, ASIC changed the requirements for margin lending, following the passage of the Corporations Legislation Amendment (Financial Modernisation) Act in 2009. The amendment to the Act required, among other items, that:

  • issuers of margin lending facilities carry an AFSL
  • issuers of margin lending facilities carry out reasonable inquiries to determine whether the margin lending is suitable to their financial circumstances
  • clarity regarding how companies notify their clients for margin calls, and other lending requirements
  • consumers have access to external dispute resolution services, such as the Financial Ombudsman Service

Since the change to the Act required the AFSL to authorize margin lending, Interactive Brokers was required to seek a variance to the conditions of their license. Interactive Brokers did not seek that variance from ASIC until July 2013. Interactive Brokers explained to ASIC that the delay was due to bad legal advice they had received concerning the licensing requirements. From 2010 to 2013, Interactive Brokers issued margin lending facilities to over 13,000 clients. It then received approximately $1.5 million in net fees and commissions from these clients.

In December of 2013, ASIC extended to Interactive Brokers a "no-action" position regarding its forex business. It did so on the basis that Interactive Brokers would seek and obtain the necessary licensing requirements to issue margin facilities. Since that time, ASIC determined it was not satisfied with Interactive Brokers operations. They therefore have not granted the necessary licensing permissions. In June 2015, ASIC withdrew its "no-action" position. ASIC now requires Interactive Brokers to cease any over the counter financial services in Australia related to forex. They further request from Interactive Brokers more information to help them determine how to exit the Australian retail forex marketplace in an orderly fashion.

So Is Interactive Brokers A Scam?

Based on the behavior reported here by Interactive Brokers, and the action taken by ASIC, one should not consider Interactive Brokers to be scammers. Their action had no negative impact on clients outside of Australia. While Australian customers may not have benefited from the full protection of ASIC regulations, they likely benefited from a lot of the Australian rules and protections. They also likely benefited from the rules under which Interactive Brokers operates elsewhere in the world. Further, it appears that Interactive Brokers broker the rules due to bad legal advice and not due to malicious intent. However, this is not the only time that Interactive Brokers has had action taken against it by the regulators. Our forex broker reviews point to action taken against Interactive Brokers and other forex broker/dealers in the United States. Please visit that page for more information.

About Interactive Brokers:

Interactive Brokers is a major USA based provider of financial broker / dealer services in forex. They are also major participants in other markets such as equities, options, futures and bonds. They are among the larger broker / dealers, with over $5 billion in equity capital. They are a publicly traded company listed on the NASDAQ under symbol IBKR. They have over 900 employees in offices throughout the world. They execute almost 1,000,000 trades per day. 

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Title: Interactive Brokers Repays $1.5 Million To Australian Customers
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