ASIC takes further product intervention power steps

By Matt Daley, Vanessa Pallone
05 Sep 2019
While CP 322 is the first of its nature, we expect to see a flurry of activity in respect of other financial products.

As the industry awaits the finalisation of ASIC's guidance for its proposed administration of its product intervention powers, ASIC has wasted little time in issuing a new Consultation Paper 322: Product intervention: OTC binary options and contracts for difference ("CFDs") ("CP 322").

While not the first proposed exercise of ASIC's new product intervention power, CP 322 is the first example of ASIC making a market-wide product intervention order in respect of investment products.  CP 322 also confirms ASIC's intention to make the most of its enhanced regulatory toolkit to reduce or avoid unfair consumer outcomes, as it otherwise "shift[s] away from an over-reliance on disclosure to protect consumers".

ASIC's concerns around over-the-counter ("OTC") binary options and CFDs are not unique to the Australian market. In fact, an increasing number of foreign regulators have implemented or are implementing measures to prohibit or restrict the offer of OTC binary options and CFDs.

CP 322

CP 322 sets out ASIC's proposal to issue a market-wide product intervention order which seeks to:

  • prohibit the issue and distribution of OTC binary options to retail clients; and
  • impose certain conditions on the issue and distribution of OTC CFDs to retail clients.

Why OTC binary options and CFDs?

CP 322 follows a significant focus by ASIC on the industry over the past few years which has included a review of the Australian market for OTC binary options and CFDs in 2017 ("2017 Review"), as well as enforcement action, the issuance of public warnings, surveillance projects, and retail client education campaigns.

CP 322 proposed enforcement action

OTC binary options

OTC binary options allow clients to bet on the occurrence or non-occurrence of a specified event, such as an increase in the price of an underlying asset or an economic event such as central bank interest rate decisions. ASIC views OTC binary options as akin to gambling, which provide no meaningful investment or economic utility to retail clients. As such, it is proposed that ASIC make a market-wide product intervention order which will prohibit the issue and distribution of OTC binary options to retail clients.


CFDs are leveraged OTC derivatives that allow clients to speculate on the change in the value of an underlying asset, which ASIC acknowledges serve a legitimate trading, investment and hedging purpose for retail clients. Nevertheless, it is the case that most retail clients lose money trading CFDs.

Given the above, while ASIC has not sought to prohibit the issue and distribution of CFDs, it is seeking to impose a number of conditions, which will include:

  • specific CFD leverage ratio limits depending on the particular underlying asset category;
  • a standardised approach to the automatic close-out of retail client positions;
  • protection against negative balances (to avoid clients owing a debt to the relevant issuer);
  • a prohibition against certain inducements, such as gifts, rebates, trading credits or rewards;
  • a requirement of enhanced transparency of CFD pricing, execution, costs and risks, including for example risk warnings which must be included in all account opening forms, PDSs, any trading platforms maintained by the CFD issuer and websites.

Next steps

While ASIC notes that CP 322 should not be construed as an indication that it has made a final decision on exercising its product intervention power in respect of this segment of the market and that a final decision will be made once ASIC has considered the feedback, it seems unlikely, given ASIC's views regarding the potential impact on retail clients in this segment of the market, that ASIC will not seek to implement these proposals.

Comments on CP 322 are due by ASIC on 1 October 2019 and ASIC note that at any point from October 2019 they will publish on their website notice of any decision to make a product intervention order.

Final comments

ASIC note in CP 322 that it is considering separate consultation on further market-wide product intervention orders in respect of a broader range of financial products offered to retail clients. In particular, ASIC note that while CP 322 only relates to OTC binary options and CFDs, there are other leveraged financial products offered to retail clients and which exhibit similar characterises or risks to OTC binary options and CFDs.

In saying this, ASIC is certainly not confined to solely relying upon the product intervention power to modify activity in the financial services industry.  Interestingly, in releasing Consultation Paper 317 on 18 July 2019 (which relates to the proposal to ban unsolicited telephone sales of direct life insurance and consumer credit insurance), ASIC has sought to rely upon its modification power under the Corporations Act 2001 to introduce the proposed ban on such activities, as opposed to relying upon its product intervention power. 

Regardless, one thing is clear.  We expect to see a flurry of activity from ASIC in this space over the coming months as ASIC makes the most of its enhanced regulatory toolkit. 


Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.