North American retail FX giant Interactive Brokers LLC has encountered a rough business challenge in the Land Down Under.
LeapRate has been informed that the Australian Securities & Investment Commission (ASIC) has demanded that the broker opens a new business entity in the country if it wants to continue its provision of margin loans to Australian residents.
In August 2013, Interactive Brokers informed its clients which consisted of individuals and some trusts in Australia that they would not be able to create or increase their margin loans, which are effectively lines of credit which enable traders to borrow money to invest while using their shares or other collateral such as managed funds as security. The reason for the restrictions were the tightened regulations on credit provision in Australia that came into force in 2010, which resulted in last year’s statement by ASIC that Interactive Brokers’ AFS license did not cover its margin lending business.
Back then, the matter did not loom over the company as overly complex. Interactive Brokers temporarily stopped the service until it set the matter straight with the regulator. ASIC simply advised all holders of AFS licenses to submit a form to vary their license, so that it would cover the provision of margin loans. Whilst ASIC performed this task and made seperate license provisioning for industry participants that offer margin loans in Australia, Interactive Brokers remained relatively optimistic and initially informed its customers in Australia that the matter would be rectified within a matter of months.
However, yesterday evening, it was confirmed to LeapRate by a representative of the broker that ASIC has imposed additional demands with regard to the provision of margin loan facilities. The regulator has made its intention clear that it expects Interactive Brokers to restructure its Australian business in order to provide margin loans to individuals and trusts, which have at least one trustee who is a natural person. More precisely, the increasingly stringent and well renowned regulator wants Interactive Brokers to set up a brand new company to service its Australian clientele. This means that Interactive Brokers has to commence from the scratch the process of offering accounts in the country and will have to secure a new license and registration for the new business.
The new demands indeed outweigh the original instructions by ASIC that targeted only filling the gaps in the original AFS license of the broker. Interactive Brokers insists that the new rigid demands were not conveyed by the regulator in any way at the beginning, however the future of its margin lending business in the Antipodean nation will hinge on such a restructuring.
At this stage, it was confirmed to LeapRate by the Interactive Brokers representative that the broker does not plan to provide a further update on the matter for at least another 9 months.
Interactive Brokers LLC has had an AFS license since February 2004.
A check in Australian business registers shows that over the past 12 months ASIC registered Interactive Brokers Australia Pty Ltd (November 25, 2013) and Interactive Brokers Australia Nominees Pty Ltd (July 25, 2014). LeapRate cannot confirm whether any of these entities has to do with Interactive Brokers’ restructuring plans in the land down under.