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Collapsed foreign exchange broker Union Standard International Group and two former affiliates have been slapped with a record $300 million penalty by the Federal Court after being found guilty of “systemic unconscionable conduct” in relation to contract for difference (CFD) trades that cost Australians $83 million eight years ago.
The penalty against Union Standard and its former authorised representatives Maxi EFX Global AU Pty Ltd (trading as EuropeFX) and BrightAU Capital Pty Ltd (trading as TradeFred), follows charges brought by the Australian Securities and Investments Commission (ASIC) in 2020.
The Federal Court ruled in December 2024 that EuropeFX and TradeFred employed a system of conduct and engaged in patterns of behaviour that were unconscionable on several grounds.
The court heard the entities, which promoted trading in CFDs, derived the bulk of their revenue from customers’ trading losses while providing a remuneration incentive to account managers to encourage and pressure customers to deposit more funds into their trading accounts.
They were also found to have made misleading or deceptive representations, including about profits that could be generated, while failing to provide vulnerable customers with any adequate explanations about the complex financial products and the risks of trading in them.
Vulnerable investors were also pressured to trade and deposit more funds into their trading accounts, including funding trades through superannuation accounts or credit cards.
The court heard that customers of EuropeFX and TradeFred lost more than $83 million between 2018 and 2020.
Federal Court Justice Wigney, in handing down penalties for the offences, has ordered $156.7 million in penalties against Union Standard, $114.1 million in penalties against EuropeFX, and $29.4 million in penalties against TradeFred.
“EuropeFX’s contraventions were unquestionably egregious, deliberate and flagrant,” said Justice Wigney when issuing the penalties yesterday.
“By its conduct, EuropeFX systematically exploited many vulnerable and financially naïve and gullible customers for its own financial gain.
“I find it difficult in this case to envisage a more serious case of contravening conduct.
“In my view, all the relevant circumstances of this case point to it being a case which warrants the strongest deterrence within the maximum penalty.”
ASIC chair Sarah Court says the penalties are the highest ever secured in connection with an ASIC matter and that the outcome sends a strong message of deterrence.
“These record penalties reflect the egregious nature of CFD issuer misconduct in this case,” says Court.
“Union Standard, EuropeFX and TradeFred operated business models that deliberately targeted inexperienced and vulnerable people using aggressive sales tactics to pressure them to trade in highly risky CFD products.”
Union Standard was found liable for the conduct of EuropeFX and TradeFred, including their unconscionable conduct, as the Australian financial services (AFS) licensee that authorised them to operate.
The case marks the first time a civil penalty has been imposed against an entity, namely Union Standard, for failing to ensure its financial services were provided “efficiently, honestly and fairly” by actively marketing and issuing its CFDs to customers in China when it knew, or ought to have known, those customers were being exposed to potential liability for breaching local Chinese law.
“CFDs are complex, leveraged, over-the-counter products that allow investors to speculate on price movements, often exposing them to significant losses,” says Court.
ASIC says that account managers at EuropeFX and TradeFred reassured customers that the CFDs offered suited their financial situation and risk appetite.
“In reality, most customers lost money, and in up to 95 per cent to 99 per cent of cases, EuropeFX and TradeFred actually profited from their customers’ losses,” says ASIC.
ASIC also notes that in FY24, some 68 per cent of retail CFD investors in Australia lost money, totalling more than $458 million, including $73 million in fees.
“Over time, customers were pressured to trade more and more money, exposing them to financial losses they could not afford, before being discouraged from lodging or pursuing their complaints,” says Court.
“Entities that profit from their clients’ losses will face serious consequences. AFS licensees cannot outsource responsibility for misconduct carried out under their licence and will be held accountable.”
Justice Wigney also highlighted the scale and impact of the misconduct on investors and the market, saying the contraventions occurred over a lengthy period and “would no doubt have continued had ASIC not eventually intervened”.
“It resulted in a very large number of vulnerable individuals, many of whom had relatively modest means, to suffer serious financial losses and consequently stress and anxiety,” he said.
“It undermined the integrity of Australia’s financial services markets.
“High penalties are needed to secure effective deterrence. They will send a clear message to other providers of financial services that stern penalties will be imposed for contravening conduct of the sort engaged in by these contraveners.”
ASIC first obtained asset restraint orders in the Federal Court against EuropeFX and TradeFred in 2019 to protect customers’ funds while its investigation was under way.
Union Standard at the time gave an undertaking to the court to keep specified monetary amounts in a separate bank account.
However, in July 2020, Union Standard entered into voluntary administration and liquidators were appointed later that year.
TradeFred went into liquidation in March 2020.
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