ASIC has imposed additional licence conditions on the Australian financial services (AFS) licence of Cambridge Mercantile (Australia) Pty Ltd (Cambridge), a subsidiary of Corpay Inc., following ongoing compliance failures in its foreign exchange derivatives business.

ASIC’s action comes after raising concerns that Cambridge:

• misclassified more than 2,800 retail clients dealing in structured FX derivatives as wholesale clients and failed to maintain adequate systems, record keeping and monitoring procedures for classification of retail and wholesale clients
• did not promptly remediate affected clients, with amounts expected to total millions of dollars
• failed to maintain adequate arrangements to manage conflicts of interest, including relating to Cambridge representatives’ remuneration arrangements
• failed to maintain adequate risk management systems and adequate human resources to carry out supervision, compliance and risk management functions, and
• breached its financial resource requirements.

Australian small business owners managing their FX exposures in volatile times expect AFS licensees to treat them fairly and to afford them important statutory consumer protections they are owed.

The additional licence conditions will require Cambridge to:

• prepare a comprehensive remediation plan to address the compliance failures in its FX derivatives business and remediate misclassified retail clients
• appoint an independent expert to report on the adequacy of Cambridge’s remediation plan, including its remediation for misclassified clients, and
• have the independent expert assess the operational effectiveness of Cambridge’s remediation activities to prevent similar issues in the future.

AFS licensees must not profit from their compliance failures and consumer remediations should be initiated and conducted promptly.

Cambridge has cooperated with ASIC throughout this process and has consented to the imposition of the additional licence conditions.

Background

Cambridge is owned by New York Stock Exchange-listed company Corpay Inc., an S&P500 company which is one of the world’s largest non-bank providers of global payments.

On 6 July 2010, Cambridge was granted AFS licence number 351278 (Licence). The Licence authorises Cambridge to provide financial product advice, deal in financial products (including derivatives and FX contracts), and make a market in financial products (including derivatives and FX contracts) to retail and wholesale clients.

AFS licensees who provide financial services to retail clients must, among other things:

• provide a Product Disclosure Statement to retail clients
• make a Target Market Determination and take reasonable steps to distribute financial products to retail clients consistent with the determination
• maintain a compliant internal dispute resolution system and provide retail clients access to external dispute resolution through the Australian Financial Complaints Authority.