In line with ASIC’s recent effort to strengthen standards of foreign exchange businesses operating in Australia, a number of high profile conquests were made recently. Enfinium Pty Ltd fell into problems and had to be liquidated by creditors on November 6, 2014 as the firm ceased to continue operations as a financial services business, having appointed administrators on October 1, 2014 and hence leading to cancellation of the AFS license.
A number of issues were discovered about the firm’s operations. A "virtual dealer" which can be used to cause delay in client trade executions ranging from 1-10 seconds was found to have been used on the MT4 platform, potentially disadvantageous to clients, because it caused delays in execution and benefiting the broker if markets moved against the client during any period of delay. Invsetigations showed that within 2010-2013, no records of changes in the virtual dealer was kept even though it was changed 271 times.
The report official report stated that ASIC was concerned Enfinium's risk management system was inadequate because:
1. Enfinium did not maintain records which recorded the configuration of the Virtual Dealer
2. Enfinium did not monitor the use of the Virtual Dealer, or persons who had access to the
Virtual Dealer
3. There was no training for persons who had the ability to modify the Virtual Dealer
4. Employees of Enfinium had access to enter, modify, close and delete orders on MT4 without
secondary authorisation
5. There was no monitoring of trades placed through 'Manager'
6. The Virtual Dealer and 'Manager' access were not identified as risks in Enfinium's risk
register.
ASIC Commissioner Greg Tanzer said:
'Margin foreign exchange businesses that utilise the Meta Trader trading platform and use the Virtual Dealer plug in, need to ensure they have robust risk management systems. These systems must ensure the client is not disadvantaged to the benefit of the broker. Any tool that has the potential to advantage a broker needs to be carefully managed.'
To make matters worse, it was discovered that some Enfinium employees had 'Manager' access, giving them the right to tamper with clients’ MT4 by potentially editing and deleting client orders.
ASIC revokes Enfinium's license but did not out-rightly state any particular manipulations of trades, but discoveries showed the potential to do so.