Home Publications Trading trust for profit: Federal Court clamps down on unconscionable conduct by FX contract providers

Trading trust for profit: Federal Court clamps down on unconscionable conduct by FX contract providers

14 Apr 2025

Corporate Crime & Investigations

On 20 December 2024, Justice Wigney of the Federal Court delivered his judgment in the case of Australian Securities and Investments Commission v Union Standard International Group Pty Ltd (No 4) [2024] FCA 1481 (ASIC v USI Group No 4). Wigney J found that three Australian financial services companies, known as USG, EuropeFX and TradeFred, had (among other things):

repeatedly contravened s 911A(1) of the Corporations Act 2001 (Cth) (Corporations Act) by providing personal financial advice in circumstances where they were not licensed to do so;¹
repeatedly contravened s 12DA(1) and 12DB(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) by engaging in conduct in relation to financial services which was misleading or deceptive, or likely to mislead or deceive;²and
contravened s 12CB(1) of the ASIC Act by engaging in systemic unconscionable conduct and repeatedly engaging in unconscionable conduct in connection with the supply of services to a person.³

Background

Between the years 2017 and 2020, the three defendants (collectively, USI Group) provided their customers with highly risky, over-the-counter derivative products known as contracts for difference (CFDs) and margin foreign exchange contracts (Margin FX Contracts). USI Group’s customers generally had little or no prior investment or securities trading experience.⁴ Many customers invested significant sums and lost their entire investments within a short period of time.

ASIC commenced an investigation into USI Group’s conduct in 2019 and subsequently commenced proceedings.

Allegations

The allegations made by ASIC were voluminous. Initially, ASIC alleged that USI Group had unlawfully provided personal financial product advice on over 2,000 separate occasions⁵ and made over 1,400 representations that were false, misleading or deceptive.⁶ ASIC eventually agreed to narrow the number of its allegations in the interests of efficient case management.⁷

The focus of ASIC’s allegations largely concerned representations made by ‘account managers’ who were employed by USI Group or a number of international companies which contracted with USI Group. These account managers were engaged to call prospective USI Group customers to secure their business, establish customers’ accounts and, on an ongoing and sometimes daily basis, advise on customers’ trading decisions. The contents of these conversations were made available through transcripts of telephone records and the testimony of former customers at trial.

Specifically, ASIC alleged that USI Group account managers had (among other things):

repeatedly counselled customers to take on particular trading positions and deposit additional funds into trading accounts, amounting to the unlicensed provision of personal financial advice;⁸ and
made false, misleading or deceptive representations, including that:
- USI Group did not take the opposite position on every contract the customer entered into, when it in fact did and consequently directly gained from customer losses;⁹
- it was reasonably likely (if not certain or highly likely) that customers would generate profits consistent with specific figures stated by USI Group;¹⁰
- increasing the money deposited in customer trading accounts would reduce (or not affect) the level of risk that customers were exposed to;¹¹ and
- trading losses had a reasonable likelihood of being recovered, generally provided that the customer maintained or increased their investment.¹²

In addition to the allegations described above, ASIC alleged that USI Group had engaged in systemic unconscionable conduct (and unconscionable conduct in respect of specific customers), including by:¹³

knowingly dealing with inexperienced and vulnerable customers;
attracting customers through misleading advertising and promotions;
inadequately explaining investment concepts and key risks;
impermissibly providing personal trading advice;
making misleading and deceptive representations;
pressuring customers to trade, deposit funds, and engage in high-risk trading strategies; and
impeding and discouraging customer attempts to withdraw funds.

USI Group’s response

USI Group admitted a significant proportion of ASIC’s allegations regarding the provision of unlicensed personal financial advice and some allegations regarding misleading and deceptive conduct, while disputing others. USI Group entirely disputed ASIC’s allegations of unconscionable conduct, arguing (among other things) that:¹⁴

there was no disparity of bargaining position between USI Group and its customers;
it was not reasonably foreseeable to USI Group that any particular customers were vulnerable or disadvantaged;
all customers should have been aware that financial investments come with inherent risk;
it took appropriate steps to ensure its customers understood CFDs and Margin FX Contracts by providing them with a PDS and Terms of Business; and
representations made by account managers should not be characterised as pressuring since trading was a ‘discretionary venture’.

Liability

Justice Wigney upheld virtually all of ASIC’s allegations in relation to misleading and deceptive conduct and unconscionable conduct.

In respect of the allegation of systemic unconscionable conduct, Wigney J said that he was “comfortably satisfied from the evidence as a whole that the patterns of behaviour engaged in [by USI Group], and the systems of conduct that it employed, were unconscionable in the relevant sense”.¹⁵Further, Wigney J had “no hesitation in concluding that [USI Group’s] conduct was so far outside societal norms of acceptable behaviour in respect of the provision of financial services as to warrant condemnation as conduct that is offensive to conscience”.¹⁶Similar conclusions were made in respect of the allegations of unconscionable conduct against identified customers.¹⁷

Lavan comment

In pursuing this case, ASIC signalled its willingness to enforce laws relating to unlicensed financial advice, misleading and deceptive conduct, and unconscionable conduct.

In turn, the Federal Court has indicated it will hold accountable sophisticated financial service providers who engage in predatory practices against vulnerable customers.

Notably, ASIC v USI Group No 4 only determined USI Group’s liability. We are yet to see the final orders against USI Group, but expect the penalties to be serious given that estimated customer losses exceeded $83 million.

The Corporate Crime and Investigations team at Lavan has extensive experience in respect of the legal obligations of financial service providers. If you require advice in this area, please contact Cinzia Donald.

Thank you to Michael Pendlebury, Solicitor, for his valuable research and assistance with this article.

Disclaimer

The information contained in this publication does not constitute legal advice and should not be relied upon as such. You should seek legal advice in relation to any particular matter you may have before relying or acting on this information. The Lavan team are here to assist.