Capital Markets: SAXO AUS accepts new licence conditions, changes status

The Australian Securities and Investment Commission (ASIC) has concluded its investigation into Saxo Bank A/S, the former provider of the trading platform for the collapsed broker.

ASIC's investigation focussed on the risk management processes at SAXO, even though SAXO did not directly engage with clients.

In the meantime, however, SAXO has taken over a retail business (see below) which is now known as SAXO Capital markets (Australia) (SCMA).

ASIC has agreed with Saxo Bank that additional licence conditions will be included on the Australian Financial Services Licence (AFSL) under which it will continue to conduct its business in Australia.

The additional licence conditions agreed with Saxo Bank, which apply to Saxo Capital Markets (Australia) Pty Ltd (SCMA) require SCMA to:

- engage an expert to review and report on the adequacy of SCMA’s risk management systems to properly address credit risk, client risk and compliance risk

- implement any recommendations made by the expert over a six month period

- engage the expert for further reviews and reporting over an 18 month period following the initial expert report, and

- provide ASIC, on a bi-annual basis, independent verification of client monies being held by SCMA.

Since September 2004, Saxo Bank has held an AFSL authorising it to provide financial services on a wholesale basis. Under that wholesale licence, Saxo Bank contracted with a number of retail licensees in Australia, including Sonray, to facilitate the trading of various financial products on a trading platform, Saxo Trader.

Saxo Bank will now provide financial services in Australia to retail clients directly through the entity SCMA. This follows Saxo Bank, in late December 2011, acquiring control of Commodity Broking Services Pty Ltd by purchasing the shares of Logos Commodities Pty Ltd, the holding company of CBS. At the same time, CBS changed its name to Saxo Capital Markets (Australia) Pty Ltd.

The Sonray debacle has resulted in criminal prosecution of Scott Murray, the company's former CEO who has been failed for five years. There are charges outstanding against Russell Johnson, the sole director of Sonray. ASIC says that the case has adversely affected confidence in the brokerage market and that the SAXO agreement will help restore that confidence.

The case demonstrates the responsibilities of institutions that provide pass-through business or allows others to operate their business on the institution's platforms. There has been a case with a similar effect in the USA showing that responsibility cannot be left in the hands of those who have direct client involvement, even though it may be regarded as their primary responsibility.