Australia’s corporate regulator has warned financial-service providers to improve safeguards surrounding complex investments offered to retail clients.

ASIC examined nine licensees providing access to products including short-dated exchange-traded options, futures and fractional shares.

The review identified weaknesses in target-market definitions, customer onboarding, monitoring, authorisations, disclosure and arrangements for holding client assets.

Some onboarding systems allowed applicants to make repeated or unlimited attempts at questionnaires intended to test their knowledge.

ASIC said such a process raises questions about whether the assessment measures understanding or merely gives the customer repeated opportunities to produce an acceptable answer.

Five providers made compliance improvements following the surveillance. Two temporarily stopped onboarding customers for certain products while undertaking remedial work, and one provider left the Australian market.

ASIC said it was considering whether further action was appropriate.

An exchange-traded option gives its buyer a right to buy or sell an asset at an agreed price under specified conditions. Futures create obligations connected to the future price of an asset.

Both products can be used for legitimate risk management, but they can also produce rapid losses. Strategies involving leverage may result in an investor losing substantially more, or much faster, than expected.

Short expiry periods create additional pressure because the investment thesis must prove correct within a limited time.

Fractional investing allows a person to obtain exposure to part of a share rather than purchasing a whole unit. This can lower the initial amount required, but the customer may not receive identical rights or protections to a direct shareholder.

ASIC identified one case where investor and corporate assets were held together despite disclosures indicating that investor assets would be separately pooled.

Consumers should understand who legally owns an asset, how it is held, what happens if the platform fails and whether voting or dividend rights differ from ordinary ownership.

A product being accessible through a polished {investment app} does not make it simple or suitable.

Before trading, investors should read the disclosure documents, understand the maximum possible loss and check that the provider holds the required authorisation.

If the product cannot be clearly explained without promotional language, the investor may not yet understand it well enough to risk money.