Foreign exchange trader Pepperstone has been forced to stop trading in Japan - its most lucrative market - just months out from listing on the Australian share market.
The move could cost the Melbourne-based company more than half of its revenue.
The Australian Securities and Investments Commission said Pepperstone had been dealing foreign exchange (forex) products without a Japanese licence.
Pepperstone has now agreed to stop operating in Japan, due to pressure from ASIC and Japanese regulators.
The company's multimillionaire founders Owen Kerr and Joe Davenport would not comment on Monday on what the development means for its ASX listing, due in the coming months.
They told potential investors in recent presentations that Japan contributed 40 per cent of annual revenue, believed to be nearly $53 million this year.
Market sources have told AAP the figure would actually be well in excess of 50 per cent.
The company also told investors it was the 13th largest retail broker in the world, and planned to get a Japanese licence.
ASIC has cracked down on, and in some cases shut down companies offering exotic, high risk foreign exchange and derivatives products, amid concerns they risk client money and are increasingly sold to retail "mum and dad" investors.
Forex trading typically allows far greater leverage than equities, potentially creating heavy losses.
Part of Pepperstone's appeal was that it offered a trading leverage of up to 400:1 - only a $100 deposit for a $40,000 bet - but leverages of only 25:1 are allowed in Japan.
It had been advertising its products on a Japanese version of its website, and had Japanese clients among its 20,000 customers, despite having been blacklisted by Japan's Financial Services Agency.
However it was not allowed to operate a financial services business, make a market, deal in and provide advice on financial products in Japan.
Pepperstone has told clients it will no longer accept new Japanese clients and told existing ones to wind down their positions.
"ASIC has been monitoring the retail derivatives and margin foreign exchange industry and is concerned that some Australian AFS licensees may be operating in other jurisdictions without the necessary authority or regulatory approval to provide financial services in those jurisdictions," said ASIC Commissioner Cathie Armour.
The company's former head of sales Joel Murphy is suing Mr Kerr and Mr Davenport for unfair dismissal and is seeking damages of almost $1 million.
He says he was sacked after blowing the whistle on a $7 million insider trading scandal involving suspicious forex traders.
NAB banker Lukas Kamay, 26, and 24-year-old Bureau of Statistics worker Christopher Hill have been charged.
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