The Australian Securities and Investments Commission (ASIC) said on Tuesday it has received the power to write client money reporting and reconciliation rules for the retail over-the-counter (OTC) derivatives market. The decision has been approved by the Australian government.
“These reporting and reconciliation requirements would apply more formal and consistent standards to industry, and help to improve the handling of client money,” said ASIC Commissioner Cathie Armour. “They would also assist ASIC to detect breaches of the client money regime affecting retail derivative clients in a more timely way,” she added.
The move is part of a set of decision to proceed with ‘client money’ reforms in respect of retail OTC derivatives. Under the reforms, licensees would be required to hold retail derivative client money on trust and will have to, in the event of insolvency, return the money to clients, instead of using them to pay creditors. The requirement to hold client money on trust is already applicable for the majority of Australian financial products and services.
“Importantly, the reforms will remove an exception in the client money regime that allows Australian financial services licensees to withdraw client money provided in relation to retail OTC derivatives from client money trust accounts, and use it for a wide range of purposes including as working capital. This exception currently places retail derivative client money at greater risk of loss, particularly in the event the licensee becomes insolvent,” Armour said, noting that the reforms will also help to increase local investor confidence in the financial markets.
Licensees have a 12-month transition period in which to implement the newly-introduced reforms.
The ASIC is an independent body that oversees the corporate, markets and financial services markets in Australia. It regulates local companies, financial markets, financial services organizations and professionals who deal and advise in investments, superannuation, insurance, deposit taking and credit.