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ASIC plans new client money rules

Chris Hamblin, Editor, London, 19 July 2017

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The Australian Securities and Investments Commission is planning to make new "client money reporting rules" under s981J Corporations Act 2001. These are expected to resemble its market integrity rules (ASX 24) and to facilitate the authorities' surveillance of over-the-counter (OTC) derivatives and overseas exchange-traded derivatives.

There is to be both a daily and monthly reconciliation that each relevant licensee must make - and show to the regulator - about its use of "derivative retail client money." ASIC wants to know about any discrepancies in the licensee’s "client money account" in a timely manner. The regulator also wants to see monthly reconciliations include directors' statements, the better to involve managers more actively in their firms' compliance processes that relate to reportable client money than previously.

ASIC thinks that each Australian Financial Services (AFS) licensee ought to write down (and update) policies and procedures by which it obeys the client money reporting rules. There is a similar requirement in place at the moment in ASIC's market integrity rules (ASX 24). Comments must be in by 8th August.

What should firms report?

"Reportable client money" ought, in the regulator's eyes, to be "derivative retail client money" as defined by the Corporations Act and/or money that relates to a derivative other than "a derivative entered into on a market that is licensed under s795B(1) Corporations Act and no exemption under s791C or 798M covers the market."

Related reforms

Early this year the Australian Parliament passed the Treasury Laws Amendment (2016 Measures No 1) Bill 2016 and the Corporations Amendment (Client Money) Regulations 2017. These legislative reforms will prevent AFS licensees from withdrawing retail client money provided in relation to derivatives from the client money account and using it for the wide range of purposes currently permitted under the Corporations Act. The reforms will take effect on 4th April next year.

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