Australian client money rulings: Don’t get caught by ASIC for untimely reconciliation and reporting

Proposed rulings by ASIC follow the increasingly stringent line by the Australian regulator with regard to how client monies are handled, reported and reconciled by ASIC regulated retail FX brokerages – We look at what this means

Sydney Australia

Australia’s conservative approach to the handling of client funds is one of the tenets of the country’s highly respected regulatory structure which has given rise to a reputation which is not only enviable globally among OTC derivatives industry participants but also has encouraged the establishment of many high quality international electronic trading companies in the Antipodean nation which have benefited from the top drawer business environment.

The Australian Securities and Investments Commission (ASIC) is one of the world’s only technologically-focused regulators which uses automated solutions as an instrumental part of its monitoring of the conduct of electronic trading companies and online financial services businesses in Australia, including surveillance on a real time basis.

Today, ASIC, whose direction over the past few years has been to maintain a very keen eye on retail margin trading and the firms that provide spot asset classes and CFDs, has released a consultation paper on the handling of client money, representing another step toward stringency for procedures relating to how brokerages report and reconcile the trading capital held on account.

The client money rules will impose record keeping, reconciliation and reporting requirements on AFS licensees that hold derivative retail client money. ASIC is proposing that the client money rules should apply to all derivative retail client money received by an AFS licensee, unless the client money relates to a derivative that is traded on a fully licensed domestic market, such as the ASX 24.

The reforms also give ASIC the power to make new client money reporting rules to ensure greater transparency in relation to an AFS licensee’s receipt and use of derivative retail client money.

“The client money rules will apply more formal and consistent standards across the derivatives sector and will ensure any discrepancies in an AFS licensee’s client money account are notified to ASIC in a timely manner and that ASIC is able to take appropriate action”, ASIC Commissioner Cathie Armour said.

Speaking today to Sophie Gerber, Director at TRAction FinTech, FinanceFeeds gained further perspective on how important the implementation of the correct reporting procedure is when maintaining compliance relating to the proposed new rules.

“The requirements in the consultation paper are quite specific in relation to client money for OTC derivatives, in that it requires reconciliations to be done on the next business day and if that’s not done, breach reporting direct to ASIC within 5 days” said Ms Gerber.

“It’s important for brokers to ensure that they don’t breach twice by first not doing the client money reconciliation and second by not reporting in time” – Sophie Gerber, Director, TRAction FinTech

“TRAction Fintech is looking closely at the requirements as they develop and intends to develop a market-leading solution which will allow brokers to have the necessary information, reconciliation and documentation (both creation and storage) in place, as well as alerts each step of the way. We anticipate that this will be very popular amongst our already strong client base for the OTC derivative trade reporting requirements” explained Ms Gerber.

“The release today by ASIC of the draft requirements is also a reminder for brokers to schedule in their workflow for later 2017 or early 2018 to update their disclosure documents and websites to reflect the changed treatment of client monies” she concluded.


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