Market Integrity Update - Issue 112 - February 2020

Issue 112, February 2020

Changes to breach reporting for AFS licensees

Australian financial services (AFS) licensees must submit breach reports via the ASIC Regulatory Portal from 30 March 2020, replacing existing submission channels.

Submitting breach reports via online forms on the portal will feature mandatory fields designed to help licensees comply with their breach reporting obligations.

The portal will also feature:

  • a record of previous breach reports
  • the ability to track the status of submitted breach reports
  • the ability to correspond with ASIC online about submitted breach reports.

There are no changes to the ongoing breach reporting obligations for AFS licensees.

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OTC derivative transactions reporting (entity information) relief ending soon

Conditional relief from the use of standard identifiers when reporting over-the-counter (OTC) derivative transactions for non-reporting entities incorporated or formed outside of Australia (non-reporting foreign entities), other than an Australian branch of a foreign entity, ends on 31 March 2020.

Since 1 October 2019, the ASIC Derivative Transaction Rules (Reporting) 2013 (ASIC derivative transaction rules) have required reporting entities to report using standard identifiers to identify non-reporting counterparties, brokers, clearing members, report makers and beneficiaries involved in OTC derivative transactionsif the non-reporting entities are:

  • incorporated or formed in Australia
  • a branch located in Australia.

We provided a further six months of conditional relief for non-reporting foreign entities, which will soon expire on 31March 2020.

The acceptable identifiers for reporting entity information are:

  • Legal Entity Identifier (LEI)
  • if no LEI, an international business entity identifier issued by Avox Limited (AVID)
  • if no AVID is available, a Business Identifier Code (BIC).

Since 1 October 2019, targeted relief for reporting entities from the requirement to report entity information was granted via ASIC Corporations (Amendment) Instrument 2019/0958. The exemption was issued to allow for circumstances beyond the control of the reporting entity, or where the global market convention is to use a different identifier.

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Market Liaison Meeting – 4 March

Market stakeholders are invited to attend the next Market Liaison Meeting on Wednesday, 4 March 2020 in Sydney and Melbourne. These quarterly meetings provide insights into the priorities of ASIC’s Markets Group and how they apply to you and your firm.

The meeting will include presentations on:

  • ASIC’s Regulatory Portal
  • our foreign exchange report
  • internal market making – update to Information Sheet 230 Exchange traded products: Admission guidelines
  • our enhanced supervision program
  • our market integrity rules consultation paper
  • ASIC's corporate governance supervisory work.

ASIC Commissioner Cathie Armour will also provide an update, and we’ll invite questions from the audience.

A live broadcast of the event will be held across our Sydney and Melbourne locations. Please indicate your location when registering.

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Court rules in ASIC’s favour in binary options case

One Tech Media Limited (OTML), Allianz Metro Pty Ltd, Eustace Senese and Yoav Ida have been found guilty of breaching the Corporations Act 2001 (Corporations Act) by pressure selling binary options to Australian consumers.

OTML, based overseas, offered binary options trading to customers in Australia without holding an Australian Financial Services (AFS) licence and providing the necessary product disclosure statements.

The Federal Court found OTML:

  • engaged in unconscionable conduct in relation to a financial product
  • misled and deceived Australian customers by making several false or misleading statements and representations
  • conducted itself dishonestly.

Australian company Allianz Metro Pty Ltd, along with Eustace Senese and Yoav Ida, were also found to have breached the Corporations Act because they arranged for OTML to issue binary options and collect funds from Australian customers without an AFS licence.

The Court also found that Mr Senese and Mr Ida had not issued the requisite product disclosure statement each time a binary option was issued by OTML.

We’ll now seek orders that OTML pay civil penalties, and disqualification orders against the Eustace Senese and Yoav Ida.

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OTC derivatives issuer applies for review of decision to suspend its AFS licence

AxiCorp Financial Services Pty Ltd (AxiCorp) has applied for a review of our decision to suspend its Australian financial services (AFS) licence for failing to comply with financial services laws.

On 2 January 2020, we suspended AxiCorp’s licence after finding they failed to:

  • pay client money into an account with an Australian authorised deposit-taking institution
  • lodge product disclosure statement in-use notices with ASIC
  • comply with the ASIC derivative transaction rules
  • comply with client money reporting rules
  • lodge financial statements with ASIC by the due date.

On the same day, AxiCorp applied to the Administrative Appeals Tribunal (AAT) for a review of our decision, a stay of the suspension decision and confidentiality orders.

The AAT has granted a stay of the suspension pending final review, meaning that AxiCorp can continue to provide financial services until a final decision by the AAT is made. The AAT refused AxiCorp’s request for confidentiality orders.

AxiCorp trades under the business names AxiForex, AxiPrime and AxiTrader and operates a business offering margin foreign exchange and contracts for difference to retail and wholesale clients.

The suspension of AxiCorp’s AFS licence is part of our ongoing focus on improving standards in the retail OTC derivatives sector.

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Additional licence conditions imposed on BGC Securities (Australia)

As part of our increased focus on wholesale over-the-counter (OTC) markets, we’ve imposed additional conditions on the AFS licence of BGC Securities (Australia) to ensure it has adequate arrangements to comply with obligations related to its fixed income solutions business.

The additional conditions require BGC to appoint an independent expert to assess whether they have adequate procedures and internal controls to ensure compliance with their obligations. Where necessary, the expert will identify remedial actions and BGC must provide ASIC with a plan identifying the remedial actions it proposes to implement.

BGC is also required to provide ASIC with an attestation from a senior executive confirming they have taken all reasonable steps to satisfy themselves that all remedial actions have been adopted and implemented and that BGC has adequate procedures and internal controls to ensure compliance with its obligations.

If the executive attestation is not provided by the time required, BGC is required to cease:

  • on-boarding new customers
  • charging customers spread, commission or other fees

for financial services provided by its fixed income business in Australia until the attestation is provided.

The variation of BGC’s licence conditions is the first enforcement action to result from our expanded surveillances of wholesale OTC markets.

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ASIC Annual Forum 2020

Have you registered for ASIC’s premier event for participants in the financial services and markets sectors?

The ASIC Annual Forum will be held at the Hilton Sydney from 25–26 March 2020.

Over two days, the forum will explore the characteristics of a good financial services industry, and how we can all work together to build a system that is efficient, honest and fair.

Hear from ASIC’s Chair, James Shipton, as well as Commission members and senior leaders. International speakers include:

  • Winnie Pun, CA – Managing Director and APAC Head of Public Policy, BlackRock, Hong Kong
  • Lee Boon Ngiap – Assistant Managing Director, Capital Markets Group, Monetary Authority of Singapore
  • Professor Lauren E. Willis – William M. Rains Fellow, Loyola Law School, Los Angeles CA.

Registration is open until 11 March 2020. Tickets can also be purchased for the Annual Dinner on 25 March 2020.

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Last updated: 22/07/2020 09:46