Market Integrity Update - Issue 118 - August 2020
- Pershing sentenced for client money offences
- Civil penalty proceedings commence against retail OTC derivatives issuer
- Licence of retail OTC derivatives issuer suspended
- OTC derivative transaction reporting webpage updates
- Correct classification of assets in financial returns
Pershing Securities Australia Pty Ltd (PSAPL) has been sentenced to pay a total penalty of $40,000 after pleading guilty to breaching client money obligations.
PSAPL pleaded guilty to breaching section 993C(1) of the Corporations Act 2001 (the Corporations Act) and regulation 7.8.01(1) of the Corporations Regulations 2001 by transferring sale proceeds from international trading in clients’ securities from trust accounts into PSAPL’s general bank account. This occurred over a period of approximately 424 days between 1 March 2016 and 20 December 2017.
PSAPL also pleaded guilty to breaching section 993B(1) of the Corporations Act by failing to ensure that some client money it received was held in segregated client money trust accounts on a total of 707 days between 25 January 2016 and 31 December 2018.
Additionally, PSAPL admitted guilt to a second breach of section 993B(1), which occurred when PSAPL failed to transfer $1,044.65 into a trust account on 21 August 2017. PSAPL was not sentenced for this breach, but it was taken into account during sentencing.
PSAPL is the first company in Australia to be convicted of criminal offences for breaching client money provisions, which are designed to protect the interests of Australian financial services (AFS) licensee clients by ensuring that client money is kept separate from licensee money.
- Read the media release
We’ve commenced civil penalty proceedings against Forex Capital Trading Pty Ltd (Forex CT) and its sole director, Shlomo Yoshai, for unconscionable conduct and conflicted remuneration.
We allege Forex CT engaged in a system of unconscionable conduct, aided by Mr Yoshai, including:
- using high-pressure sales tactics, such as offering incentives (credits and rebates) to encourage clients to transfer more money to Forex CT
- recommending trading strategies that were inappropriate to clients
- making false or misleading statements to clients
- implementing and encouraging a trading floor culture that was directed towards maximising trading volume and client deposits, rather than promoting a culture of compliance with applicable legal requirements
- establishing and implementing incentives for clients to deposit funds and disincentives for clients to withdraw funds from their trading accounts
- failing to ensure compliance with financial services laws.
Further, we allege that Forex CT:
- contravened a ban on conflicted remuneration under the Corporations Act by paying account manager bonuses primarily based on client ‘net deposits’ (total client deposits less withdrawals)
- failed to act in the best interests of clients when giving personal advice, as required under the Corporations Act.
The matter has been listed for a case management hearing in the Federal Court at Melbourne on 11 September 2020.
- Read the media release
We’ve suspended the AFS licence of retail over-the-counter (OTC) derivatives issuer Union Standard International Group Pty Ltd (Union Standard) until 23 September 2020, because the company is under external administration.
Administrators were appointed to Union Standard, which operates under the brand USGFX, on 8 July 2020.
Although we’ve suspended their licence, we’ve allowed administrators to conduct certain necessary activities under the licence during the suspension period, including to:
- put in place a dispute resolution scheme and arrangement for compensating retail clients
- hold professional indemnity insurance
- allow the termination of existing arrangements with current clients of Union Standard.
Union Standard may apply to the Administrative Appeals Tribunal (AAT) for a review of our decision.
- Read the media release
We’ve also updated the exemption relief for reporting entities webpage to more clearly distinguish the in-force instruments from the historical as-made instruments.
Currently published under upcoming rules and exemptions changes are:
- our proposals regarding five exemptions due to expire 30 September 2020
- a separate proposal addressing the exchange-traded derivatives exemption.
We welcome feedback on our proposals by email to email@example.com.
The upcoming rules and exemptions changes webpage will continue to be updated as we develop proposals to revise the derivative transaction rules, inline with international OTC derivative trade reporting guidance and our requirements.
Market participants are reminded to ensure assets are correctly classified when submitting financial returns. We’ve recently required market participants to take corrective action for failing to treat certain amounts as excluded assets, which is important for ensuring the accuracy of liquid capital calculations.
It’s important that market participants correctly apply the definition of excluded assets in Rule S1A.1.1 of the ASIC Market Integrity Rules (Securities Markets – Capital) 2017. Rule S1A.2.4A(1) and (2) set out circumstances in which a market participant can net an asset due from one entity (which would ordinarily be treated as an excluded asset) with an offsetting liability payable to another entity, provided the asset is linked to the liability. The net amount (if positive) is then reported as an excluded asset.
Rule S1A.2.4A(3) requires a market participant to treat the following amounts as excluded assets if they remain outstanding for more than 30 calendar days:
- underwriting fees
- fees due for managing a client portfolio
- corporate advisory fees
- other sundry debtors.
We encourage market participants to review their accounting practices and ensure they’re meeting the excluded asset requirements. If you identify any miscalculations, you should notify us immediately to avoid breaching your reporting obligations under the Corporations Act.