Market Integrity Update - Issue 136 - April 2022

Issue 136, April 2022

CFD product intervention order extended for five years

We’ve extended our product intervention order imposing conditions on the issue and distribution of contracts for difference (CFDs) for a further five years, to 23 May 2027.

We’ve also released Report 724 Response to submissions on CP 348 Extension of the CFD product intervention order. The report summarises our analysis of the impact of the order, using data from over 60 CFD issuers. It highlights the key issues raised in submissions to Consultation Paper 348 Extension of the CFD product intervention order and details our responses to those issues.

We found that the product intervention order has been effective in reducing the risk of significant detriment to retail clients resulting from CFDs. For example, we observed during the order’s first six months of operation:

  • a 91% reduction in aggregate net losses by retail client accounts (from $372 million to $33 million aggregate net loss per quarter on average)
  • 51% fewer loss-making retail client accounts per quarter on average
  • an 87% decrease in margin close-outs affecting retail client accounts per quarter on average
  • an 88% reduction in negative balance occurrences for retail clients per quarter on average.

Our extension of the product intervention order for five years will ensure that the leverage ratio limits and other protections can continue to reduce the size and speed of retail clients’ CFD losses.

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Scams impersonating financial services licensee staff

We urge Australian financial services licensees (licensees) to be vigilant following a recent trend in scam activity using stolen employee identifications to target consumers.

Scammers use the legitimate names of employees of licensees to contact consumers using messaging and social media platforms, including WhatsApp, Telegram and Facebook, to offer fraudulent financial products. Some also invite consumers to join group chats that offer investment advice and promise investments with high returns and low risk.

Licensees should alert their employees and clients to the scam. They should also inform clients of the legitimate communication and distribution channels they use and regularly engage with their clients on preventative measures, such as:

  • ignoring unsolicited approaches through social media platforms or by telephone
  • contacting the organisation named to check if a particular communication is a scam
  • using free online tools to check the owner of the website or domain
  • verifying the profile of the individual independently.

Further, we recommend that licensees proactively monitor for scam domains and fake websites, or social media posts impersonating employees of their organisation. We ask that licensees be alert to this activity and report the conduct to the platform provider and/or domain host and, where relevant, to ASIC or to the Australian Cyber Security Centre.

For more information on investment scams, see:

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Complying with the market integrity rules for capital

We remind market participants (participants) that compliance with the ASIC Market Integrity Rules (Capital) 2021 (Capital Rules) is required from 17 June 2022.

What you need to do

Participants should carefully consider any changes they must implement across their business to ensure they comply with the new obligations, including, but not limited to:

  • futures participants moving to a risk-based regime, with a minimum core capital requirement of $1,000,000
  • securities participants subject to a minimum core capital requirement of $500,000
  • new liquidity requirements and risk methods.

Participants should request authorisation from ASIC for new risk methods applicable to their business as soon as possible. Some risk methods that require prior authorisation include:

  • underwriting and sub-underwriting risk
  • sub-underwriting counterparty risk
  • commodity position risk
  • foreign exchange position risk.

Once participants are prepared to meet the obligations under the Capital Rules, they may wish to opt into the Capital Rules before 17 June 2022 by providing written notice to market.participants@asic.gov.au to confirm the commencement date.

ASIC Regulatory Portal

Once participants are subject to the new Capital Rules, they will be required to lodge monthly, annual and ad hoc risk-based returns through the ASIC Regulatory Portal. Access to the ASX Return Lodgement and Monitoring System for affected participants will be terminated from 11 July 2022.

Exemptions to requirements in the Capital Rules apply to clearing participants of an approved clearing facility, authorised deposit-taking institutions and principal traders only.

Contact market.participants@asic.gov.au for any inquiries.

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Transitioning LIBOR contracts in 2022

We expect institutions to continue pursuing the active transition of all LIBOR contracts.

Most non-USD LIBOR tenors either ceased or no longer published on a representative basis on 31 December 2021. We expect institutions to use the ‘lessons learned’ from the non-USD LIBOR transition event to navigate the transition of USD LIBOR contracts.

Key institutions in Australia successfully amended the majority of their non-USD LIBOR contracts with minimal disruption. Only a small percentage of non-USD LIBOR contracts are expected to rely on synthetic LIBOR until they are transitioned to risk-free rates by the end of 2022.

Despite the success, exposure to USD LIBOR and synthetic non-USD LIBOR remain critically important as further work needs to be done to ensure a smooth wind-down of all LIBOR tenors.

We recommend acting now to avoid potential issues that may occur as the 30 June 2023 deadline approaches. We also support the Financial Conduct Authority’s recommendation that market participants should not rely on synthetic LIBOR and act now to remove remaining dependency.

Further, regulators in Australia, including ASIC, expect no new contracts to reference LIBOR except in circumstances outlined by the relevant regulators in LIBOR jurisdictions. We recommend institutions appropriately inform their employees of this expectation and implement processes and controls to ensure that potential new contracts are identified and escalated before being finalised.

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Simplifying market integrity rule notifications

We’re simplifying how market participants submit notifications under the ASIC market integrity rules (MIR).

Participants currently submit these notifications through the market entity compliance system (MECs) or by email. From 10 May 2022, participants will instead use the ASIC Regulatory Portal, which they also use for industry funding and client money reconciliations.

The ASIC Regulatory Portal will offer a simpler and more efficient way for participants to meet their regulatory obligations. New online forms will be pre-populated with information previously provided and participants will be able to search previous MIR notifications, ASIC industry funding, and capital and client money reconciliations.

MIR notifications to be made through the ASIC Regulatory Portal include:

  • automated order processing 
  • crossing systems
  • foreign market participant deeds
  • insurance or information requirements
  • management structure
  • reconciliation of trust or clients’ segregated accounts
  • suspicious activity reports (for exchange markets and over the counter trading)
  • wash trade notifications.

The following notifications will also be available through the ASIC Regulatory Portal rather than by email:

  • client money account reports required by Rule 3.1.1 of the ASIC Client Money Reporting Rules 2017
  • suspicious activity reports related to fixed income, currencies and commodities
  • AOP initial certification.

From 10 May 2022, MECS will no longer be available and participants will not be able to access historical submissions made through MECS. If you wish to retain these records, you’ll need to download the PDF submissions before 10 May 2022.

All participants should already be registered to use the ASIC Regulatory Portal for industry funding. If you wish to register additional users, see Markets transactions on the ASIC Regulatory Portal for details, including how to submit MIR notifications through the portal.

Contact your intermediary supervisor or email market.participants@asic.gov.au for more information.

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Guidance on licensing regime for financial benchmark administrators updated

We’ve updated Regulatory Guide 268 Licensing regime for financial benchmark administrators to provide guidance on market announcements in a licensed benchmark cessation or transition event.

The updated guidance addresses:

  • the licensed benchmark administrator’s responsibilities in making appropriate market announcements
  • our expectations about the content and relevance of market announcements made by licensed benchmark administrators
  • our actions and announcements that can be expected by market participants in the event of a cessation or transition.

The update follows consultation with key stakeholders on the role that ASIC could play in a licensed benchmark cessation or transition event.

Our goal is to provide clarity and assurance for all market participants by outlining the announcements that the market can expect from ASIC and licensed Australian benchmark administrators.

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Last updated: 21/04/2022 12:00