MIU - Issue 152 - September 2023

Our priorities for supervising market intermediaries in 2023–24

We recently published our priorities for supervising market intermediaries in 2023–24, informed by the strategic priorities in the ASIC Corporate Plan 2023–27 – Focus 2023–24.

Our priorities target the most significant threats and harms in our regulatory environment. Supporting ASIC’s priorities and core strategic projects, our key areas of regulatory focus for market intermediaries in 2023–24 are:

  1. Fair and orderly markets
  2. Cyber, technology and operational resilience
  3. Product design and distribution
  4. Governance, accountability, sustainability and risk management
  5. Implementation of law reform.

We encourage you to plan for the year ahead by using these priorities as a reference tool for your compliance, supervisory and risk management programs, and to prepare for your interactions with ASIC.

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ASIC–RBA issue joint letter of expectations to ASX

ASIC and the RBA (the Regulators), have issued a joint letter (PDF 90 KB) outlining regulatory expectations of ASX Clear Pty Limited (ASX Clear) and ASX Settlement Pty Limited (ASX Settlement) when engaging with the newly established ASX Cash Equities Clearing and Settlement Advisory Group (Advisory Group).

The Advisory Group, with Independent Chair Alan Cameron AO, was established to advise ASX Clear and ASX Settlement on strategic clearing and settlement issues following longstanding industry concerns over the CHESS replacement program. Concerns raised included the adequacy of ASX’s stakeholder engagement and governance process and ASX’s management of intragroup conflicts of interest.

The letter requires ASX Clear and ASX Settlement to resource, consult and engage with the Advisory Group in good faith and in the public interest.

The Regulators will actively monitor ASX Clear and ASX Settlement’s engagement with the Advisory Group.

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OTC derivatives issuers DDO report

We’re taking aim at the broad distribution of over-the-counter (OTC) derivatives and other high-risk retail products after a recent targeted review found significant room for improvement in how they meet their design and distribution obligations (DDO).

The introduction of DDO, now well into its second year, marked a significant shift to outcomes-based regulation. Ultimately, it requires financial products to be designed and distributed with clear and contemporary consideration of the objectives, financial situation and needs of the consumers and retail investors being targeted.

The findings released in Report 770 Design and distribution obligations: Retail OTC derivatives (REP 770) outline how issuers of retail OTC derivatives are meeting DDO and highlight areas for improvement.

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Relief for OTC derivative transaction reporting

We’ve provided conditional relief from reporting certain data elements under the ASIC Derivative Transaction Rules (Reporting) 2022 (2022 Rules), which are no longer required under the ASIC Derivative Transaction Rules (Reporting) 2024 (2024 Rules), commencing from 21 October 2024.

From 31 August 2023, ASIC Corporations (Amendment) Instrument 2023/504 amends ASIC Corporations (Derivative Transaction Reporting Exemption) Instrument 2015/844 to provide conditional relief from requirements to report 2024 transitional information and confirmation information.

We have also remade the following determinations to continue their operation under the 2022 Rules and, where relevant, the 2024 Rules:

For more information, read the Explanatory Statement and visit our derivative transaction reporting webpage.

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Correct classification and disclosure of assets in financial returns

We encourage market participants (participants) to review their accounting practices to ensure assets are correctly classified when submitting risk-based returns.

We’ve recently identified some participants failing to treat ‘other trade receivables realisable after 31 days’ as excluded assets. This overstates the calculation of liquid capital and capital ratio. Assets more than 31 days old are excluded assets unless secured by liquid collateral, evidenced in writing and at mark-to-market value. Assets which are not liquid must be treated as excluded assets.

It’s important participants correctly apply the definition of excluded assets in Rule 1.4.3 and Rule S1A.2.4A of the ASIC Market Integrity Rules (Capital) 2021 (Capital Rules). We also remind participants to review the definition of liquid in Rule 1.4.3.

We identified several participants failing to accurately complete the ‘receivables report’ in their risk-based returns. The information disclosed in the receivables report must be consistent with what is reported on the balance sheet and the liquid capital calculation.

Participants should review their accounting practices and ensure they’re meeting the requirements of the Capital Rules, including requirements involving excluded assets. If you identify any miscalculations, you should notify us in accordance with your breach reporting obligations under the Corporations Act 2001.

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AOP system annual review and notification reminder

We remind trading participants (participants) who operate automated order processing (AOP) systems of their obligation to have an appropriately qualified person undertake an annual review of relevant documentation, for compliance with Part 5.6 of the ASIC Market Integrity Rules (Securities Markets) 2017 (the Rules). You must then provide an annual notification to ASIC under Rule 5.6.8B by 15 November 2023.

When referring to relevant documentation, we remind participants that to maintain ongoing compliance, system testing and change management is a key function of the operation of all AOP systems.

AOP system annual notifications should now be submitted through the ASIC Regulatory Portal (the Portal), as for other notifications required under the Rules. The Portal allows you to:

  • confirm details for existing AOP systems
  • update details for existing AOP systems
  • indicate if an AOP system has been decommissioned
  • download, sign and attach a pre-filled notification document containing:
    • the full legal name of the trading participant
    • the name and version number of the AOP system or systems to which the notification relates.

Contact your ASIC Intermediary Supervisor if you have any questions about lodging your AOP system annual notification through the Portal.

For more information, see:

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Mandatory clearing rule amendments to reflect interest rate benchmark reforms

We’ve made amendments to the ASIC Derivative Transaction Rules (Clearing) 2015 (Clearing Rules) to reflect ongoing reforms of interest rate benchmarks.

The amendments, as outlined in Consultation Paper 366 Proposed amendments to the ASIC Derivative Transaction Rules (Clearing) 2015: Second consultation, proposed to:

  • remove contracts referencing USD LIBOR which ceased on 30 June 2023, and
  • replace these with overnight index swap contracts referencing the Secured Overnight Financing Rate (SOFR).

We also separately proposed to remove AUD-denominated forward rate agreements, which are currently covered by an exemption.

Report 771 Response to submissions on CP 366 Proposed amendments to the ASIC Derivative Transaction Rules (Clearing) 2015: Second consultation summarises the key issues raised in submissions to CP 366. It also details our responses to those issues, including the change we made (based on stakeholder feedback) to the implementation period for the introduction of the new SOFR overnight index swap class.

While we expect market participants subject to the Clearing Rules are already clearing trades in the SOFR overnight index swap products, we have allowed a longer six-month transition period to implement the amendments. The transition period will allow industry time to prepare for the technical commencement of the clearing requirements for these contracts.

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Extension of the deadline for financial advisers to complete registration

ASIC is extending the date by which relevant providers – financial advisers who provide personal advice to retail clients on relevant financial products (including time share advisers) – must be registered. Relevant providers will now need to be registered by 1 February 2024. The reason for the further extension is that the Treasury Laws Amendment (2023 Measures No. 1) Bill (the Bill) remains before parliament.

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Last updated: 25/09/2023 11:59