media release (12-108MR)

ASIC highlights compliance concerns in client money handling

Published

An ASIC review of client money handling and reconciliation practices has shown non-compliance by a number of issuers of over-the-counter contracts for difference (CFDs) and margin FX derivatives.

ASIC is midway though a risk-based review, commenced in December last year of 40 issuers’ practices.

In the first half of its review, ASIC found that:

  • eight issuers failed to pay client money into a properly designated trust account, when no exception applied, and

  • six issuers failed to pay client money into a compliant account on the day it was received or within one business day.

ASIC has also followed up with issuers to ensure they have a clear understanding of ASIC’s expectations about good practice. This includes feedback on:

  • performing daily client money reconciliations, ensuring there is an appropriate segregation of duties and that the reconciliation is signed off by senior management, and

  • documenting policies for dealing with variances.

ASIC Commissioner, Greg Tanzer said, ‘The client money provisions are an important safeguard to protect the interests of retail investors. ASIC expects issuers to know and comply with their obligations under the law and to put in place effective measures and supervisory arrangements to ensure these obligations are met’.

Mr Tanzer said today’s announcement should serve as a warning to those issuers who aren’t complying with the law.

‘In the second half of our review and in view of today’s advice highlighting the non-compliance areas, we will consider taking strong action against any issuers found to be in breach of the client money provisions’, Mr Tanzer added.

Background

Client money is money paid by investors to an Australian financial services licensee in connection with a financial product or the provision of a financial service, in this case, trading in derivatives in the over-the-counter market. Client money held in a compliant account receives statutory protection in the event of the issuer’s insolvency or ceasing to carry on business.

In July 2010, ASIC released Regulatory Guide 212 Client money relating to dealing in OTC derivatives (RG 212). The guide provides an overview of the statutory client money provisions and in particular, the specific provisions that relate to derivatives.

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