The Australian Securities and Investments Commission (ASIC) today announced changes to the financial requirements to be imposed on foreign exchange dealers applying for an Australian Financial services (AFS) licence.
ASIC will amend Part F and Part G of ASIC Policy Statement 166: Licensing – Financial Requirements (PS 166). ASIC will also amend its Pro Forma 209 (Australian Financial Services Licence conditions) to reflect the changes.
Under the changes, which take immediate effect, ASIC will now permit all foreign exchange dealers to elect whether to comply with an adjusted surplus liquid funds (ASLF) requirement reflecting Part F of PS 166, or the $10 million tier one capital requirements under Part G of PS 166.
Foreign exchange dealers must make their selection when applying for an AFS licence. ASIC will impose the appropriate licence conditions, reflecting the applicant’s selection, for all new AFS licences.
Foreign exchange dealers who already hold an AFS licence which includes a condition requiring them to comply with the $10 million tier one capital requirement may apply to ASIC for a variation of their licence conditions if they wish to comply with Part F of PS 166.
The changes mean that a foreign exchange dealer who has the ASLF required by Section F of PS 166 will not necessarily be required to hold $10 million of tier one capital, as currently required by Part G of PS 166. Foreign exchange dealers who are regulated by the Australian Prudential Regulation Authority (APRA) will continue to be excluded from compliance with PS 166.
Background
Presently, Part G of PS 166 imposes a $10 million tier one capital requirement on foreign exchange dealers who enter into foreign exchange contracts as principal in Australia, where the counterparty to the foreign exchange contract is not:
- an authorised deposit-taking institution (ADI); or
- a person required under their AFS licence to maintain $10 million of tier one capital; or
- a person authorised to deal in foreign exchange pursuant to a pre-FSR authorisation pursuant to Regulation 38A of the Banking (Foreign Exchange) Regulations.
Part F of PS 166 currently deals with the financial requirements for licensees transacting with clients as principal. Under Part F, licensees must maintain an amount of adjusted surplus liquid funds (ASLF) where their actual or contingent liabilities are equal to or greater than $100,000. Under Part F, the ASLF amount to be maintained equates to the sum of:
- $50,000; plus
- 5 per cent of adjusted liabilities between $1 million and $100 million; plus
- 0.5 per cent of adjusted liabilities for any amount of adjusted liabilities exceeding $100 million, up to a maximum ASLF of $100 million.
Under the changes to PS 166, the Part G $10 million financial requirement will not apply if the licensee elects to comply with Part F and the ASLF requirement is satisfied. Thus, a licensee who deals in foreign exchange contracts, as principal, with retail client counterparties in Australia may meet the financial requirements of either Part G or Part F of PS 166 (unless either Part would not ordinarily apply to them, for example, because the liability referred to in Part F is less than $100,000).