In July 2017, ASIC consulted with the financial sector in regard to reforms for those licensees which hold “derivative retail client money”. Following the consultation process, ASIC has now finalised the ASIC Client Money Reporting Rules 2017 (“the Rules”).
The new rules which will come into effect on 4 April 2018, will impose additional obligations on licensees that hold derivative retail client money. The Rules will exclude funds which relate to a derivative that is traded on a fully licensed domestic market - for example, ASX 24, Financial and Energy Exchange.
ASIC believes that these reforms will ensure greater transparency in relation to a licensee’s receipt and use of derivative retail client money.
A summary of the Rules is contained below:
Record Keeping and Reconciliations
A licensee is required to keep accurate records of the amounts of all client monies received and must retain all such records for at least seven years from the date the record is made.
A licensee is required to provide its records to the client or ASIC within five business days (unless otherwise agreed) following a written request.
A licensee must perform daily reconciliations of client monies held. These reconciliations must be completed by no later than the third Business Day and must be maintained for at least seven years from the date the record is made.
A licensee must perform monthly reconciliations of client monies held. These reconciliations must be completed and lodged with ASIC by no later than the tenth Business Day following the end of the calendar month and must be signed by a director (or authorised person) stating that the signatory believes, and has no reason not to believe, that the reconciliation is accurate in all respects.
If a licensee fails to perform a reconciliation as required, or if there is a discrepancy between the amount held and the amount recorded in the individual client’s records, then the licensee must submit a report to ASIC. The report must contain (amongst other things) the reason why the reconciliation was not lodged, details of the discrepancy and remedial action taken or proposed to be taken.The licensee must lodge the report with ASIC within five business days after it has become aware of the matter.
ASIC has also imposed end of year disclosure requirements by both the licensee and its auditor:
- A directors’ declaration that the licensee has complied with the Rules.
- An auditor’s report in regard to the effectiveness of the licensee’s internal controls designed to ensure compliance with the Rules.
This annual reporting requirement is relevant for financial years ending after 1 July 2018 and the declarations must be lodged within four calendar months following the licensee’s financial year end.
Supervisory Policies and Procedures
A licensee must:
- Establish policies and procedures designed to ensure compliance with the Rules.
- Keep the policies and procedures up-to-date.
- Implement the policies and procedures required under this Rule.
The maximum penalty for breaching any of the above regulations is $1 million.
Should you have any queries about ASIC or other issues involving compliance, licensing, or corporate governance, please contact Jeremy Danon, director of Ariel & Associates Pty Ltd on (02) 8223 3355 or at firstname.lastname@example.org.