ASIC Decrees Tsunami Prompts Brokers to Look for Client Insurance

As the pressure on ASIC regulated firms is growing, they are devising new tactics to protect customers

The tsunami which stormed through the Australian brokerage industry last week is leaving local firms scratching their heads about their next move. While some companies are reportedly looking to explore legal options to fight the latest decisions of the Australian Securities and Investments Commission (ASIC) to force them to drop clients from overseas, other options are on the radar, too.

Finance Magnates can confirm that a number of Australian brokers have been exploring additional insurance schemes to protect their overseas clients. This is tied to a broad-based move of clients from Australia to other jurisdictions offshore.

A senior compliance officer of a brokerage company with an ASIC license confirmed to Finance Magnates that the company is looking for alternatives for its clients outside of Australia.

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With the recent shift of the European market in the same direction, offshore regulatory jurisdictions are now getting popular with Australian brokers too. Labuan and Vanuatu are probably the hottest destinations in the region, however, the latter has lately become much less attractive.

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Convincing Clients

In the meantime, brokers need to put in an extra effort in order to convince their clients to move to offshore subsidiaries. One strategy is to seek additional insurance on client funds; a move aimed to secure more stringent protection of the deposits which customers make with their brokers.

According to insurance industry professionals with knowledge of the matter, the London insurance market uses professional consultants to conduct due diligence on the broker interested in buying the insurance.

The assessment includes the financial strength of the firm, regulatory filings, and risk procedures as well as looking at the macro environment of each jurisdiction and the capital and regulatory requirements and other factors.

Since the client funds are the goal of the insurance, however, the focus of providers in on a broker’s handling of client money funds. Segregation and appropriate reporting procedures are playing a large part in the decision to sell an additional insurance policy to the broker.

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