Client Money Rules, does anyone follow them? ASIC

Australia’s financial regulator has been highlighting brokers implementation of Client Money rules post MF crisis. The Australian Securities Investments Commission review

Australia’s financial regulator has been highlighting brokers implementation of Client Money rules post MF crisis. The Australian Securities & Investments Commission review of client money handling and reconciliation practices has shown non-compliance by a number of issuers of over-the-counter contracts for difference and margin FX derivatives.

The Australian Securities & Investments Commission (ASIC) is midway though a risk-based review, which commenced in December last year of 40 issuers’ practices.

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On the other side of the globe, UK-based WorldSpreads filed for bankruptcy after it had a ‘black hole’ in it’s Client Money. Forex Magnates expects the FSA to introduce new measures to monitor any flaws in segregated accounts. The FSA wrote a review paper in 2009 about the potential dangers of non disclosing OTC CFD transactions in light of insider trading.

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 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.

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“The client money provisions are an important safeguard to protect the interests of retail investors,” said ASIC Commissioner Greg Tanzer.

“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 the 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,” he said.

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.

Australia was the first major financial centre to offer DMA CFD’s. The LSE pre-Lehman was conducting a study on offering CFD’s cleared through LSE however after the new Lehman boss took over the project was scrapped.

London Multi Asset Exchange offers traders access to FX and CFD instruments with out the issue of counterparty risk. Instruments are traded, cleared and settled under an exchange regime.

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