ASIC Reminds Retail OTC Firms of Reporting Obligations Amid COVID-19

Firms need to notify ASIC if they have any material adverse changes to their financial position.

The Australian Securities and Investments Commission (ASIC) continues to reach out to retail over the counter (OTC) derivatives issuers as more cases of Coronavirus appear across the world and continue to rattle the financial markets.

In an email sent out this week seen by Finance Magnates, the Australian regulator reminded all of its licensees about their financial and client money reporting obligations under the Corporations Act 2001 (Cth) (the Act). 

Namely, the authority highlighted that retail OTC derivatives issuers need to notify ASIC if they have any material adverse changes to their financial positions when compared to what was last reported to the regulator.

Specifically, financial firms must notify ASIC and give particulars of the event as soon as practicable and no longer than three business days after it becomes aware of the event.

A volatile week for FX

As Finance Magnates reported, this past week has brought a lot of volatility to the trading markets, particularly foreign exchange (forex). Large swings in the price of major currencies can be problematic for brokers and traders alike. Back in June of 2016, following the big Brexit vote, many brokers struggled to meet their customers’ demand as there was a squeeze on liquidity.

Flash crash events can cause financial harm to forex brokers. Historically, these types of situations have led to clients receiving margin calls and having positions closed out at a negative balance. Furthermore, large changes in major currencies can cause hundreds of millions in losses.

ASIC reminds firms of their obligations

In Australia, a retail OTC derivative issuer must have net tangible assets of the greater of $1,000,000 and 10 percent of its average revenue, at all times. From this, 50 percent of the required NTA must be held in cash or cash equivalents and 50 percent in liquid assets.

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“Where the NTA of a retail OTC derivative issuer falls below 110% of its required NTA, the issuer must lodge a written report with ASIC that specifies the NTA of the issuer as at the date of the report within 3 business days after becoming aware of the event; and on the first day of every month after becoming aware until, as at the last day of the preceding month, the NTA is greater than 110% of the required NTA,” the regulator said in the email.

“Where the NTA of a retail OTC derivative issuer is at any time less than the required NTA, the issuer must not enter into a transaction with any person to whom it provides financial services that could give rise to further liabilities (contingent or otherwise) unless the issuer certifies in writing that there is no reason to believe that:

(a) the entity will not comply with s912A of the Act; and

(b) there is or will be a deficiency in any accounts maintained by the issuer for the purposes of section 981B.”

Do Aussie brokers need the reminder?

Sophie Gerber of Sophie Grace and TRAction Fintech
Sophie Gerber, a Director at Sophie Grace and TRAction Fintech

Speaking to Finance Magnates, Sophie Gerber, a Director at Sophie Grace and TRAction Fintech said: “The financial requirements apply at any given point in time so it is valuable to have a robust system for monitoring compliance with NTA so that any intra day swings with a negative impact can be identified and motivated before any triggers are hit.”

“A prudent and well run broker always has their compliance requirements front of mind, particularly in the ASIC environment where there is a lot of regulatory pressure. Hopefully there are no brokers who ‘needed’ a reminder as such however it is good to receive a reminder from ASIC nonetheless.”

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