Op-ed

How are ASIC’s Demands Affecting Brokers With Foreign Clients?

Faced with strict demands from ASIC, Australian brokers servicing foreign clients are forced to restructure their business

Over the past year, we have seen a wave of tightening regulations all around the world. The Australian Securities and Investments Commission (ASIC), has recently decided to follow the ESMA’s example and has increased regulatory requirements in order to create, what it sees in its eyes, a fair and honest market for retail traders, whether located in Australia or abroad. To this extent, various ASIC brokers have received notice letters at the end of April 2019 and during May 2019. Some ASIC brokers are currently disputing such new regulatory requirements. At the same time, we are seeing an increasing amount of ASIC brokers going offshore and migrating their clients.

Implications of ASIC’s new requirements

If Australia was once considered a regulatory safe haven for brokerages, this is no longer the case. ASIC has recently set up a set of strict rules and submitted a data collection notice to brokers regulated in Australia.

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Tal Ron
Tal Itzhak Ron

It requested Australian brokers to provide an extensive list of information by March 2019. This information includes a detailed break down of client numbers before and after December 2017 by age, account size, income, the number of clients transferred from overseas between January 2018 and March 2019, and many more break downs. ASIC also demands information relating to the broker’s business strategy, a break down of the broker’s A-Book and B-Book, as well as the criteria used by the broker to assign clients to different books. The regulatory trend worldwide is towards greater scrutiny and increased transparency of brokerages and their businesses. Nothing is left out in this area, from liquidity partnerships, hedging counterparts, referral agreements, white labels, and every aspect of the broker’s worldwide business.

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Can ASIC brokers still target foreign clients?

Recently, we have seen an “exodus” of ASIC brokers, specifically those targeting Asian traders, into offshore jurisdictions (Vanuatu, Belize, Bermuda, Bahamas, Cayman). The most popular move we see occurring nowadays is the migration of non-Australian client lists into offshore regulated entities, obtaining offshore licenses while opening banking facilities in various reliable financial centers such as Singapore, where our firm has a presence. Some ASIC brokers are still on the fence and waiting to see what their competitors do, while already setting up multiple licenses for a worst-case scenario. ASIC requires these brokers to present legal opinions from lawyers confirming that their operation does not contradict local laws.

The effect on offshore jurisdictions

ASIC’s new approach is also having an effect on some of the small but popular offshore jurisdictions in the industry. Belize has already had some developments and is currently re-examining its licensing scheme. Vanuatu has also issued new amendments that require each company listed in the financial dealers list to have a director or manager who must be a natural person and have at least five years of experience dealing in securities. It also became an obligation for such director(s) or manager(s) of the company to reside in Vanuatu for six months within each year. The purpose of this new amendment is to allow the VFSC’s to monitor licensees under the Act and to conduct onsite inspections locally.

Tal Itzhak Ron is the Chairman and CEO of Tal Ron, Drihem & Co.

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