ASIC today welcomed the Government’s decision to proceed with ‘client money’ reforms in respect of retail OTC derivatives.

‘The reforms to the client money regime will strengthen protection of client money that is provided by retail derivative clients. By improving protection for retail client money, the reforms will help to increase investor confidence in the Australian financial system,’ said ASIC Commissioner Cathie Armour.

‘Importantly, the reforms will remove an exception in the client money regime that allows Australian financial services licensees to withdraw client money provided in relation to retail OTC derivatives from client money trust accounts, and use it for a wide range of purposes including as working capital. This exception currently places retail derivative client money at greater risk of loss, particularly in the event the licensee becomes insolvent,’ Ms Armour said.

‘Under the reforms, licensees would be required to hold retail derivative client money on trust. A fundamental protection of the trust requirement is that client money can be returned to clients, and not paid to creditors, in the event of the licensee’s insolvency. The requirement to hold client money on trust already applies to the vast majority of financial products and financial services under Australia’s client money regime.’

ASIC also welcomed the Government’s decision to give ASIC the power to write client money reporting and reconciliation rules.

‘These reporting and reconciliation requirements would apply more formal and consistent standards to industry, and help to improve the handling of client money. They would also assist ASIC to detect breaches of the client money regime affecting retail derivative clients in a more timely way,’ Ms Armour said.

It is important to note that the industry has a 12-month transition period in which to implement the reforms,  allowing industry time to adapt to the new regime.

‘ASIC has engaged extensively with Treasury and industry on client money reforms. We look forward to continued engagement with Government and industry to improve retail client protection.’

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