ASIC Product Intervention Measures & Massive Data Collection

In the second week of April 2019, the Australian regulator (ASIC) got authorisation for introducing product intervention measures and promptly demanded a huge data collection. The news from down under literally shook the  Investment Firms, far beyond the local market participants. Only 8 months have passed since ESMA imposed the European product intervention measures and the Investment Firms in this part of the world are still trying to find ways of coping. In this article, we will discuss
1. the intentions of the Australian regulator and
2. the data expected from firms to be collected by the mid of May.

The Australian Parliament approved the product intervention powers bill with formal approval pending, which will enable ASIC to control much of the details the shape the online retail trading market. It is anticipated that ASIC by 2021 will follow the US, Japan, and, recently, the EU measures by introducing;
– substantially lower leverage,
– a ban on certain products,
– guidelines to prevent misleading marketing activities, and
– the removal of incentives such as bonus to retail clients.

It is expected that the new measures will close the doors to European clients onboarded under ASIC license holding entities and Australia will not be viewed as a choice to bypass the leverage restrictions of other jurisdictions. Additionally, it is anticipated that the new legislation will replicate parts of MiFID II such as the introduction of an enhanced suitability and appropriateness framework. The main reason for all those changes is investor protection because of the complexity and risky nature of the products that have been sold to clients with unsuitable risk and otherwise inappropriate profile.

Regarding the data required, within a short time frame, ASIC is requesting firms to;
– inform the regulator on the steps to be taken towards compliance in regards to providing financial services to clients residing in jurisdictions other than Australia which is not allowed, by the 10th of May 2019,
– inform the regulator on the number of clients on boarded from other jurisdictions, by the 8th of July 2019,
– then inform the regulator on the total Client funds held from each overseas jurisdiction, by the 1st of July 2019,
– in cases where firms cannot obtain legal advice to offer services to other jurisdictions, must close the open positions of existing clients from overseas jurisdictions, by the 30th of June 2019,

These may translate to additional work for the group of companies the Australian entity is part of, as they may have to alter the way of reporting their ASIC and/or EMIR regulatory requirement.

Furthermore, ASIC is asking firms to provide detailed information on their activities before the enforcement of the product intervention measures. The regulator with reference to notice s912C, requires a response to all 48 questions and their sub-questions. A non-exhaustive, brief summary of the lengthy set of questions by the regulator;
– a breakdown of the number of clients since 2017, broken down by type, retail and wholesale, (where wholesale is the equivalent to ESMA’s sophisticated or professional investor), their jurisdiction, total money held by jurisdiction, how many were reclassified from retail to wholesale per jurisdiction,
– the number of clients; by age group and income, opened an account during each period, transferred from related entity,
– total annual turnover for the years of 2017 and 2018,
– the number of representatives and responsible managers, including their name, address, role, remuneration amount received based on client performance and explicit details of the benefits,
– product specifications for all products offered to clients including trading revenues, funding costs, executed and rejected trades, speed of execution,
– total number and proportion of profitable and unprofitable clients split by each underlying asset,
– the risk management strategies employed by the firm for A and B book respectively,
– the price feed and liquidity providers as well as any white label information,
– the detailed information of each corporate authorised representative (“CAR”),
– the arrangements of each referring party,
– detailed information on all outsourcing functions and their jurisdictions,
– detailed description of all compensation arrangements,
– the process for determining a potential client’s suitability before being accepted as a client,
– the internal and external dispute resolution process (IDRP and EDRP),
– a change of control (if any), since the January 2016,
– all information related to the software products and domain names used in the provision of financial service,
– the provision of bank account details,
– information on the provision of negative balance protection and the risk management strategy to the absorbed loses,
– details on the Yen flash crash at 3rd of January 2019,
– information on the use of the firm’s marketing in the provision of financial services, costs, and clients on boarded due to promotional packages.

We understand that the regulator provided a short timeframe for the collection and submission of an incredible amount of data. If you require more details or support to complete the requested information, please let us know.

The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.

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