Accepting foreign clients? ASIC’s Best Practices for Retail OTC Derivatives Issuers

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Accepting foreign clients? ASIC’s Best Practices for Retail OTC Derivatives Issuers

After over 18 months of silence on the issue, ASIC has released further commentary about its views on accepting clients from overseas jurisdictions to receive CFDs and margin FX products. ASIC assessed a sample of retail over-the-counter (OTC) derivative licensees’ practices in regards to onboarding overseas based clients and the results were published as part of the latest Market Integrity Update released in December 2020.

The review follows the ASIC media release in April 2019 which put licensees on notice that it is inclined to consider that the onboarding of overseas clients where the sale of retail OTC derivatives is prohibited would be in breach of a variety of Australian financial services laws.

Subsequent to this release, many AFS Licensees offering these products undertook a process of obtaining legal advice for some or all of the countries from which they accept clients as to the legality of doing so.  This mirrors the approach implemented by another popular regulatory jurisdiction, Cyprus. CySEC requires firms to provide them with formal notification and detail regarding their third country activities as outlined in their Circular 256.

Commenting on licensees’ controls to ensure they did not onboard clients from jurisdictions where the issuer is not authorised to do so, ASIC’s observed better practices included:

  • blocking IP addresses;
  • limiting the range of jurisdictions available through onboarding systems;
  • requiring a proof-of-residence check for each application; and
  • closing deposit and payment gateways for residents of certain jurisdictions.

The implementation of these controls is likely to become a greater focus for ASIC, particularly following the implementation of the Design and Distribution requirements which will commence from October 2021.

Retail OTC derivatives issuers should consider whether to implement the best practices as outlined by ASIC above. Retail OTC derivative issuers should also start preparing for the implementation of Design and Distribution including determining their target market and assessing the potential impact on current operations.

About The Author

Victoria Lombardo

Victoria Lombardo

Victoria provides support to our compliance and legal teams and assists our clients with the preparation and collation of documentation required for AFS and credit licence applications. She also supports senior staff by providing assistance to clients with the maintenance of their licences through the preparation of compliance policy documents and ongoing compliance support.


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