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Are you Ready for ASIC’s Client Money Reporting Rules?

Posted on March 5th, 2018 by Sophie Gerber in ASIC

ASIC’s Client Money Reporting Rules 2017 (“Rules”) commence on 4 April 2018. The Rules impose record-keeping, reconciliation and reporting obligations on Australian Financial Service licensees (“Licensees”) that hold “derivative retail client money” as defined in the Corporations Act 2001 (Cth).

The Rules, according to ASIC Commissioner Cathie Armour, will ensure greater transparency in dealing with derivative retail client money by applying more formal and consistent standards across the derivatives sector. Under the new reporting regime set by the Rules, any discrepancies in a Licensee’s client money account must be notified to ASIC within 5 business days, allowing ASIC to take appropriate action.

This article examines the key aspects of the new obligations for Licensees as set out in the Rules.

Obligation 1 – Record-Keeping Requirements

Under the new Rules, a Licensee must at all times keep accurate records of:

  1. the amount of Reportable Client Money for individual clients; and
  2. the total amount of Reportable Client Money for all clients.

ASIC has the power to request provision of such records by giving a Licensee 5 business days or such longer time it may direct.

Obligation 2 – Reconciliation Requirements

The table below sets out the reconciliation requirements imposed on Licensees on an individual client basis and on an aggregate basis.

The Licensee is entitled to nominate a reconciliation time (“Nominated Reconciliation Time”) and timezone for the purposes of complying with the following requirements. If you have not yet made a decision on your Nominated Reconciliation Time, please remember to do so before or on 4 April 2018. You may change the Nominated Reconciliation Time at a later date, however, this will require a written notification to ASIC before doing so.

Daily Reconciliation Requirements
Daily Reconciliation Requirement 1A Licensee must perform an accurate reconciliation at the Nominated Reconciliation Time on each business day of:
a) the amount of Reportable Client Money held in a Client Money Account for each client; and
b) the amount recorded in the Licensee's records for each client.
Daily Reconciliation Requirement 2A Licensee must perform an accurate reconciliation at the Nominated Reconciliation Time on each business day of:
a) the total amount of Reportable Client Money held in a Client Money Account for all clients; and
b) the total amount recorded in the Licensee's records for all clients.
Deadline for fulfilling the requirementsMust be completed by the Licensee's Nominated Reconciliation Time on the third business day following the business day to which the reconciliation relates.
Record-keeping Written records must be retained for at least 7 years from the date the record is made.

Monthly Reconciliation Requirements
Monthly Reconciliation Requirement 1A Licensee must perform an accurate reconciliation at the Nominated Reconciliation Time on the last business day of each calendar month of:
a)      the amount of Reportable Client Money held in a Client Money Account for each client; and
b)      the amount recorded in the Licensee’s records for each client.
Monthly Reconciliation Requirement 2A Licensee must perform an accurate reconciliation at the Nominated Reconciliation Time on the last business day of each calendar month of:
a)      the total amount of Reportable Client Money held in a Client Money Account for all clients; and
b)      the total amount recorded in the Licensee’s records for all clients.
Reporting to ASIC a)      The monthly reconciliation requirements must be completed and written records must be provided to ASIC within 10 business days of the end of the calendar month to which the reconciliation relates.
b)      The written report to ASIC must be accompanied by a statement signed by a director, or a person authorized by a director, stating that the signatory believes that the reconciliation is accurate in all respects.

Obligation 3 – Reporting Requirements

The new ASIC Reporting Rules also impose two reporting requirements on Licensees:

  1. Reporting of breaches – Licensees are required to provide a detailed written report to ASIC within 5 business days after the Licensee becomes aware of the failure, if:
    1. The Licensee fails to fulfil any of the Reconciliation Requirements;
    2. The Licensee identifies any inconsistencies when performing the reconciliation.
  2. Annual declarations by directors and auditors – for the financial year ending after 1 July 2018, a Licensee must submit to ASIC within 4 calendar months of the end of each financial year:
    1. A director’s declaration stating whether, in the directors’’ opinion, the Licensee has complied with the Rules; and
    2. An external auditor’s report containing the information required in the Rules, signed by a partner or director of the auditor.

ASIC s912E Notice and Your Compliance

We have seen Licensees recently receive notices from ASIC issued under section 912E of the Corporations Act requiring information to be provided in relation to the Licensee’s proposed compliance with the Rules. Sophie Grace can assist you to build a tailored Client Money Reporting Policy that suits your operational objectives while complying with the Rules. As 4 April 2018 is quickly approaching, it is critical that you are all set to comply with the Rules.

If you feel that you are not adequately prepared for the Rules or would like to discuss the Rules further, please contact us.

Melody Gao

Melody assists in preparing, reviewing and negotiating legal documentation for participants in the financial services industry. Melody also assists with developing, reviewing and amending compliance documentation. She also supports the Compliance Consultants with the preparation of AFSL and ACL applications, variations and compliance reviews. Melody provides ongoing legal support and also assists in implementing ongoing compliance support, updating procedural documentation and preparing compliance reporting for Compliance Committees and Boards of Directors.