ASIC has released a consultation paper, Client money relating to dealing in OTC derivatives (CP 114), which contains proposals to improve disclosure by a financial services licensee dealing in OTC (over the counter) derivatives . The paper also clarifies how ASIC expects licensees to comply with the client money provisions in the Corporations Act.
Client money is paid to a financial service licensee for either a financial service or a financial product held by a client and can comprise margin deposits and other money that a client has paid to or left with a licensee, such as an OTC derivatives provider. However, the client agreements of many financial services licensees dealing in derivatives can contain a broad authorisation for the licensee to use client money for any purpose.
ASIC is seeking stakeholder views on the best ways for licensees to advise their clients how their money is held, the counterparty risks and the licensee’s policies for the use of client money.
ASIC recommends retail investors trading in CFDs or other derivatives find out from their issuer how they look after client money, including seeking the issuer’s position on:
- whether client money is held separate from the issuer’s funds as required by law;
- if their money can be used to meet trading obligations of other clients,
- whether the issuer can use client money for their own purposes; and
- where and how the issuer has disclosed its client money policies to the investor.
Submissions on the consultation paper close on 18 September 2009.
