20170421 - DRAFT Client money reporting rules

Chapter 1: Introduction

Part 1.1 Preliminary

1.1.1 Enabling legislation

ASIC makes this instrument under subsection 981J(1) of the Corporations Act 2001.

1.1.2 Title

This instrument is the ASIC Client Money Reporting Rules 2017.

1.1.3 Commencement

This instrument commences on the later of:

(a) the day after it is registered on the Federal Register of Legislation; and

(b) the day Schedule 5 to the Treasury Laws Amendment (2016 Measures No. 1) Act 2017 commences.

Note: The register may be accessed at www.legislation.gov.au.

1.1.4 Penalties

(1) For subsection 981K(3) of the Act, the penalty amount specified under a Rule is the penalty amount for that Rule.

(2) If no penalty amount is specified under a Rule, there is no penalty for that Rule.

Part 1.2 Waiver

1.2.1 Waiver of Rules

(1) Subject to Rule 1.2.3, ASIC may relieve any person or class of persons from the obligation to comply with a provision of these Rules, either generally or in a particular case, and either unconditionally or subject to such conditions as ASIC thinks fit.

(2) If any conditions on a waiver given under subrule (1) are imposed, all of the conditions must be complied with for the waiver to be effective.

(3) ASIC may withdraw, in writing, a waiver given under subrule (1) at any time.

(4) Any request by a person for a waiver under subrule (1) must be in writing.

(5) Any waiver given under subrule (1), and any conditions imposed on that waiver, must be in writing.

(6) ASIC may publish notice of a waiver given under subrule (1).

1.2.2 Compliance with conditions

Failure to comply with a condition imposed under Rule 1.2.1 is a contravention of this Rule.

Maximum penalty: $1,000,000

1.2.3 Period during which relief applies

ASIC may specify the period or specific event during which any relief from an obligation to comply with a provision of these Rules may apply.

1.2.4 Register

(1) ASIC may establish and maintain a register for recording details of relief granted under Rule 1.2.1 and may enter the following details in the register:

(a) the date that the relief takes effect;

(b) the person or class of person relieved from the obligation;

(d) brief reasons for the relief; and

(e) any conditions that apply to the relief.

(2) ASIC may publish the register referred to in subrule (1).

1.2.5 Application to licensees subject to market integrity rules

(1) A financial services licensee that is required to comply with, and complies with:

(a) Part 2.3 of the ASIC Market Integrity Rules (ASX 24 Market) 2010;

(b) Part 2.3 of the ASIC Market Integrity Rules (FEX Market) 2013; or

does not need to include monies reconciled under the above market integrity rules in reconciliations performed under Rules 2.2.1 and 2.2.2.

(2) A financial services licensee does not need to comply with these Rules if:

(a) the licensee is required to comply with, and complies with:

(i) Part 2.3 of the ASIC Market Integrity Rules (ASX 24 Market) 2010;

(ii) Part 2.3 of the ASIC Market Integrity Rules (FEX Market) 2013; or

(iii) Part 2.3 of the ASIC Market Integrity Rules (Futures Markets) 2017; and

(b) the only Reportable Client Money received by the licensee from, on behalf of, or for the benefit of a person, is reconciled under the market integrity rules mentioned in subrule (2)(a).

Part 1.3 Interpretation

1.3.1 Words and expressions defined in the Corporations Act

Words and expressions defined in the Corporations Act will, unless otherwise defined or specified in these Rules or the contrary intention appears, have the same meaning in these Rules.

1.3.2 Definitions

Act means the Corporations Act 2001 (Cth).

Client Money Account means an account maintained for the purposes of section 981B of the Act.

financial market has the meaning given by section 767A of the Act.

licensed market has the meaning given by section 761A of the Act.

Nominated Reconciliation Time has the meaning given by Rule 2.2.3.

Reportable Client Money means money that:

(a) is derivative retail client money within the meaning of the Act; and

(b) is or relates to a derivative other than a derivative entered into on a market that is licensed under section 795B(1) of the Act and no exemption under section 791C or 798M covers the market.

Rules means these rules.

Chapter 2: Record-keeping and reconciliation

Part 2.1 Record-keeping

2.1.1 Record-keeping requirements

(1) A financial services licensee must at all times keep accurate records of the amount of Reportable Client Money it has received from, on behalf of, or for the benefit of a person and is required under Division 2 of Part 7.8 of the Act to hold in a Client Money Account for that person.

(2) A financial services licensee must at all times keep accurate records of the total amount of Reportable Client Money it has received from, on behalf of, or for the benefit of all persons and is required under Division 2 of Part 7.8 of the Act to hold in a Client Money Account for those persons.

(3) A financial services licensee must retain records made under subrules (1) and (2) for at least 7 years from the date the record is made.

Maximum penalty: $1,000,000

2.1.2 Requests from clients and ASIC

A financial services licensee must comply with a written request from:

(a) a person for any record kept by the financial services licensee under subrule 2.1.1(1) for that person within 5 business days after the request or such longer period as may be agreed to in writing by that person; and

(b) ASIC for any record kept by the financial services licensee under subrules 2.1.1(1) or 2.1.1(2) within 5 business days after the request or such longer period as may be agreed to in writing by ASIC.

Maximum penalty: $1,000,000

Part 2.2 Reconciliation requirements

2.2.1 Daily reconciliation of client money

(1) A financial services licensee must perform an accurate reconciliation, as at the licensee’s Nominated Reconciliation Time on each business day, of:

(a) the amount of Reportable Client Money held in a Client Money Account for each person; and

(b) the amount recorded in the licensee’s records for each person, as required by subrule 2.1.1(1).

(2) A financial services licensee must perform an accurate reconciliation, as at the licensee’s Nominated Reconciliation Time on each business day, of:

(a) the total amount of Reportable Client Money held in a Client Money Account for all persons; and

(b) the amount recorded in the licensee’s records for all persons, as required by subrule 2.1.1(2).

(3) The reconciliations required by this Rule must be completed by the licensee’s Nominated Reconciliation Time on the third business day following the business day to which the reconciliation relates.

(4) A financial services licensee must retain a written record of the reconciliations required by this Rule for at least 7 years from the date the record is made.

(5) The written record required by subrule (4) must include the time, timezone and date at which the reconciliation to which the record relates was performed.

Maximum penalty: $1,000,000

2.2.2 Monthly reconciliation of client money

(1) A financial services licensee must perform an accurate reconciliation, as at the licensee’s 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 person; and

(b) the amount recorded in the licensee’s records for each person, as required by subrule 2.1.1(1).

(2) A financial services licensee must perform an accurate reconciliation, as at the licensee’s 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 persons; and

(b) the amount recorded in the licensee’s records for all persons, as required by subrule 2.1.1(2).

(3) The reconciliations required by this Rule must be completed and a written record of them given to ASIC within 10 business days of the end of the calendar month to which the reconciliation relates.

(4) The reconciliations referred to in subrules (1) and (2) must include a statement signed by a director, or a person authorised by a director, stating that the signatory believes, and has no reason not to believe, that the reconciliation is accurate in all respects.

(5) The statement required by subrule (4) must include the date on which the statement was signed.

Maximum penalty: $1,000,000

2.2.3 Nominated Reconciliation Time

(1) A financial services licensee must determine, in writing, on or before the day it is first required to comply with Part 2.2 of the Rules, the time of day and the timezone (Nominated Reconciliation Time) at which it will perform the reconciliations required by Part 2.2 of the Rules.

(2) A financial services licensee may vary its Nominated Reconciliation Time by:

(a) determining, in writing, before the change takes effect, another time of day and, or, another timezone at which it will perform the reconciliations required by Part 2.2 of the Rules; and

(b) notifying ASIC, in writing, of the changed time, before the change takes effect.

Maximum penalty: $1,000,000

Chapter 3: Reporting

Part 3.1 Reporting and annual declarations

3.1.1 Reporting requirements

(1) A financial services licensee must give ASIC a written report that complies with subrule (2) if:

(a) the licensee fails to perform a reconciliation as required by these Rules;

(b) a reconciliation performed under subrule 2.2.1(1) (the reconciliation of individual amounts) identifies a difference between the amount held in a Client Money Account for a person and the amount recorded in the licensee’s records kept under subrule 2.1.1(1); or

(c) a reconciliation performed under subrule 2.2.1(2) (the reconciliation of total amounts) identifies a difference between the amount held in Client Money Accounts for all persons and the amount recorded in the licensee’s records kept under subrule 2.1.1(2).

(2) The written report must:

(a) state the paragraph of subrule (1) to which the report relates;

(b) contain details of the failure or difference, as applicable;

(c) explain any remedial action taken or proposed to be taken by the licensee in relation to the matters in the report; and

(d) if paragraph (1)(b) or (c) applies, include a copy of the written record of the reconciliation to which the report relates required by subrule 2.2.1(4) to be retained by the licensee.

(3) The written report may contain any other information the licensee considers necessary to explain the matters in the report.

(4) The written report must be given to ASIC within 5 business days after the licensee becomes aware of the failure or difference, as applicable.

Maximum penalty: $1,000,000

3.1.2 Annual declarations—Directors and auditors

(1) For financial years ending after 1 July 2018, a financial services licensee must prepare and give to ASIC within 4 calendar months of the end of each financial year of the licensee:

(a) a directors’ declaration that states whether, in the directors’ opinion, the licensee has complied with these Rules; and

(b) an external auditor’s report containing the information set out in Form 1 Part 1 of these Rules, signed by a partner or director of the auditor.

(2) For the purpose of paragraph (1)(a), the declaration must:

(a) be made in accordance with a resolution of the directors;

(b) specify the date on which the declaration is made; and

Maximum penalty: $1,000,000

Schedule

Form 1 Part 1

Annual Auditor’s Report

ASIC Client Money Reporting Rules 2017

We have audited the accounting records and internal controls and systems (“internal controls”) of ..............................[Entity Name] (the “licensee”), which are designed to ensure compliance with the requirements of the ASIC Client Money Reporting Rules 2017 (“the Rules”), in order to express an opinion about their effectiveness for the period/year ended .................[date] (“the Financial Year”).

The directors of the licensee are responsible for maintaining an effective internal control structure, including establishing and maintaining records and effective policies and procedures designed to ensure compliance with the requirements of the Rules. We have conducted an independent audit of the internal controls designed to ensure compliance with the requirements of the Rules in order to express an opinion on them to the directors of the licensee for the Financial Year ended.........................[insert date].

Our audit has been conducted in accordance with Australian Auditing Standards and accordingly included such tests and procedures as we considered necessary in the circumstances. Our procedures included examination, on a test basis, of evidence supporting the licensee’s accounting records and operation of its internal controls in relation to compliance with the requirements of the Rules. These procedures have been undertaken to form an opinion whether in all material aspects, the licensee maintained suitably designed and effective internal controls to ensure compliance with the requirements of the Rules for the Financial Year.

This report has been prepared for the licensee in order to meet its obligations to give this report to ASIC in accordance with paragraph 3.1.2(1)(b) of the Rules. We disclaim any assumption of responsibility for reliance on this report to any person other than the licensee and ASIC, or for any purpose other than that for which it was prepared.

Inherent Limitations

Because of the inherent limitations of any internal control structure it is possible that fraud, errors or non-compliance with laws and regulations may occur and not be detected. Further, the overall internal control structure, within which the internal controls designed to ensure compliance with the requirements of the Rules operate, has not been audited, and no opinion is expressed as to its effectiveness.

An audit is not designed to detect all weaknesses in internal controls or all instances of noncompliance with the requirements of the Rules as it is not performed continuously throughout the period/year and the tests performed over the internal controls are on a sample basis having regard to the nature and size of the licensee.

Any projection of the evaluation of internal controls to future periods is subject to the risk that the internal controls may become inadequate because of changes in conditions, or that the degree of compliance with them may deteriorate.

The audit opinion expressed in this report has been formed on the above basis.

[Qualified] Auditor’s Opinion

In our opinion, [except for the matters referred to in the qualification below,] the licensee maintained, in all material respects during the Financial Year, suitably designed and effective internal controls to comply with the requirements of the Rules.

Qualification (if applicable)

Name of Audit Firm ........................................................................................................

Director’s/Partner’s Signature ........................................................................................................

Name of /Director/Partner ........................................................................................................

Address of Audit Firm ........................................................................................................

Date ........................................................................................................