Australia parliament passes new legislation to protect Retail Forex client money

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Breaking Forex News… LeapRate has learned that Australia’s parliament today passed the Treasury Laws Amendment (Measures No 1) Bill 2016, known more commonly as the Retail Client Money law.

We had reported back in November that the Australian government was going to change the rules as to what ASIC licensed retail brokers offering over-the-counter derivatives products (read: Forex Brokers) can and cannot do with client money.

Until now, Australia has been one of the few properly-regulated countries which allowed Retail Forex brokers to make use of client money for things such as working capital and even marketing budget. However the new legislation closes that loophole, with all client money to now be fully segregated and held in trust.

The new law, however, gives brokers one year to comply, as a transition period.

The new legislation began somewhat of a spat between the leading domestic and foreign Forex brokers serving the country. The leading foreign-based brokers (plus leading domestic broker Pepperstone) had formed the Australian CFD and FX Forum, and strongly backed the proposed legislation as bringing Australia rules into parallel with international standards, such as those promoted by the FCA in the UK.

However some less-deep-pocketed Australia based brokers came out against the legislation, stating that it provided no real protection for consumers – although the real reason behind their protest was the fear that they’d now need more capital to compete with the larger brokers serving Australia traders.

The Forum, led by the ASIC-regulated arms of UK-based brokers IG Group Holdings plc (LON:IGG) and CMC Markets Plc (LON:CMCX), as well as New York-based Gain Capital Holdings Inc (NYSE:GCAP) and Canada’s Oanda, put out a statement welcoming the passing of the new legislation. According to Forum Director and Chairman Paul Casey of CMC Markets:

This is a win for investors, for regulators and for the industry. Previous client money rules were misaligned with standards in other parts of the world, and ultimately unsustainable by exposing investor funds to misuse, fraud or insolvency. That’s why the CFD & FX Forum has worked hard to promote segregation of client money as our key benchmark for members and influence change where we can.

The current Government should be commended in achieving this necessary reform, which with the right checks and balances in place, are sure to enhance the integrity of our financial system. The CFD & FX Forum looks forward to working closely with industry and ASIC in this regard.

IG Australia’s Tamas Szabo predicted the new regulatory regime would significantly boost confidence and trading volumes in the sector.

Forum member firms long ago voluntarily adopted the measures and protection now enshrined in legislation for all providers.  This legislation brings the Australian regime into line with global standards and removes the current regulatory arbitrage, which led to firms with questionable practices setting up in Australia.

Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP added:

The Bill demonstrates the Government’s commitment to taking practical action to ensure Australian consumers are protected when they engage with financial product and service providers, whilst at the same time fostering a business environment that encourages entrepreneurialism.

The full form of the new legislation can be seen on the Parliament of Australia website.

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