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In line with the regulatory reforms that have taken place in North America and are currently in progress in Europe with regard to the reporting of transactions conducted in OTC derivatives, the Australian Securities and Investments Commission (ASIC) has released a consultation paper which outlines its intention to follow in the footsteps of the world’s largest and most respected financial regulatory authorities, following the Antipodean regulatory authority’s recent signing of a memorandum of understanding in order to cooperate with American authorities on OTC derivative rulings.
Via the consultation paper, ASIC seeks feedback from industry participants regarding its proposals to amend the ASIC Derivative Transaction Rules (Reporting) 2013.
Whilst many FX companies operating within Australia are likely to welcome the evolution of regulatory rulings which continue to uphold the region’s reputation as a secure jurisdiction in which to do business, ASIC considers that there are aspects which may be of specific interest and are worthy of consultation with firms, such as the likely compliance costs, the potential effect on competition, among other costs and benefits concerned.
The implementation of transaction reporting in Australia came about for similar reasons to that of North America, and although Australia’s economy was relatively unaffected by the 2008 financial crisis, the national government considered that it is vital to ensure that customers are protected on the basis that prevention is better than cure.
In 2012, Parliament passed the Corporations Legislation Amendments (Derivatives Transactions) Act 2012. The legislation provided a framework for the Minister to mandate requirements for derivative transactions, and for ASIC to make rules in respect of these requirements. The legislation came into force on January 3, 2013.
In March 2013, ASIC issued Consultation Paper 205 Derivative transaction reporting (CP 205), which proposed derivative transaction reporting rules for the Australian OTC derivatives market and the phased implementation of reporting obligations for different types of entities. On July 9, 2013, ASIC made the ASIC Derivative Transaction Rules (Reporting) 2013. Consistent with the draft rules attached to CP 205, the final derivative transaction rules (reporting) allowed for the implementation of reporting obligations in three phases for different types of reporting entities.
In June 2014, ASIC made Instrument [14/0633] Transitional exemptive relief for Phase 3 Reporting Entities from elements of the ASIC Derivative Transaction Rules (Reporting) 2013 under s907D(2)(a) of the Corporations Act. The class exemption [14/0633] has the effect of splitting Phase 3 reporting entities into Phase 3A and Phase 3B, and provides for a further phased implementation of the reporting obligations for these entities, with Phase 3B reporting entities not required to report transaction information until a later date.
ASIC has proposed a phased introduction of reporting procedures, which is detailed in the table below. In the lead-up to the commencement of Phase 1 and Phase 2, ASIC engaged extensively with industry to seek to ensure the smooth implementation of the reporting obligations. The regulator did this by establishing working groups with representatives of industry associations and relevant reporting entities.
ASIC proposes to amend Rule 2.2.1 to allow reporting entities to meet their reporting obligations in relation to an OTC derivative by either one of three methods, which are categorized as “lifecycle reporting” or “snapshot reporting.
The former involves reporting transaction information separately for each reportable transaction in the OTC derivative, and the latter involves reporting transaction information, or substantially equivalent information, in relation to the OTC derivative on its terms at the end of each business day.
Taking into account the varying record-keeping practices and requirements applicable to relevant OTC derivatives market participants, one particular matter which ASIC seeks consultation with industry participants on is with regard to records currently maintained in a form that would support the accurate recording of transactions (including ‘time stamping’) to facilitate investigations by financial regulators into (for example) market abuse in OTC derivatives markets (in the absence of a transaction-by-transaction reporting obligation).
As with Europe’s ongoing roll out of MiFID II, much dialog with business in every aspect of the FX industry is required, and with regard to this particular consultation paper, ASIC has asked that those wishing to submit a response should do so by August 29, 2014.
For the full consultation paper, click here.
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