Published by the Stockbrockers and Financial Advisers Association of Australia in the Stockbrokers and Financial Advisers Monthly, November 2017.

From 4 April 2018, our new Client Money Reporting Rules 2017 will impose record-keeping, reconciliation and reporting obligations on certain Australian financial services (AFS) licensees.

If you are an AFS licensee that holds derivative client money, you will be required to comply with these obligations unless the client money relates to a derivative that is traded on a fully licensed domestic market, such as ASX (e.g. equity ETOs) or ASX 24 (e.g. futures contracts). You will need to comply with these obligations with respect to derivatives traded on overseas futures markets.

The rules will ensure transparency around the receipt and use of derivative retail client money. They will apply more formal and consistent standards across the derivatives sector and will ensure any discrepancies in client money accounts are notified to ASIC in a timely manner – enabling us to take appropriate action.

To help you comply with your obligations under the client money rules we have also released an information sheet which answers five important questions.

1. What information should you include in your reportable client money records?

You must keep accurate records of the amount of reportable client money you are required to hold in a client money account for each client and on an aggregate basis. Your records should include:

• the balance of reportable client money owed to each of your clients, and
• records of transactions that affect the balance of reportable client money you hold.

2. What information should you include in your reconciliations?

You must perform daily and monthly reconciliations of the amount of reportable client money that you are required to hold in a client money account against the amount of reportable client money you are actually holding in that account.

3. How do you comply with the other reconciliation requirements?

You must perform reconciliations on an aggregate basis and on an individual client basis. You can satisfy these requirements by performing an aggregate reconciliation which is supported by individual client balances.

You can also nominate a reconciliation time and timezone for the purposes of complying with the reconciliation requirements. You will be required to perform daily and monthly reconciliations of the amount of reportable client money you hold as at the nominated time on the relevant business day. The nominated reconciliation time will need to be determined on or before the day the rules first apply to you.

If you change your nominated reconciliation time, you must notify ASIC in writing before doing so.

4. What information should you include in your reports to ASIC?

You must provide ASIC with a written report if you fail to perform a reconciliation, or a daily reconciliation identifies a difference between the amount held in a client money account and the amount you are required to hold in that client money account.

You should include in your report:

• the record of the reconciliation (if applicable)
• details of the failure to perform a reconciliation or the difference found by a reconciliation, including the cause of the failure or difference
• details of any remedial action taken or proposed to be taken, including how you have addressed or are planning to address the problem which led to the difference or failure, and any deficiency or surplus in client funds.

5. Can you rely on the exemption for licensees subject to market integrity rules?

If you are a participant of ASX 24 or FEX you are eligible for an exemption from the client money reconciliation requirements to the extent you comply with Part 2.3 of the ASIC market integrity rules for the ASX 24 and FEX markets.

Any reconciliations you perform under the client money rules will not need to include amounts of reportable client money already covered by reconciliations you have performed under these market integrity rules. If you are required to include the total balance of reportable client money in reconciliations under these market integrity rules, then you are not required to comply with the client money rules.

For more information about how to comply with your obligations, visit our website.

The client money rules will commence on 4 April 2018, at the same time the other client money reforms take effect. This will give you a six-month transition period to ensure you have the necessary systems, policies and procedures for complying with the client money rules.