ASIC Corporations (NZD Denominated Client Money) Instrument 2018/152

Overview

The ASIC Corporations (NZD Denominated Client Money) Instrument 2018/152 was enacted to address a gap in the Corporations Act 2001 concerning the custody of client money, specifically New Zealand dollar-denominated funds, held by Australian financial services licensees who are participants of the ASX 24 market. The Corporations Act requires that client money be held in an Australian Deposit-taking Institution (ADI), but this instrument allows for an exception where such money can be held by a New Zealand bank that is prudentially regulated by the Reserve Bank of New Zealand, if it relates to ASX 24 NZD futures contracts or ASX NZD OTC clearing derivatives. This legislative instrument was made by the Australian Securities and Investments Commission under paragraph 992B(1)(c) of the Corporations Act 2001, with the policy objective of providing flexibility in the custody of client money while maintaining the integrity and security of client funds.

Scope and Application

The ASIC Corporations (NZD Denominated Client Money) Instrument 2018/152 applies to Australian financial services licensees that are participants of the ASX 24 market, specifically in relation to their handling of New Zealand dollar-denominated client money. This instrument modifies the Corporations Act 2001 to provide relief from the requirement of holding such client money in an account with an Australian authorised deposit-taking institution (ADI). Instead, these licensees may hold this money with a bank incorporated in New Zealand and prudentially regulated by the Reserve Bank of New Zealand, provided it relates to ASX 24 NZD futures contract money or ASX NZD OTC clearing derivative money. The legislative instrument extends its application nationally, affecting all Australian financial services licensees participating in the ASX 24 market. Subordinate instruments or regulations may further specify or restrict the application of this instrument, though the primary legislation itself does not currently outline such mechanisms.

Key Provisions

The ASIC Corporations (NZD Denominated Client Money) Instrument 2018/152 modifies certain provisions of the Corporations Act 2001 (Act) relating to the holding of New Zealand dollar (NZD) denominated client money by Australian financial services licensees who are participants in the ASX 24 market. The instrument is made under the authority of paragraph 992B(1)(c) of the Act (section 3). It amends section 981B of the Act to provide relief from the requirement for these licensees to hold client money in an account with an Australian authorised deposit-taking institution (ADI) when the client money is NZD denominated ASX 24 futures contract money or ASX NZD over-the-counter (OTC) clearing derivative money (section 5(a)). Instead, these licensees can hold the money with a bank incorporated in New Zealand and prudentially regulated by the Reserve Bank of New Zealand. The instrument also inserts new definitions for ASX 24 NZD futures contract, ASX 24 NZD futures contract money, ASX NZD OTC clearing derivative, ASX NZD OTC clearing derivative money, and OTC derivative (section 5(b)). Under this instrument, Australian financial services licensees who are participants in the ASX 24 market and hold NZD denominated ASX 24 futures contract money or ASX NZD OTC clearing derivative money as client money are relieved from the requirement to hold this money in an account with an Australian ADI. Instead, they can hold this money with a bank incorporated in New Zealand and prudentially regulated by the Reserve Bank of New Zealand (section 5(a)). This applies in relation to the licensee's dealings in ASX 24 NZD futures contracts or ASX NZD OTC clearing derivatives, or where the financial product is an ASX 24 NZD futures contract or ASX NZD OTC clearing derivative (section 5(b)). The licensee must ensure that the bank is capable of meeting its obligations to the client and that the money is kept separate from the bank's own money (section 981B(2) of the Act). Failure to comply with the requirements of this instrument may result in civil or criminal penalties under the Act. For example, a financial services licensee who fails to ensure that client money is held in a separate account or that the money is kept separate from the licensee's own money may be guilty of an offence and liable to a penalty of up to $210,000 for a corporation or $42,000 for an individual (section 1317E of the Act). In addition, a person who contravenes a provision of the Act may be subject to a pecuniary penalty of up to $1.65 million for a corporation or $330,000 for an individual (section 1311(1) of the Act). The maximum penalties may be increased where the contravention is deliberate, reckless or continues for a prolonged period (section 1311(3) of the Act). This instrument provides relief to Australian financial services licensees who are participants in the ASX 24 market and hold NZD denominated client money as ASX 24 futures contract money or ASX NZD OTC clearing derivative money. It allows these licensees to hold the money with a bank incorporated in New Zealand and prudentially regulated by the Reserve Bank of New Zealand, rather than with an Australian ADI. The instrument imposes obligations on the licensees to ensure that the bank is capable of meeting its obligations to the client and that the money is kept separate from the bank's own money. Failure to comply with the requirements of the instrument may result in civil or criminal penalties under the Act. The maximum penalties may be increased where the contravention is deliberate, reckless or continues for a prolonged period.