Drafting Rules for Foreign Brokers with Australian Clients by ASIC

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ASIC, the Australian Securities and Investments Commission, is attempting to tighten regulations for international financial services firms operating in Australia. Foreign brokers who work with Australian retail clients starting in October 2024 will probably need to record their domestic transactions to the Australian authorities.

The derivatives transactions guidelines were initially put forth by ASIC in a consultation document that was released in November 2020, and more clarifications were subsequently provided in a follow-up consultation paper that was published in May 2022. According to a response paper it published last month, it has completed the new guidelines.

“At this stage, our interpretation is that if brokers are targeting Australian clients in any way, in addition to its current activities, ASIC is likely to step up its enforcement to ensure those brokers comply with Australian laws where needed,” Sophie Gerber, a Principal of the legal firm Sophie Grace and the Co-CEO of TRAction Fintech, explained.

“Incorporating reporting requirements into these scenarios where a firm comes within the parameters of ASIC regulation is an important additional regulatory tool because it creates scope for ASIC to see the extent of this activity, which would be difficult for them to ascertain otherwise.”

The reason for this is that many brokers believe they are not regulated in Australia and are therefore exempt from the nation’s registration requirements. The implementation of the new regulations will codify ASIC’s enforcement obligations into Australian law, failing which the companies risk receiving a cease and desist order.

All financial services businesses that have been granted an Australia Financial Services (AFS) licence are currently under the supervision of ASIC. However, there is no legal restriction on offshore brokers or financial services companies accepting Australian customers.

However, the market has altered dramatically since the current ASIC regulations were adopted in 2015. The new regulations’ revision now demonstrates the regulator’s larger interest in the business dealings Australian retail clients have with overseas brokers.

ASIC also made sure that the impending rules had a broad scope. Any business that operates out of Australia (regardless of the customers it is onboarding), accepts or has accepted Australian retail clients, or seeks Australian clients must make sure that it has a current understanding of the standards before doing so and moving forward.

“As the rules commence and ASIC begins its enforcement processes, we anticipate that over time it will lead to a shift in how foreign brokers onboard and deal with Australian clients. Firms that already have an AFSL in their group structure may re-direct Australian clients to their AFSL entity and not permit them to onboard with any other group entity where they may currently be doing so,” Gerber added.

The new reporting regulations’ implementation schedule was carefully considered as well. It is in line with the impending EMIR Refit, which will go into effect in the first quarter of 2024, enabling multinational corporations to allocate their resources for changes to transaction reporting at once.

One of the well-known financial market regulators is ASIC. As a result of ASIC’s recent limits on the retail trading industry, the new regulations will soon be implemented. Holders of an AFS licence may only use additional marketing restrictions and leverage up to a 30:1 ratio. Additionally, the regulator has temporarily prohibited retail binary options from being offered and sold.

“These enhanced provisions being implemented by ASIC come at a time when other regulators around the world are starting to look more closely at the offshore activities of firms that they are regulating (or their other group entities), e.g. UK and St Vincent’s. There seems to be a clear move by regulators to try and regain some control over the retail activity, which was effectively sent offshore by product intervention and leverage restrictions,” said Gerber.

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