ob体育

Complying with the ob体育 Client Money Reporting Rules 2017

This is Information Sheet 226 (INFO 226). It explains how to comply with the ob体育 Client Money Reporting Rules 2017.

Under the (ob体育 Client Money Reporting Rules), Australian financial services (AFS) licensees that hold 鈥榬eportable client money鈥� must comply with a number of record-keeping, reconciliation and reporting requirements. 鈥楻eportable client money鈥� is derivative retail client money other than client money held in relation to derivatives traded on domestic exchanges.

This information sheet (INFO听226) answers the following questions:

• What information should you include in your reportable client money records?
• What information should you include in your reconciliations?
• How do you comply with the other reconciliation requirements?
• What information should you include in your reports to ob体育?
• Can you rely on the exemption for licensees subject to ob体育 market integrity rules?

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

Under Rule听2.1.1 of the ob体育 Client Money Reporting Rules, a licensee must keep accurate records of the amount of reportable client money it is required to hold in a client money account for each client and on an aggregate basis. Under section 981B of the Corporations Act听2001 (Corporations Act), a client money account is generally operated as a trust account and the funds in it must be held on trust for the persons entitled to them. ob体育 expects licensees to clearly designate their client money accounts as such: see Regulatory Guide 212 Client money relating to dealing in OTC derivatives (RG听212) at RG 212.15鈥揜G 212.19.

To satisfy this requirement under Rule 2.1.1, a licensee鈥檚 records should set out the following information:

• the balance of reportable client money owed to each of the licensee鈥檚 clients
• records of transactions that affect the balance of reportable client money held by the licensee, including:
  • withdrawals and deposits relating to the purchase and sale of derivatives for, on behalf of, or for the benefit of the client
  • withdrawals of client funds under section听981D of the Corporations Act
  • investment of client funds under section听981C(a) of the Corporations Act.

What information should you include in your reconciliations?

Under Part听2.2 of the ob体育 Client Money Reporting Rules, a licensee must perform daily and monthly reconciliations of the amount of reportable client money that, according to its records, it must hold in a client money account against the amount of reportable client money it is actually holding in that account. The licensee鈥檚 record of a reconciliation should set out:

• the total balance of reportable client money owed to the licensee鈥檚 clients
• the total amount of reportable client money that is being held, or has otherwise been permissibly withdrawn or invested, by the licensee, including:
  • client money held in the licensee鈥檚 client money account(s)
  • client money held with other brokers (including balances held with each individual broker)
  • client money听that has been invested under section听981C(a) of the Corporations Act
  • client money听that has been used in accordance with section听981D of the Corporations Act (noting that retail client money relating to OTC derivatives may no longer be used for this purpose)
• an explanation of any difference between the amount of reportable client money owed to the licensee鈥檚 clients and the amount being held, or otherwise permissibly withdrawn or invested, by the licensee
• the total balance of the licensee鈥檚 client money account(s) in which it holds reportable client money and the total amount of money other than reportable client money (i.e. non-client money) the licensee holds in the account(s)
• the time and date to which the reconciliation relates
• the time and date on which the reconciliation was performed
• for monthly reconciliations, a signed director鈥檚 declaration stating that the director believes, and has no reason not to believe, that the reconciliation is accurate in all respects.

Use of 鈥榖uffers鈥�

Licensees are reminded of their obligations relating to client money and the use of 鈥榖uffers鈥�. Buffer money is the term used to describe amounts of money to which a licensee is solely entitled. It can include a licensee鈥檚 deposit of its own funds into the account, or a licensee鈥檚 failure to withdraw funds from the account to which it is entitled to 鈥� for example, to cover, or make allowance for, any potential shortfall or reconciliation error in the account.

Licensees are reminded that buffer money is not client money. It does not fall within the client money definition in section 981A(1) of the Corporations Act. Accordingly, the practice of depositing buffer money in a client money trust account or segregated account is not permitted: see RG听212 at RG 212.67. Further, any retention of a 鈥榖uffer鈥� does not remove the reporting and reconciliation obligations for a licensee that would arise but for the buffer, since the buffer is not client money: see RG 212.25鈥揜G 212.27.

Lodging reconciliation records and declarations

The monthly reconciliation records should be lodged through the ob体育 Regulatory Portal. The annual declarations under Rule 3.1.2 should also be lodged through the ob体育 Regulatory Portal.

How do you comply with the other reconciliation requirements?

Under Part听2.2 of the ob体育 Client Money Reporting Rules, licensees must perform reconciliations on an aggregate basis and on an individual client basis. A licensee may satisfy these requirements by performing an aggregate reconciliation听that is supported by individual client balances.

A licensee is also entitled to nominate a reconciliation time and time zone for the purposes of complying with the reconciliation requirements. The licensee must perform daily and monthly reconciliations of the amount of reportable client money it holds as at this nominated reconciliation time on the relevant business day. The licensee must determine its nominated reconciliation time on or before the day the ob体育 Client Money Reporting Rules first apply to the licensee. If a licensee elects to change its nominated reconciliation time, it must notify ob体育 in writing before doing so.

What information should you include in your reports to ob体育?

A licensee must give ob体育 a written report if:

• the licensee fails to perform a reconciliation as required by the ob体育 Client Money Reporting Rules, or
• a daily reconciliation performed under the ob体育 Client Money Reporting Rules identifies a difference (regardless of its significance) between the amount held in a client money account and the amount the licensee is required to hold under the Corporations Act in that client money account.

The report given to ob体育 must include:

• the paragraph of Rule听3.1.1(1) to which the report relates
• if applicable, the record of the reconciliation
• the 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 by the licensee, including how the licensee has addressed or is planning to address:
  • the problem that led to the difference or failure, or
  • any deficiency or surplus in client funds.

In addition, we note that amounts of money to which a licensee is or becomes solely entitled to (e.g. by way of commission or other fees and charges) is not reportable client money, and, consequently, should not impact whether there is a client money deficit in the account that must be reported to ob体育 under the ob体育 Client Money Reporting Rules.

The reports should be submitted on the using the relevant form.

Can you rely on the exemption for licensees subject to ob体育 market integrity rules?

Market participants who must comply with the (ob体育 Futures Markets Rules) are eligible for an exemption from the reconciliation requirements under the ob体育 Client Money Reporting Rules.

Specifically, reconciliations performed by these market participants under the ob体育 Client Money Reporting Rules need not include amounts of reportable client money already covered by reconciliations that market participants must perform under the ob体育 Futures Markets Rules.

In addition, and for the avoidance of doubt, if the market participant鈥檚 total balance of reportable client money is required to be included in reconciliations it performs under the ob体育 Futures Markets Rules, then it is not required to comply with the ob体育 Client Money Reporting Rules.

Where can I get more information?听

For more information, see:

• RG听212 Client money relating to dealing in OTC derivatives

Important notice

Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice. We encourage you to seek your own professional advice to find out how the applicable laws apply to you, as it is your responsibility to determine your obligations.

You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases, your particular circumstances must be taken into account when determining how the law applies to you.