ASIC New Money Rule
In 2017, the Australian Securities and Investments Commission (ASIC) issued a new consultation paper for Forex and CFDs Brokers. It is focused on the new client money rules that Australian Financial Services (AFS) licensees will need to apply starting in April 2018.
According to ASIC Commissioner Cathie Armour, “The client money rules will ensure greater transparency in relation to an AFS licensee’s receipt and use of derivative retail client money.” The new rule imposes record keeping, reconciliation, and reporting requirements on AFS license holders that provide forex and CFD trading. This new money rule ensures greater transparency in the market and prevents the use of client money for capital. This requires brokers use their own funds for hedging and expose themselves more to risk.
In a Finance Magnates article canvasing industry reaction to the new rule, Simon Stephen, Charterprime’s Managing Partner, offered, “The increased capital to operate coupled with rising operational costs may force less capitalised STP brokers to take greater risks to stay profitable. This would likely mean internalising more risk on the brokers’ book due to margin constraints at their hedging counter-party, or simply passing on these increased costs onto the client. A natural flow-on effect would be consolidation within the industry and a heightened barrier to entry.” (