ASIC finds CFD providers failing on client money procedures
The Australian Securities and Investments Commission (ASIC) has revealed that there is a large percentage of over-the-counter (OTC) derivative providers who are not following appropriate client money procedures, according to Capital CFDs.
Following MF Global's collapse and recent ASIC surveillance, Andrew Merry, managing director of Capital CFDs, said that the discovery that more than 30 per cent of providers had failed to comply with client money laws was a very real concern.
"After MF Global's collapse, it is disheartening to read that there are a large proportion of providers who are not complying with the most important procedure in running a company - the protection of client money," he said.
Merry pointed out that Section 981D of the Corporations Act stated that client money held by an OTC derivative licensee can be used for the purpose of meeting obligations in connection with margining, guaranteeing, securing, transferring, adjusting or settling dealings in derivatives by the licensee (including dealings on behalf of people other than the client).
However, Merry said that when Capital CFDs had entered the Australian market, they had been stunned to find that the Corporations Act allowed operators to use client funds to finance operational costs, which is clearly not in the in interest of the client.
"We brought with us the UK practice of quarantining client monies and not using it for any operational purposes at all, including the hedging of client positions," Merry said.
"I believe we are getting closer to having this standard applied across the industry, with Treasury considering a change to the law."
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