A bill that closes a loophole permitting over-the-counter derivatives providers to use client monies for more than just derivatives transactions has passed the upper house.
Schedule 5 of the recently passed Treasury Laws Amendment (2016 Measures No. 1) Bill 2016 specifically bars derivatives providers from using client money received in relation to certain derivatives from being used for any other purpose.
According to a summary of the bill included on the Parliament House website, the legislation was proposed by the government after a number of submissions to the Financial System Inquiry (FSI) highlighted concerns regarding client money, though the FSI’s final report did not explicitly list a need for increased protection.
“In its response to the FSI in October 2015, the government announced that it would ‘develop legislative amendments to improve protections for client monies held in relation to derivatives’,” Parliament House said.
In November 2016, Minister for Financial Services Kelly O’Dwyer reiterated government’s stance on the use of client monies by over-the-counter derivatives traders, saying that “use of client money for these purposes is either not permitted, or is more heavily regulated” in other G20 nations.
The new law will take effect a year after Royal Assent, Parliament House said, however section 1636A of the bill “provides that the protections enacted by the bill will apply to all client money from the date of commencement” regardless of whether that money was received by the Australian Financial Services Licensee before or after the date of commencement.
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