ASIC CFD capital rules may stay in place until 1 October 2032 after the regulator proposed a five-year extension with no change to the current test.
ASIC said Instrument 2022/705 now sets the financial resources test for every Australian financial services license holder that issues over-the-counter derivatives to retail clients. The instrument is due to repeal on 1 October 2027. However, the new proposal would push that date out by five years.
The regulator said it reviewed all eight instruments in the consultation and found they were working well. It also said they remain a necessary and useful part of the legislative framework.
ASIC CFD Capital Rules Stay Unchanged
The current test requires net tangible assets of at least AU$1 million, or 10% of average revenue, whichever is greater. In addition, firms must hold half of that amount in cash or cash equivalents and the other half in liquid assets.
The AU$1 million floor matters most for firms with average revenue below about AU$10 million. Above that level, the 10% revenue test becomes the binding measure. Notably, the AU$1 million figure has not changed since 31 January 2014.
ASIC first set the current thresholds in Class Order 12/752. It phased them in at AU$500,000 or 5% of average revenue from 31 January 2013, then lifted them to AU$1 million or 10% a year later. Later, the regulator remade that class order in September 2022 without major changes.
Consultation Closes on 8 September
Issuers must also send ASIC quarterly 12-month cash flow projections. Meanwhile, they must report to the regulator if they breach the trigger points set by the instrument.
The consultation does not say how many license holders the rule covers. It also does not address whether ASIC should index the AU$1 million threshold. ASIC said its combined process covers instruments it believes can be extended without further changes, so any indexation for retail derivatives thresholds would need a separate consultation.
On 30 July, ASIC said it will raise net tangible asset thresholds for responsible entities, investor directed portfolio service operators and corporate directors of retail CCIVs to reflect inflation, then index them each year from 1 July 2027. However, the ASIC CFD capital rules proposal does not include similar treatment.
ASIC’s product intervention order for retail CFDs runs to 23 May 2027 and has no extension proposal yet. Feedback on the current proposal closes at 5pm AEST on 8 September.
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Source: Finance Magnates
