Specific Financial Requirements for Retail OTC Derivatives Issuers Extended for 5 Years

ASIC Class Order [CO 12/752] which, imposes specific financial requirements for Retail OTC Derivatives Issuers, was due to sunset on 1 October 2022. On 6 September 2022, [CO 12/752] has now been replaced by ASIC Corporations (Financial Requirements for Issuers of Retail OTC Derivatives) Instrument 2022/705 (Instrument 2022/705) without any significant changes to the requirements.

As part of its efforts to promoting confidence of investors and consumers in Australia’s financial system, ASIC sets out financial requirements for all holders of Australian Financial Services Licences (AFSL). 

While all AFS licensees are subject to certain base level financial requirements, ASIC is cognizant that certain categories of licensees require specific regulations to manage their different circumstances, and it was identified that Retail OTC Derivative Issuers were one such category.

Under both the [CO 12/752] and Instrument 2022/705, Retail OTC Derivative Issuers are required to:

• Prepare projections of cash flows over at least a 12-month period;
• Have net tangible assets (NTA) of at least $1,000,000 or 10% of the issuer’s average revenue (whichever is greater);
• Report to ASIC within three business days when its NTA decreases from an amount greater than 110% of the required NTA; and
• Lodge an auditor report which provides an auditor’s opinion that the issuer has complied with the financial requirements of its AFS license conditions.

Although Instrument 2022/705 is slated to be repealed around 5 years later on 1 October 2027, it is expected that the requirements will be renewed by then. This is significantly shorter than the almost 10 years given to [CO 12/752], It is arguable that the shortened period for repeal is unnecessary and only takes up valuable ASIC resources to review the instrument and conduct industry consultations. 

Dan Mackay, Director

Matt Kennedy, Executive Counsel

Wilfred Cheng, Lawyer

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Mackay Chapman

The contents of this article do not constitute legal advice and it is not intended to be a substitute for legal advice and should not be relied upon as such.  It is designed and intended as general information in summary form, current at the time of publication, for general informational purposes only.  You should seek legal advice or other professional advice in relation to any particular legal matters you or your organisation may have.

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