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The Australian Securities & Investments Commission (ASIC) released Regulatory Guide 251(RG 251) in August 2013. RG 251 provides guidance to Reporting Entities in relation to their reporting obligations for over-the-counter (OTC) derivatives that relate to the following asset classes:
The reporting obligations came into effect with the introduction of the ASIC Derivative Transactions Rules (Reporting) 2013 (Rules) which were released in July 2013. The Rules impose obligations on Reporting Entities to report information about their transactions and positions in OTC derivatives to a licensed or prescribed trade repository. This applies to both cleared and uncleared derivative transactions.
The reporting obligations are imposed on "Reporting Entities", which are each of the following:
It is not entirely clear whether an agent of a counterparty (such as an investment manager that has entered into an ISDA on behalf of several clients) is also a "Reporting Entity". This was an issue that the Financial Services Council raised in its submission to ASIC in response to Consultation Paper 205, however, neither the Rules nor RG 251 address this issue.
The better view, in our opinion, is that an investment manager that acts as an agent is not a Reporting Entity. As a practical matter, however, it will be the investment manager that will enter into the derivative and will most likely report on behalf of their client, the Reporting Entity. This is consistent with the part of the Rules that permit a Reporting Entity to appoint another person to report on its behalf. The Rules contemplate that the other person that lodges or files the report on behalf of the Reporting Entity may be a counterparty, a central counterparty, a trading platform, a service provider, a broker or any other person.
The reporting obligations could also possibly be delegated to a custodian who actually holds the assets.
Given that the Rules are implemented in stages depending on, among other things, the extent of a Reporting Entity's derivative exposure, it will be the custodian or the Reporting Entity itself (as opposed to an investment manager who may not manage all of the assets of the Reporting Entity) that will be in a position to know when the Rules begin to apply to them. For example, where a client - Party B under an ISDA - has engaged several investment managers and authorised them to enter into derivatives, it will only be that Party B counterparty (or their custodian (assuming there is only one custodian) that will know the aggregate exposure across all derivatives entered into by all investment managers on behalf of the Party B counterparty in order to determine when the Rules begin to apply to it (see below under the heading "When do the reporting obligations commence?").
The derivative information and any changes must be reported to the repository no later than the end of the next business day after the requirement to report arises.
Reporting Entities that are Australian entities must report to a trade repository that is licensed by ASIC (licensed repository).
Licensed repositories will be listed on the ASIC website. Currently, there are no licensed repositories, however, Australian entities can report to the following prescribed foreign entities:
Non-Australian Reporting Entities can report to a licensed or prescribed trade repository.
A Reporting Entity must report details about their transactions and positions when it relates to the following asset classes:
A common set of data must be reported for each transaction, along with an additional set of data that are specific to each asset class. This includes:
The reporting obligations are being implemented in three phases between 1 October 2013 and 1 October 2015.
Since foreign privacy restrictions may prevent the reporting of derivative trading information, ASIC has the power to grant relief from all or specified provisions. Applications should include an authoritative legal opinion from a local law practitioner giving evidence of how compliance with the Australian reporting obligations would cause a breach of the foreign law.
The ACCC has released its Compliance and Enforcement Priorities for 2020.
With significant regulatory change coming into effect the spotlight is staying firmly on
culture, ethics and regulatory compliance. An organisation’s social licence to operate
remains a priority...
Updated article: originally published as 'review of the regulatory and tax landscape for foreign investors.'