The G20 financial regulatory reforms initially approved by the IMF in 2010 are slowly being clarified and implemented by the IMF’s member governments. As expected these reforms have been controversial and subject to significant debate and lobbying. Australia’s financial regulators (the Australian Securities & Investments Commission, the Australian Prudential Regulation Authority and the Reserve Bank of Australia) (the Regulators) are keeping a watch on international developments with a view to ensuring international consistency and are consulting broadly with industry participants. The framework for implementing the regulatory reforms are contained in the Corporations Legislation Amendment (Derivative Transactions) Act 2012 (Cth) and the ASIC Derivative Transaction Rules (Reporting) 2013 (the Rules) which set out the requirements for counterparties to report derivative transaction and position information.
The Regulators have issued a number of proposals and recommendations seeking feedback from industry participants, with the most recent consultation paper 221 (OTC derivatives reform: Proposed amendments to ASIC Derivative Transaction Rules (Reporting) 2013) (CP 221) being issued on 25 July 2014. This paper proposes some amendments to the Rules designed to reduce the cost and complexity of compliance with transaction reporting. These proposals:
- incorporate snapshot reporting as a permanent reporting option, although ASIC is looking for feedback on whether existing record-keeping practices would be sufficient to reconstruct full transaction history consistent with its regulatory objectives
- alternate reporting to prescribed trade repositories by foreign reporting entities and ‘tagging’ of derivative trade data
- expand the definition of ‘regulated foreign market’ to include any ‘designated contract market’ in the US or ‘regulated market’ in the European Union, exempting transactions on these ‘regulated foreign markets’ from being reported in Australia
- link reporting to licensed trade repositories to the first ‘licensing date’ of a trade repository in Australia and require reporting to prescribed trade repositories prior to such ‘licensing date’
- remove the requirement to report ABNs for international consistency
- incorporate a materiality threshold for reporting obligations of foreign subsidiaries
- create a ‘safe harbor’ from enforcement action for delegated reporting if the reporting entity makes regular inquiries that are reasonably designed to determine whether a delegate is discharging its obligations
Submissions to CP 221 are due by 29 August 2014.
Current reporting requirements
Reporting requirements for Phase 1 and Phase 2 financial entities has commenced, although implementation issues were addressed by transitional exemptive relief. Under ASIC Instrument [14/0633], commencement of reporting obligations for Phase 3 financial entities was extended to 13 April 2015, and there is a further phasing by size and asset class.
End user exemption
The ‘end user’ reporting exemption is incorporated in the Corporations Regulations 2001 Regulation 7.5A.50. The ‘end-user’ exemption applies to non-financial entities. The end user exemption is currently legislated to cease to have effect after 31 December 2014. However, on 27 February 2014, the Regulator issued Proposals Paper Implementation of Australia's G-20 over-the-counter derivatives commitments. Among other things, this paper proposed that the end user exemption should be made permanent. This exemption is intended to give certainty to stakeholders and to focus trade reporting implementation on the major market participants in Australia. Submissions on the proposals paper closed on 10 April 2014. The Regulators are expected to finalise their policy in this area in due course.
Given the size of the Australian market in the international context, it is unsurprising that one of the key drivers for the Regulators in the area of derivatives reform has been international consistency. Accordingly, the Regulators continue to monitor other jurisdictions’ rules and reporting requirements and seek industry participant feedback before implementing mandatory reporting practices. Their mandate appears to be to reduce unnecessary regulatory burden whilst ensuring that the data reported is sufficiently robust to assist in the detection and prevention of market abuse and enhance financial stability.