ASIC remakes ‘sunsetting’ class order for retail OTC derivative issuers

Oksana Patron

12 September 2022

The Australian Securities and Investments Commission (ASIC) has announced it has remade ‘sunsetting’ class order on financial requirements for retail OTC derivative issuers, with the new instrument ensuring Australian financial services licensees had adequate financial resources and managed the operational risks.

Under the new instrument, ASIC Corporations (Financial Requirements for Issuers of Retail OTC Derivatives) Instrument 2022/705, OTC derivative issuers would need to:

• meet a net tangible asset (NTA) requirement where the licensee must hold the greater of $1,000,000 or 10% of average revenue
• prepare, each quarter, projections of cash flows over a 12-month period based on their reasonable estimate of revenues and expenses over that term
• meet an NTA liquidity requirement where the licensee must hold 50% of the required NTA in cash or cash equivalents and 50% in liquid assets,
• comply with financial trigger point reporting obligations if licensees fail to hold the required NTA.

The instrument, which was made for five years, followed public consultation through Consultation Paper 363 Remaking ASIC class order on financial requirements for retail OTC derivative issuers  (CP 363), which was issued in June 2022.

ASIC said that under the Legislation Act 2003, legislative instruments ceases automatically, or would ‘sunset’ after a period of time unless action was taken to preserve them, to ensure that instruments were kept up-to-date and only remained in force while they were relevant and fit for purpose.