ASIC implements new rules for issuers of CFDs

The Australian financial regulator has implemented new regulation for wholesale clients and excluded the ‘price and value test’ for issuers of CFDs.

The test is applied by CFD issuers when classifying customers as wholesale clients. Specifically, the ‘price and value’ test is set in s 761G(7)(a) of the Corporations Act 2001 (Cth) and allows to classify clients as wholesale where the price or value of a financial product provided to a person exceeds AU$500,000. The new regulation affects only this particular test.

The amendment can be explained by the fact that the notional value of AU$500,000 under a CFD could be achieved with a modest initial margin.

Wholesale clients in Australia may have access to a broader set of instruments, however, less protection measures which apply to retail clients.

As a result, all issuers of CFDs holding an ASIC license have to review the customer onboarding process and cease the use of the ‘price and value test’. Moreover, CFDs issuers have to review their wholesale clients and find out which classification test was used. If it was the ‘price and value test’, then another test should be applied. The client has to meet any of the other requirements.

Other Wholesale Investor Tests include:

• The large business test;
• The net assets and gross income test;
• The professional investor test;
• The Sophisticated investor test.

If upon the test completion the CFDs issuer recognizes that the client can not be classified as a wholesale investor, then the client should be informed that he will be reclassified as a ‘retail client’ and proceed with the process of reclassification.

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