Are you aware of the penalties for non-compliance with ASIC’s trade reporting rules? Australian entities dealing in OTC derivatives are required to report under and comply with the ASIC Derivative Transaction Rules (Reporting) 2013 as amended (Reporting Rules).
What can you be fined for?
You could be subject to penalty should you fail to comply with the following provisions of the Reporting Rules:
- Transaction Reporting Requirements and Position Reporting Requirements (2.2.1);
- Changes (2.2.2);
- Timing – generally T+1 (2.2.3);
- Format (2.2.4);
- Continuity of reporting (2.2.5);
- Accuracy of reporting (2.2.6);
- Keeping of records (2.3.1);
- Provision of records or other information (2.3.2);
- Modification, termination or assignment of outstanding positions before the Position Reporting Date (2.4.4); and
- Reporting to Licensed Repositories (2.4.5).
How much can you be fined?
The maximum penalty specified for each of the Reporting Rules above is 1,000 penalty units. Each penalty unit is currently $210, thus non-compliance with any one of these rules may result in a fine of up to $210,000 for each breach.
It is important to note that ASIC also has ‘administrative powers’, meaning they can suspend or cancel an Australian financial services licence should the scope of non-compliance warrant this type of action.
Who has breached the Reporting Rules?
In recent years, major corporations Westpac, AMP Life and AMP Capital have faced hefty fines for breaching ASIC’s trade reporting rules.
In 2017, ASIC issued the Westpac Banking Corporation a $127,250 fine for breaches made during the period 2013 to 2015. Westpac failed to report information about 112,556 Reportable Transactions contravening subrule 2.1.1(1).
In 2020, AMP Life and AMP Capital faced a combined total of $526,000.00 in fines. Like Westpac, both AMP entities failed to report all required information for Reportable Transactions during the period between 2015 and 2018. The entities had also failed to ensure that reporting information, whether reported by AMP or its delegate, remained complete, accurate and current at all times. As a result, ASIC issued infringement notices on the grounds of contravening subrules 2.1.1(1), 2.2.3(1) and 2.2.6.
How can you avoid this?
Past errors are still errors
As noted in ASIC’s cases against Westpac and both AMP entities, the breaches happened 4-5 years prior to the issuing of fines. You are still obliged to notify ASIC (and potentially perform remediation) of any and all trade reporting errors despite their date of occurrence.
Rectify errors in a timely manner
Given the delay between the breaches and infringement notices in the examples above, it can be assumed ASIC had a consultation and remediation interaction period with the entities before issuing the fines. If you find yourself in breach of the Reporting Rules, prioritise the actions needed to rectify errors as soon as practicable.
Review internal and outsourced systems and procedures
ASIC determined the extensive delay in the identification of reporting breaches, in AMP’s case, a result of “serious inadequacies in AMP’s internal and outsourced processes and procedures for monitoring the accuracy of its reporting”. Procedures to identify and fix errors are fundamental to effective and accurate trade reporting.
TRAction recommend regularly reviewing your internal processes or outsourcing to a delegated reporting service. Should you already outsource your reporting to a delegated third-party such as TRAction, you are required to conduct regular quality checks of your reporting delegate.
For more information on the lessons learned from the AMP Life and AMP Capital trade reporting breaches, read our previous article here.
Should you need advice regarding trade reporting breaches, please feel free to contact us.