Proposals to introduce 'safe harbour' protections should
have reporting entities that choose to delegate their derivatives
reporting obligations breathing a sigh of relief.
On 25 July 2014, the Australian Securities and Investments
Commission (ASIC) issued
a consultation paper (CP 221) seeking industry
feedback on certain proposed amendments to the ASIC Derivative
Transaction Rules (Reporting) 2013 (Reporting
Rules) that came into effect in July last year.
CP 221 proposes some amendments to the Reporting Rules to
address a number of issues raised by the financial services
industry regarding compliance costs and undesirable gaps in the
reporting regime. One of the key proposals that will be of interest
to reporting entities, particularly those caught by 'Phase
3' of the reporting regime, is the proposed introduction of a
'safe harbour' from enforcement action if a reporting
entity chooses to delegate its reporting obligations to another
Under the existing Reporting Rules, a reporting entity may
delegate its obligation to report derivatives transactions to
another entity. However, it still remains primarily liable for the
information reported and the reporting entity must take all
reasonable steps to ensure that information reported on its behalf
(and any change to that information) remains complete, accurate and
current. Industry participants have raised concerns to ASIC about
their exposure to liability for their delegates' breaches of
the Reporting Rules and have been seeking clarity around the
requirement to take 'reasonable steps'.
The proposed amendments to the Reporting Rules seek to limit the
enforcement action that could be taken by ASIC against a reporting
entity where that reporting entity has delegated its reporting
obligations to another entity and certain conditions have been met.
The conditions that must be satisfied are:
the terms of the delegate's appointment and any related
arrangements must be documented in writing;
the terms of the delegation must provide that the delegate will
report on behalf of the reporting entity the reportable
transactions and reportable positions in accordance with the
the delegate must take reasonable steps to ensure that the
information reported on behalf of the reporting entity remains
complete, accurate and up-to-date; and
the reporting entity must make regular inquiries that are
reasonably designed to determine whether the delegate is
discharging its obligations in accordance with the terms of its
The news of ASIC's proposed amendments to introduce a
'safe harbour' for delegated reporting are likely to be
welcomed by participants in the financial services industry who
will be required to commence reporting in "Phase 3" of
the reporting regime.
If the proposals are implemented in their current form, the key
will be to ensure that appropriate delegation agreements are in
place in order to take advantage of the 'safe harbour'. A
number of issues will need to be considered. For example, an entity
delegating its obligations should focus on the scope of the
delegate's role. Does the delegate unconditionally agree to
report all derivatives transactions or only those that fall within
the scope of the agreement, keeping in mind that only reporting
that falls within the written delegation agreement will be eligible
for 'safe harbour' protection. In addition, the delegate
will be required to contractually agree that it will take
reasonable steps to ensure that the information is true, complete
and up-to-date. It remains to be seen whether delegates will be
willing to give such assurances.
The reporting entity will also need to have in place procedures
that are 'reasonably designed' to ensure their delegates
are fully complying with the delegation agreement. The level of
enquiries required to meet this reasonableness standard remains a
question which industry participants will no doubt seek further
clarity and ASIC may provide further guidance as part of this
The proposed amendments are intended by ASIC to encourage the
use of delegated reporting. Although there are questions that may
arise from the proposed amendments, all in all, the conditions
prescribed for the 'safe harbour' provides more clarity and
certainty regarding the actions reporting entities can take to
reduce their exposure to potential enforcement action by ASIC
should they chose to delegate their reporting obligations.
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