16 Best Practice Standards

The central focus of the Australian Retail OTC Derivative Association is to promote greater protection for investors and improve service and quality of information available to investors and the trading community in Australia as a whole. To this aim, we have established Best Practice Standards (“Standards”) which are over and above current regulatory standards in Australia. Each Member of the Forum must comply with and incorporate a statement of compliance regarding these Standards into their respective product disclosure statements.

The Standards cover disclosure, risk warnings and ongoing education. They also cover advertising standards to ensure providers target their products at suitable customers, and most importantly capital adequacy of Members and full segregation of client money. The Association strongly believes that client money should not be used by CFD & FX providers under any circumstances.

Each of the Standards are summarised below. More detailed information about each Standard is available here or please contact us if you have any questions or suggestions regarding the Standards.

Section One – Compliance

Standard One:

Compliance with Standards: Standard requires that Members comply with the Standards.

Section Two – Dealing with Customers

Standard Two:

RG227 Benchmark 1 – Client Qualification Standard addresses RG227 Benchmark 1 and requires a written client qualification policy as set out in the Regulatory Guide.

Standard Three:

RG227 Benchmark 2 – Opening Collateral Standard addresses RG227 Benchmark 2 and specifies that only certain collateral should be used for new accounts and that a Member’s PDS should explain the Member’s policy in this regard.

Standard Four:

Educational Material Standard describes the types of educational material which can be used to increase a customer’s or prospective customer’s understanding of CFDs and what Members should take into consideration in this regard.

Standard Five:

Advertising and Promotional Material Standard requires that Member’s brand advertising or sponsorship activity may mention the Members name or the product by name for recognition purposes only, but must not convey financial information about CFDs .Members must also ensure that advertising and promotional material is only published in financial markets based content.

Standard Six:

Customer Complaints Standard requires customer complaints to be handled in an efficient and effective manner.

Section Three – Customer Protection and Risk Management

Standard Seven:

RG227 Benchmark 5 – Segregation and Protection of Client Money Standard addresses RG227 Benchmark 5 and requires full segregation of all client funds in a separate client trust account.

Standard Eight:

Customer Credit Risk Standard requires management of customer credit risk by real time monitoring, placing limits on customer CFD positions, back testing and stress testing.

Standard Nine:

Risk Warnings and Risk Mitigation Tools Standard requires Members to provide standardised risk warnings which a prospective customer must agree to prior to trading in CFDs and Members must maintain a margin policy. Also, Customers must be provided with a range of risk mitigation tools.

Standard Ten:

RG227 Benchmark 6 – Suspended or halted underlying assets Standard addresses RG227 Benchmark 6 and requires that Members not allow new CFD positions to be opened where there is a trading halt over the underlying asset or trading of the underlying asset has been suspended.

Standard Eleven:

RG227 Benchmark 3 – Counterparty Risk – Hedging Standard addresses RG227 Benchmark 3 and requires Members to have hedging strategies in place and maintain a policy to manage exposure to market risk from client positions.

Section Four – Due Diligence and Business Continuity

Standard Thirteen:

Training and Competency of Employees Standard requires Member’s employees are adequately trained and are accredited in accordance with RG146. Members must also maintain a policy in this regard.

Standard Fourteen:

Employee Screening Standard requires Members to undertake pre-employment screening of all prospective employees. Members must also maintain a policy in this regard.

Standard Fifteen:

Dealing with Intermediaries Standard requires that Members will perform an initial due diligence to ensure intermediary relationships are appropriate. Members must also conduct an annual review on all intermediaries.

Standard Sixteen:

Business Continuity Management Standard requires that each Member has a BCM framework to ensure it can meet its financial and service obligations to customers in the event of a disruption.