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Breaches of Client Money Obligations

Friday 23 October 2020

Recently, the Australian Securities and Investments Commission announced that Societe Generale Securities Australia Pty Ltd (SGSAPL) must pay $30,000 in penalties for breaching its client money obligations.
At the time of sentencing, Magistrate Atkinson said, “In my view, despite all the work the company has done, there is still a need for general deterrence. Australia, in recent years, has had a banking Royal Commission and there has been action taken post that Royal Commission, and what is apparent is that a very strong message has to be sent about the need for companies to comply with legislation and regulation.” 
According to the regulator, SGSAPL was guilty of two counts of breaching the s993B(1) of the Corporations Act by collecting client money in connection with financial services but failing to deposit it with an ADI or an approved foreign bank. These breaches took place on four separate occasions.

Source: Common Wealth Consolidated Acts
“The protection of client funds is critical to investor confidence and market integrity,” said Commissioner Cathie Armour. “The law is very clear about the uses of client money to provide certainty and transparency for clients and licensees. Breaches of these requirements are a serious compliance failure.”
Armour added that this is the second criminal prosecution related to client money. 

Other cases in client money obligations
While Amour did not identify the other criminal prosecutions relating to client money obligations, a quick search of the ASIC website brings up the Pershing breach. 
Pershing pays $40,000
In August this year, Pershing was ordered by the Sydney Downing Centre Local Court to pay $40,000 for breaching their client money obligations under s993C(1). 

Source: Commonwealth Consolidated Acts

Client money legislation & guidance
October 2017 was when the regulator announced the finalisation of client money rules that were then been expected to have been implemented by April 2018. The consultation process for these new rules began in July 2017. 
Speaking at that time, Commissioner Amour said, “The client money rules will ensure greater transparency in relation to an AFS licensee's receipt and use of derivative retail client money. They will apply more formal and consistent standards across the derivatives sector and will ensure any discrepancies in an AFS licensee's client money account are notified to ASIC in a timely manner and enable ASIC to take appropriate action.”
Information Sheet 226 was reissued in July 2019, and spelled out the regulatory guidelines with regards to ASIC’s client money reporting rules.