Document ID: chunk:federal_register_of_legislation:F2023C00831:reg:5:p1
Version: federal_register_of_legislation:F2023C00831
Segment Type: reg
Provision Reference: reg 5 (pt 1/11)
Character Range: 1288–4130

5  Adequate financial resources for issuers of retail OTC derivatives

Part 7.6 (other than Divisions 4 and 8) of the Act applies to financial services licensees as if that Part were modified or varied by inserting the following section in its relative order in Division 3 of Part 7.6:
    "912AB Adequate financial resources for financial services licensees that issue derivatives to retail clients
(1) This section applies to a financial services licensee that:
(a) holds an Australian financial services licence covering the provision of the following financial services:
(i) dealing in a financial product by issuing derivatives;
(ii) making a market for derivatives; and
(b) incurs actual or contingent liabilities by issuing derivatives to persons as a retail client; and
(c) is not:
(i) a body regulated by APRA that is not required to comply with paragraph 912A(1)(d); or
(ii) a market participant; or
(iii) a clearing participant.
(2) A financial services licensee covered by subsection (1) that complies with this section is taken to comply with conditions (if any) of its licence that relate to any of the following:
(a) a cash needs requirement;
(b) financial requirements for licensees transacting with clients;
(c) reporting triggers and requirements for financial requirement conditions;
(d) the obligation to lodge an audit opinion on the financial requirements to the extent the opinion is for a part of a financial year or other period during which the licensee was covered by subsection (1).
           Note: The conditions on the licence may include other requirements that relate to having available adequate financial resources.

Cash needs requirement
(3) The licensee must:
(a) in each March, June, September and December, prepare a projection of the licensee's cash flows over at least the next 12 months based on the licensee's reasonable estimate of revenues and expenses over this period; and
(b) have the projection approved in writing by the following persons as being based on the licensee's reasonable estimate of revenues and expenses over the relevant period:
(i) if the licensee is a body corporate—the directors of the licensee;
(ii) if the licensee is a partnership or the trustees of a trust—the partners of the licensee or the trustees;
(iii) if the licensee is a natural person—the person; and
(c) document the calculations and assumptions used in preparing the projection, and describe in writing why the assumptions are appropriate; and
(d) update the projection of the licensee's cash flows if there is reason to suspect that an updated projection would show that the licensee was not meeting the requirements in subparagraphs (e)(i) and (ii); and
(e) have the persons mentioned in the subparagraphs (as applicable) of paragraph (b) certify in writing that, based on the projection of the licensee's