Retail client requirements and derivative trading
Retail client requirements
If you provide financial services to retail clients, you will have some additional obligations in relation to compensation and dispute resolution. This applies to registered persons as well as holders of an AFS licence.
You need to have in place compensation arrangements, consisting of either ‘adequate’ professional indemnity (PI) insurance, or an alternative arrangement that is specifically approved by ASIC. For more details on what constitutes an adequate PI insurance policy, refer to ASIC’s Regulatory Guide 126 Compensation and insurance arrangements for AFS licensees (RG 126) . You need to ensure that the terms of your policy cover you for all of the financial services you will provide, including those involving emissions units.
If you provide financial services to retail clients, you need to obtain PI insurance cover prior to providing those services. AFS licensees with existing PI insurance should check with their insurer to confirm their policy does not exclude emissions units. You may need to vary your cover if exclusions apply.
Dispute resolution arrangements are also a key requirement. These arrangements must consist of an internal dispute resolution (IDR) procedure and membership of an external dispute resolution (EDR) scheme that will accept complaints about the types of financial services you provide. For more details, refer to ASIC’s Regulatory Guide 165 Licensing: Internal and external dispute resolution (RG 165).
If you provide financial services to retail clients, you need to be a member of an EDR scheme that will cover complaints relating to emission units prior to providing those services. If you are already a member of an EDR scheme, you should check with your scheme to ensure that it will accept complaints relating to these products.
Derivative trading
Individuals or companies dealing or making a market in, or advising about derivatives over emissions units, may need an AFS licence with a specific authorisation for derivatives, unless they are exempt. For more details, refer to ASIC’s Regulatory Guide 236 Do I need a licence to participate in carbon markets? (RG 236).
Derivatives are regulated as separate financial products from emissions units, so the registration and transitional system for emissions units does not apply to derivatives. If you do not already hold an AFS licence authorising you to provide financial services in relation to derivatives, you can apply for a licence including this authorisation at any time. You must not begin providing financial services in relation to derivatives until you hold an AFS licence with the appropriate authorisation.
If you already hold an AFS licence with a broad authorisation relating to derivatives, and you want to extend your current financial services activities to derivatives over emissions units, you will not need to apply to vary your licence. However, you should consider whether your compliance plans require updating to take into account the new trading activity.
Carbon markets
ASIC Website: Printed 06/19/2013
