Broadly speaking, the Derivatives Bill provides for the following regulation and rule-making procedures:
- The Minister may determine whether a class of derivatives should be subject to a mandatory obligation. In doing so, the Minister must have regard to the following:
- the likely effect of imposing a mandatory obligation on a class of derivatives on the Australian economy and on the efficiency, integrity and stability of the Australian financial system; and
- the likely regulatory impact of imposing a mandatory obligation on a class of derivatives.
In addition, the Minister may have regard to other matters such as international standards and information or advice obtained via consultation with ASIC, the Australian Prudential Regulation Authority and the Reserve Bank of Australia. In this context, regulatory developments in major offshore jurisdictions have an added layer of importance due to their potential impact on the regulatory environment in Australia.
- ASIC may then, following public consultation, make derivatives transaction rules in relation to the trade reporting, central clearing or trade execution obligations relating to a prescribed class of derivatives. These rules will specify, among other things, the persons who will be required to comply with the requirements set out in the rules, how the persons must comply and any applicable exemptions.
When making derivatives transaction rules, the Derivatives Bill requires ASIC to consider the same matters that the Minister must consider when making a determination and other matters that ASIC considers relevant following consultation with the public and with APRA and the RBA (although consultation is not required in certain urgent situations).
Interestingly, the Derivatives Bill notes that derivatives transaction rules may require “intermediaries or agents who facilitate or are otherwise involved in derivatives transactions” to comply with the relevant rules. Such rules will bring those persons under the regulatory framework and market participants will expect clarity in the delineation of which obligations are imposed on which other persons in any such rules.
The Derivatives Bill also makes it clear that civil penalties will apply to a person who fails to comply with a derivatives transaction rule that applies to it, although such a failure to comply will not invalidate the derivatives transaction or affect any rights or obligations under it. Regulations may also specify other alternatives to civil proceedings, including requiring persons to give legally enforceable undertakings.