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ASIC to Investigate Last Look

The Australian Securities and Investments Commission (ASIC) is to further investigate the use of last look in foreign exchange markets.

ASIC commissioner Cathy Armour told a conference this week that while the regulator accepts that last look may help facilitate a liquidity provider’s legitimate risk management, it also introduces the potential to exploit confidential client trading intentions and to otherwise treat clients unfairly. 

“We are also concerned around the quality of client disclosure about the practice, with many clients unaware of the practice,” Armour told the ISDA conference in Sydney. “We have recently undertaken a review to better understand last look, and will publish our observations and findings in due course. We also intend to conduct surveillance on liquidity providers to check their disclosure and internal processes and procedures.”

Armour also revealed that ASIC plans to reinforce its supervision of local banks’ FX businesses. In the past two years the regulator has issued Enforceable Undertakings and imposed fines on the main five local banks to shortcomings in the FX businesses.

Armour said that as part of ASIC’s enhanced use of on-site surveillance and inspections it has recently given notice to a number of financial institutions of its” intention to undertake on-site reviews with a focus on the control frameworks in place for the FX business. This is the first round of sets of on-site reviews that will seek to improve compliance standards in wholesale markets,” she said.

It is not only the banks in the regulator’s cross hairs, however, for ASIC is also joining on-site examinations being undertaken on Australian financial institutions by the US National Futures Association (NFA). A number of large Australian financial institutions are registered as swap dealers with the CFTC and are NFA members. These institutions are required to comply with NFA Rules and CFTC Regulations and ASIC has been invited to participate in these reviews. “They will help us to develop our own program of on-site reviews,” Armour said.

While the general sentiment in FX markets is that last look as an issue has been dealt with, the Global FX Committee continues to run work streams around its use in “cover and deal” circumstances. Another work stream for the GFXC is disclosures, with the committee expected to report in the coming months on progress.

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Colin Lambert

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