Investments, Markets

SMSFs under pressure to register for OTC activity

SMSFs have until 31 March to register to continue to use OTC instruments in portfolios.

Corporate SMSFs have until the end of the month to obtain a new identification code that will allow them to continue to use non-exchange-traded instruments within their portfolios.

APIR chief executive Chris Donohoe said the identification code, known as a legal entity identifier (LEI), would be introduced from 1 April and would be required by any SMSF that uses over-the-counter (OTC), non-exchange-traded instruments such as contracts for difference, derivatives and foreign exchange.

“Corporate trustee SMSFs will require the LEI so they can be identified as the counterparty in any trade conducted by an OTC instrument they may hold within a portfolio,” Donohoe noted.

He added many funds may be unaware of the requirement as the Australian Securities and Investments Commission (ASIC) had provided relief for OTC instruments until the end of March, but this was unlikely to be extended further.

LEIs were being introduced around the world to track the ownership of assets in financial transactions following concerns raised after the global financial crisis that regulators were unable to trace the relevant parties in some transactions, he said.

“Only 12,000 LEIs have been issued in Australia and ASIC expects that thousands more will need to be issued, including to thousands of SMSFs,” he said.

“Of the 600,000 SMSFs in Australia, around 5 to 10 per cent trade OTC instruments, resulting in around 30,000 to 60,000 funds that will potentially need an LEI before the start of April,” he noted.

The move to adopt LEIs was part of a drive by ASIC to be part of a global harmonisation of regulations, he said, adding the application process could usually be completed within 48 hours if SMSFs provided the correct documentation.

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