Focus
ASIC’s new financial requirements for
responsible entities, IDPS operators and
custodians
Corporate Advisory
26 July 2013
The Australian Securities & Investments Commission (ASIC) has
recently released:
 new financial requirements for Australian financial services licensees
authorised to operate an IDPS (IDPS Operator) or provide a
custodial or depository service (Custodian), and
 updated financial requirements for responsible entities (RE).
These financial requirements are contained in Class Orders 13/760 and
13/761 and are the finalisation of proposals foreshadowed by ASIC in
Consultation Paper 194.
Corporate Advisory Partner, Tim Wiedman, summarises the impact of
these new financial requirements.
Responsible entities
ASIC’s revised financial requirements will apply from 1 July 2014 to REs operating
The new financial
requirements are
applicable to REs, IDPS
Operators and
Custodians established
after 1 July 2013.
All existing REs, IDPS
Operators and
Custodians must be
compliant by
1 July 2014.
prior to 1 July 2013, unless the RE elects to opt-in prior to then. REs who become
authorised to operate registered schemes after 1 July 2013, either by obtaining an
Australian Financial Services Licence (AFSL), or varying an existing AFSL, must
comply with the new financial requirements at that time.
A summary of the impact from 1 July 2014 for REs in operation prior to 1 July 2013 is set out below.
Financial
requirement
Current requirement
Impact
Net Tangible Asset
RE must hold NTA at least the greater
The $5 million threshold is increased to
(NTA) requirement for
of:
$10 million.
REs who self-custody
scheme assets (where
those assets are not
 $5 million, or
 10% of the average RE revenue of
the RE.
special custody or tier
Therefore, the RE must hold NTAs at
least the greater of:
 $10 million, or
 10% of the average RE revenue of
$500,000 class assets)
the RE.
NTA requirement for
RE must hold NTA at least the greater
No change to RE’s NTA obligation.
REs where scheme
of:
However, the custodian appointed by
assets are held by a
custodian (where assets
are not special custody
or tier $500,000 class
assets)
 $150,000
 0.5% of the average value scheme
property of the registered schemes
operated by the RE, up to an
amount of $5 million, or
 10% of average RE revenue of the
RE.
The custodian who holds the scheme
assets (or who appointed the
subcustodian who holds the scheme
assets) must:
 hold NTA of at least $5 million, or
 be an eligible custodian (namely, an
Australian bank or credit union, a
market or clearing participant, or a
subcustodian appointed by such
entity).
the RE must, unless it is an eligible
custodian, meet the following
requirements:
 have an AFSL authorising it to
provide custodial or depository
services
 hold NTA at least the greater of
$10 million or 10% of average
revenue of the custodian and meet
the other financial requirements
applying to a Custodian (as
discussed below under the heading
‘Custodial or depository service
providers’)
 not be an incidental provider (as
discussed below under the heading
‘Custodial or depository service
providers’), and
 provide the RE with an assurance,
which is not more than 13 months
old, confirming the custodian meets
the above requirements.
Alternatively, if the custodian does not
hold an AFSL authorising it to provide a
custodial or depository service (and is
not an eligible custodian), the RE must
satisfy the following requirements:
 obtain an assurance from the
custodian, which is not more than
13 months old, confirming it meets
the financial requirements which
would apply if it was a Custodian
(i.e. licensed to provide custodial or
depository services) and will
Financial
requirement
Current requirement
Impact
immediately notify the RE of any
breach of those financial
requirements which would be
reportable to ASIC if it held an AFSL
 have no reason to suspect the
custodian does not comply with the
above requirements, and
 obtain an auditor’s report for the
custodian, covering a 12 month
period ending no more than 16
months prior, on the custodian’s
compliance with the financial
requirements applying to a
Custodian.
For new REs, until 1 July 2014, the
custodian (if not an eligible custodian)
only has to meet the following
requirements:
 have held, prior to 1 July 2013,
either an AFSL authorising it to
provide a custodial or depository
service or the assets of a registered
scheme as a custodian, and
 hold NTA of $5 million.
NTA requirement for
Where the assets of the RE’s registered
REs where scheme
schemes are tier $500,000 class assets
assets are tier $500,000
and held by the:
class assets held by the
licensee, custodian or a
sub-custodian
appointed by the
custodian.
 the licensee, where the licensee
holds NTA of at least $500,000, or
 the custodian or a sub-custodian,
where they hold at least $500,000
NTA or is an eligible custodian,
then the RE must at all times hold NTA
of at least the greater of:
 $150,000 (though this will be
$500,000 if the RE holds the assets)
 0.5% of the average value of
scheme property of the registered
schemes operated by the RE, up to
an amount of $5 million, or
 10% of average RE revenue of the
RE.
No change to RE’s NTA obligation.
NTA requirement for
The RE must at all times hold NTA of at
REs where scheme
least the greater of:
assets are held either
by members or are
special custody assets
held by the RE or a
custodian.
No change to RE’s NTA obligation.
 $150,000
 0.5% of the average value of
scheme property of the registered
schemes that are operated by the
RE, up to an amount of $5 million,
or
 10% of average RE revenue of the
RE.
Where the special custody assets are
held by a custodian (other than an
eligible custodian) they are generally
required to hold the amount of NTA
the RE is required to maintain.
Cash needs
requirement
REs must:
 prepare a cash flow projection
covering at least the next 12 months
based on a reasonable estimate of
what is likely to happen over the
period
 have the cash flow projection
approved by the RE’s directors at
least quarterly, as satisfying the
above requirement
 document the calculations and
assumptions used in preparing the
projection, describing why
assumptions are appropriate
 update the cash flow projection
when it ceases to cover the next
12 months, there is a material
change or the RE suspects that it is
not meeting the following
requirements , and
 demonstrate, based on the cash
flow projection, that over the
12 month forecast period the RE will
have access to sufficient resources
to both:
 meet its liabilities, and
 comply with the cash and cash
equivalents requirement
(discussed below).
No change.
Cash and cash
The RE must hold at all times cash and
equivalents
cash equivalents of at least the greater
requirement
of:
No change.
 $150,000, or
 50% of the greater of:
 $150,000
 0.5% of the average value of
scheme property of registered
schemes operated by the RE, up
to a maximum of $5 million, or
 10% of average RE revenue of
the RE.
Liquid assets
The RE must hold at all times liquid
No change.
assets of an amount at least equal to
the NTA the RE is required to hold.
For detailed information on the concepts of average RE revenue, average value of scheme property,
cash and cash equivalents, and, liquid assets, please click here.
The key impacts of the revised financial requirements are for REs who:
 ‘self-custody’ scheme assets (where those assets are not special custody or tier $500,000 class
assets), as their minimum NTA requirement increases from $5 million to $10 million, and
 appoint a custodian (other than an eligible custodian) to hold scheme assets (other than tier
$500,000 assets and special custody assets), as they must ensure the custodian meets more
onerous requirements, including, from 1 July 2014, a minimum NTA requirement of $10 million.
IDPS Operators
ASIC has extended the financial requirements which apply to REs to cover IDPS Operators. For
existing IDPS Operators, being licensees authorised to operate an IDPS prior to 1 July 2013; they
must comply with these financial requirements from 1 July 2014. For licensees who become
authorised to operate an IDPS on or after 1 July 2013, the financial requirements must be complied
with upon becoming an IDPS Operator.
ASIC has updated some of the key concepts underlying the financial requirements to reflect that an
IDPS Operator operates an IDPS (in contrast to an RE who operates a registered scheme).
For example, IDPS Operators are subject to a 0.5% calculation for NTA purposes, which is based on
the average value of the IDPS property of the IDPSs operated by the IDPS Operator, and, a 10%
revenue calculation based on the average IDPS revenue of the IDPS Operator.
Custodial or depository service providers
AFSL holders authorised to provide a custodial or depository service (Custodian) will also be subject
to NTA, cash and cash equivalent and liquidity requirements, as well as expanded cash needs and
audit requirements.
The financial requirements will apply from 1 July 2014 for licensees authorised to provide custodial
or depository services prior to 1 July 2013, and, for licensees who become authorised to provide
custodial or depository services from 1 July 2013, from that date.
Differing NTA, cash and cash equivalent, and, liquid asset financial requirements apply depending
on whether the Custodian is a ‘proper’ Custodian, an incidental provider or an ‘exempt’ Custodian
as summarised below.
.Financial
‘Proper’ Custodian
Incidental provider
‘Exempt’ Custodian
Not an incidental provider
Incidental provider who
Incidental provider who
holds financial products in
appoints a ‘proper’
providing custodial or
Custodian to hold financial
depository services
products relating to the
requirement
Custodian
definitions
custodial or depository
services it providers
NTA
The Custodian must at all
The Custodian must at all
times hold NTA of at least
times hold NTA of at least
the greater of:
the greater of:
 $10 million, or
 $150,000, or
 10% of average
 10% of average
revenue
No NTA requirement.
revenue.
Cash and cash
The Custodian must at all
The Custodian must at all
No cash and cash
equivalents
times hold cash or cash
times hold cash or cash
equivalents requirement.
equivalents of an amount
equivalents of an amount
that is at least 50% of the
that is at least 50% of the
NTA required to be
NTA required to be
maintained.
maintained.
The Custodian must at all
The Custodian must at all
No liquid assets
times hold liquid assets of
times hold liquid assets of
requirement.
an amount that is at least
an amount that is at least
100% of the NTA required
100% of the NTA required
to be held.
to be held.
Liquid assets
Cash needs
requirement
Custodians must:
 prepare a cash flow projection covering at least the next 12 months based on a
reasonable estimate of what is likely to happen over the period
 have a cash flow projection approved by the Custodian’s directors, partners, trustees
or the Custodian (depending on whether it is a company, partnership, trustee or
natural person) at least quarterly, as satisfying the above requirement
 document the calculations and assumptions used in preparing the projection, and
describe why the assumptions are appropriate
 update the cash flow projection when it ceases to cover the next 12 months, there is
a material change or the Custodian suspects that it is not meeting the following
requirement, and
 demonstrate, based on the cash flow projection, that over the 12 month forecast
period the RE will have access to sufficient resources to both:
 meet its liabilities, and
 comply with its cash and cash equivalents requirement (if any).
Audit opinion
The audit opinion provided by the Custodian’s auditor must cover compliance with the
financial requirements applying to the Custodian.
A Custodian will be an incidental provider if:
 it does not provide any custodial or depository services other than services provided to a client
because of, or in order to obtain, the provision of other financial services by the Custodian or its
related body corporate and which do not form part of an IDPS, and
 revenue from providing custodial or depository services is less than 10% of its financial services
business revenue.
A Custodian will be an ‘exempt’ Custodian if it is an incidental provider and all financial products to
which the custodian or depository services provided by the Custodian relate are held by:
 a ‘proper’ Custodian
 a sub-custodian appointed by a ‘proper’ Custodian, or
 an eligible custodian.
In addition to the financial requirements summarised above, a Custodian appointed by a licensee
(such as an RE) to provide a custodial service, must:
 if requested, provide the licensee with a statement regarding its compliance with the applicable
financial requirements and stating whether it is an incidental provider, and
 if it lodges a significant breach notification with ASIC relating to a breach of its financial
requirements, immediately notify the licensee of such notification.
Application to wholesale fund managers
Generally, the incidental provider characterisation should apply to licensees who operate wholesale
unregistered managed investment schemes, and, hold an AFSL authorising the provision of a
custodial or depository services which enables them to hold the assets of the schemes on behalf of
investors. Wholesale fund managers who comply with the conditions of an incidental provider will
either:
 be required at all times to hold NTA of at least the greater of $150,000 or 10% of their average
revenue and meet the cash, cash equivalents and liquid asset requirements set out in the table
above, if they hold the assets of the wholesale funds they operate, or
 have no NTA, cash and cash equivalent or liquid asset requirements, if they appoint a ‘proper’
Custodian to hold the assets of the wholesale funds they operate.
Wholesale fund managers (who hold an AFSL authorising the provision of a custodial or depository
services) will also be subject to the expanded cash needs, and, audit requirements summarised in
the table above.
Wholesale fund managers who hold an AFSL which does not authorise them to provide custodial or
depository services are not required to comply with the new financial requirements.
For wholesale fund managers who are also REs, by complying with the financial requirements
applying to them as an RE, they will also meet the financial requirements of a Custodian (assuming
they are an incidental provider).
If you are an RE, IDPS Operator or Custodian who require assistance with understanding how these
new financial requirements will apply to you please contact our team:
 Tim Wiedman on +61 7 3233 8716
 Sean Robertson on +61 7 3233 8860
 Brendan Leighton on +61 7 3233 8985
 Isaac Evans on +61 7 3233 8596
Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for
information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any
issue dealt with in this publication.
[email protected]
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