The Australian Securities and Investments Commission (ASIC) today announced an alternative means for entities within a corporate group to satisfy the cash needs requirement under Policy Statement 166: Licensing: Financial requirements (PS166), without preparing cash flow projections on an individual entity basis.
The cash needs requirement of PS 166 requires all holders of an Australian Financial Services licence to ensure that they have adequate cash to meet their liabilities, taking into account commercial contingencies. In its current form, it requires all licensees to prepare cash flow projections covering at least the next three months.
ASIC has agreed to vary Pro Forma 209 (Australian Financial Services Licence conditions) and PS 166 to provide greater flexibility to licensees in satisfying their cash needs requirements. This approach has been taken by ASIC in recognition that some licensees who belong to a corporate group would have difficulty preparing cash flow projections on an individual entity basis, as they manage their cash flow on a group basis.
Under the variation, a licensee can now meet the cash needs requirement if an entity that is an Australian authorised deposit-taking institution (ADI) provides an enforceable and unqualified financial commitment to pay an unlimited amount to the licensee, or to meet the licensee’s liquidity obligations under their licence.
The licensee will need to be satisfied that the financial commitment will cover at least the next three month period at any time it is relied on, taking into account all commercial contingencies for which the licensee should reasonably plan.
The financial commitment may be in the form of an eligible undertaking, but may also be in the form of a guarantee for the benefit of creditors, or a trustee acting on behalf of creditors.
To further assist corporate groups, ASIC will consider applications, on a case-by-case basis, to approve foreign deposit-taking institutions that are regulated in accordance with the guidelines promulgated by the Basle Committee on Banking Supervision in a way that is comparable to the regulation of Australian authorised ADIs. If approved by ASIC for this purpose, a foreign deposit-taking institution will also be eligible to provide the financial commitment under ASIC’s revised policy.
End of release