ASIC today released a consultation paper on proposed changes to the financial requirements for providers of custodial or depository (C & D) services. The paper also sets out requirements that apply to responsible entities of registered managed investment schemes and platform operators that hold scheme property or other property and assets.

Consultation Paper 194: Financial requirements for custodial or depository service providers (CP 194) seeks feedback about:

• doubling the net tangible assets (NTA) requirement for custodians (other than incidental providers) from $5 million to the greater of $10 million or 10 per cent of average revenue;
• increasing the NTA requirement for responsible entities holding scheme property or assets and investor-directed portfolio services (IDPS) operators responsible for holding IDPS property or assets in certain circumstances from $5 million to the greater of $10 million or 10 per cent of average revenue;
• defining the term ‘incidental custodial or depository services’;
• introducing an NTA requirement for incidental custodial or depository service providers equal to the greater of $150,000 or 10 per cent of average revenue;
• requiring providers to produce 12-month cash flow projections; and
• specifying liquidity requirements for C & D providers.

CP 194 forms part of a broader review of financial requirements that ASIC is undertaking for sectors within the financial services industry. ASIC has already issued revised financial requirements for operators of managed investment schemes (11-242MR) and issuers of retail OTC derivatives (12-180MR). ASIC has also consulted on revised requirements for people providing financial services in emissions units (12-45AD), IDPS operators (12-49MR) and electricity derivative market participants (12-86MR).

In addition, ASIC released a general report into custodial or depository services in Australia earlier this year (REP 291). The report included recommendations of some matters of ‘good practice’ that providers may need to consider and noted that a separate review of the financial requirements for providers was underway.

ASIC Commissioner, Greg Tanzer, said custodial and depository service providers were important gatekeepers in the financial services industry as they ensure that appropriate processes to authorise transactions are observed and proper records are kept.

‘The financial requirements recognise that there is a degree of risk associated with providing any asset holding service. It’s important that all providers have the necessary financial resources, experience, systems and controls in place to support their authorisation’, he said.

Mr Tanzer said ASIC’s progressive review of the financial requirements that apply to AFS licensees across various sectors was important in holding financial sector gatekeepers to account.

‘We want to ensure these requirements are still current and appropriate’, he said.

Feedback:

ASIC is seeking feedback on CP 194 by 14 January 2013.

ASIC will consider updating regulatory guidance in RG 166 Licensing: Financial requirements (RG 166) based on the response to this consultation paper.

Download:

• Consultation Paper 194, Financial requirements for custodial or depository service providers (CP 194)
• Report 291 Custodial and depository services in Australia (REP 291)