The changes, outlined in Regulatory Guide 166, state that custodians and asset holders for investor-directed portfolio services (IDPS) will be required to hold NTA of more than $10 million, or 10 per cent of average revenue, to be compliant.
The new requirements are in place from today for new licensees, with a one-year transition to compliance for existing licensees.
ASIC said the changes address the “inadequacy” of the $5 million NTA requirement for custodians which had been in place since 2002.
“There is a degree of risk associated with providing any custodial or asset holding service,” ASIC Commissioner Greg Tanzer said.
“Investors must be confident that these important gatekeepers, who are responsible for safekeeping other people’s financial assets, have adequate financial resources to provide these services.”
While ASIC stated in RG166 that there have been no instances of business failure attributable to inadequacy in the arrangements, collapses in the industry including Trio and Opes Prime led to concerns around custodial requirements.
In particular, ASIC said it had concerns over the safety of assets that providers hold, the duty of care they exercise and whether providers have adequate internal controls.
The corporate regulator said this was a “proactive” response to inflationary pressure, operating risk and concentration issues in the custodial industry.
Furthermore, RG166 outlined changes to incidental providers, which will now be required to hold NTA greater than $150,000, or 10 per cent of average revenue.
All custody providers and asset holders will be subject to new requirements regarding the preparation of cash flow projections and liquidity.
“We consider providers or asset holders for registered schemes or IDPS to be gatekeepers within the financial services industry, with responsibility in the product chain for the safekeeping of assets,” RG166 states.
“These proposals are aimed at ensuring that businesses that act as providers or asset holders for registered schemes or IDPS have adequate financial resources to conduct their business in compliance with the Corporations Act and in a responsible manner.”
