On 28 June 2013, the Australian Securities and Investments Commission (ASIC) released new guidance on the minimum financial requirements for custodial or depository service providers under the Corporations Act 2001. Providers can be categorised into three groups: custodians; incidental providers; and asset holders for Investor Directed Portfolio Services (IDPS). A custodian is responsible for the holding of property for another person who is the beneficial owner. ‘Incidental providers’ are authorised to provide custodial or depository services but do so in a manner that is ‘incidental’ to other financial services they provide. An IDPS is a scheme for acquiring and holding investments that involves custody arrangements and consolidated reporting to investors. ASIC has assessed that as a result of changes in the custodial and depository service provider sector, aspects of the original guidance introduced in 2000 are no longer fit-for-purpose. Some of these industry changes include: a large increase in the amount of assets under custody in Australia; significant diversification in the size, complexity and nature of the types of product offerings and hence assets held in custody; substantial consolidation in the custody industry; and significant growth in the number of businesses purporting to be incidental providers. The new financial requirements place new or revised obligations for each category of custodial or depository service providers. These include increasing the Net Tangible Assets (NTA) requirements; and a requirement to maintain a certain percentage of NTA in cash or cash equivalent assets. The Regulation Impact Statement (RIS) prepared by ASIC notes that there have been no instances of business failure directly attributable to inadequate financial requirements for custody providers or asset holders. However, the new requirements are intended to result in more stable providers and asset holders for registered schemes, and align the interests of providers and asset holders for registered schemes or IDPS with their clients. A RIS was prepared by ASIC and assessed as adequate by the Office of Best Practice Regulation.
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