Section 912A of the Corporations Act 2001 (“the Act”) sets out a number of obligations which the holder of an Australian financial services (“AFS”) licence must adhere to in order to fulfil their licence obligations.
To support the financial requirements imposed by the AFS licence conditions, ASIC has issued Regulatory Guide 166: Licensing: Financial requirements, which was recently revised in September 2017.
A brief overview of the financial requirements are as follows:
Base level financial requirements
The base level financial requirements are applicable to all AFS licence holders, with exception of bodies regulated by APRA or those listed in RG 166.13, such as bodies subject to an alternative form of foreign prudential regulation, market and clearing participants if the financial requirement of the relevant market or clearing and settlement facility are an adequate substitute.
The three base level requirements are:
- Solvency and positive net assets
At all times, the licensee must be solvent and have total assets that exceed total liabilities. - Cash needs requirements
The licensee must have sufficient resources to meet anticipated cash flow expenses. - Audit requirements
The licensee must include information about compliance with the financial requirements in the audit report under s989B(3).
Additional financial requirement
In addition to the base level requirements, some AFS licence holders are required to meet additional financial requirements. The RG166 provides a table summarising the financial requirements for all categories of AFS licence holders, breaking down the requirements in the base level requirements and extending to additional requirements such as NTA (net tangible assets), SLF (surplus liquid funds) or other ASLF (adjusted surplus funds) requirements. These additional requirements will warrant individual calculations which should be monitored regularly, in accordance with the policy of the licensee.
The table extracted from Regulatory Guide 166 — Licensing: Financial requirements, serves as a timely reminder to all our clients of the financial requirement obligations which they, as an AFS licence holder, may be subject to in accordance with the Act.