The Australian regulator, the Australian Securities and Investments Commission (ASIC) has tightened up the financial requirements that apply to custodial and depository service providers. The new rules also extend to asset holders for registered schemes or investor directed portfolio services.
Under the changes, custodians and asset holders will be required to hold net tangible assets of either A$10 million, or 10% of average annual revenue.
Custody providers will also be subject to new requirements regarding the preparation of cash flow projections and liquidity.
The new financial rules will apply from 1 July 2013 for new licensees. For those already in the custody business, there is a one year transition period and compliance will be required from 1 July 2014.
Currently, most custody providers are either the bigger domestic/international banks or specialised trustee companies. According to ASIC Commissioner Greg Tanzer, the watchdog is enforcing the rule change to give investors a measure of confidence that the parties to whom they entrust their assets possess a sufficient level of financial backing.
ASIC calculates that A$2 trillion of assets are held in custody on behalf of Australian investors and they predict that number will triple before 2030.