ASIC Corporations (Financial Requirements for Custodial or Depository Service Providers) Instrument 2023/648

The central legal and measurement concepts are introduced and defined within the new section 912AC. For readers focused on operational compliance and legal risk, the most significant concepts are: the tailored cash needs requirement; NTA measurement (including adjusted assets and liabilities); cash and liquid asset minima; incidental provider treatment; eligible providers and eligible undertakings; and the audit opinion.

Tailored cash needs requirement (s 912AC(3))

• Licence-holders must prepare a projection of cash flows over at least the next 12 months based on reasonable estimates (s 912AC(3)(a)). The projection must be approved in writing at least once a quarter by the relevant approving persons: directors for bodies corporate, partners or trustees for partnerships or trusts, and the natural person for sole practitioners (s 912AC(3)(b)(i)-(iii)). The licensee must document the calculations and assumptions (s 912AC(3)(c)), update the projection if it ceases to cover at least 12 months or there is reason to suspect a material difference (s 912AC(3)(d)), and document whether, based on the projection, the licensee will have access when needed to enough financial resources to meet liabilities over the projected 12‑month term and will comply with the cash-holding requirement in s 912AC(7)(a) at all times during the projected term (s 912AC(3)(e)).

Net tangible assets and quantitative floors (s 912AC(4)-(5))

• NTA is defined as adjusted assets minus adjusted liabilities (s 912AC(12)). Licensees who are not incidental providers must hold at all times the greater of $10 million and 10% of average revenue (s 912AC(4)(a)). Incidental providers face a lower floor: the greater of $150,000 and 10% of average revenue (s 912AC(4)(b)). Subsection (5) provides a route whereby an incidental provider will have no NTA requirement if all relevant financial products are held by an authorised custodian who the licensee reasonably believes is not an incidental provider and complies with 912AC, or by a sub‑custodian appointed by such a licensee, or by an eligible custodian (s 912AC(5)). Subsection (6) creates a presumption if the licensee has a written assurance from a custodian within the preceding 13 months that the custodian complies and is not an incidental provider (s 912AC(6)).

Cash and liquid asset minima (s 912AC(7))

• Unless s 912AC(5) applies, a licensee must hold cash or cash equivalents equal to at least 50% of the required NTA and liquid assets equal to at least 100% of the required NTA, at all times (s 912AC(7)(a)-(b)). Money in an account held for the purposes of s 981B (client money) cannot be counted towards either requirement, though other cash equivalents that are also liquid assets can be counted for both requirements (s 912AC(7) final sentences).

Audit opinion (s 912AC(10)-(11))

• Each financial year the licensee must lodge with ASIC an audit opinion by a registered company auditor addressed to the licensee and ASIC, stating whether the licensee complied with s 912AC(3)(b) and subsections (4) and (7) and other financial licence conditions, had at all times a projection that appears to comply with s 912AC(3)(a), correctly calculated the projection based on its assumptions, and whether the auditor has no reason to believe the licensee lacked adequate systems, failed to document assumptions, would not have access to adequate resources over 12 months, would not hold the required cash at all times during the projection, or adopted unreasonable assumptions (s 912AC(10)(a)-(b)). If the licensee asserted incidental provider status for NTA purposes, the auditor must also state whether they have no reason to believe the licensee did not satisfy that definition (s 912AC(10)(c)). The audit opinion lodgement timing aligns with the balance sheet lodgement under s 989B and any further ASIC directions (s 912AC(11)).

Measurement and definitions (s 912AC(12) and embedded definitions)

• Adjusted assets and adjusted liabilities set out comprehensive add-backs and deductions, including treatment of subordinated debt, rights of set-off, encumbered assets, guarantees, and eligible undertakings (s 912AC(12) adjusted assets and adjusted liabilities definitions). Excluded assets include intangible assets and receivables from associates, subject to limited exceptions (s 912AC(12) excluded assets). "Adequately secured" captures enforceable security interests over financial products with specified market-value haircuts (109% for debt instruments, 120% otherwise), registered first mortgages with 120% valuation, eligible provider debt, or enforceable security interests over amounts owing to another licensee which are themselves adequately secured (s 912AC(12) adequately secured). "Cash or cash equivalents" imposes notice and availability requirements for commitments and accepts eligible undertakings as cash equivalents where appropriately documented (s 912AC(12) cash or cash equivalents). "Eligible undertaking" must be an irrevocable enforceable undertaking by an eligible provider or approved by ASIC (s 912AC(12) eligible undertaking).

Carve-outs and consolidation (s 912AC(2A)-(2B))

• Managers authorised under the Wholesale Equity Scheme Trustees Instrument who hold conditions matching certain subparagraphs can include assets, liabilities, cash inflows and outflows of a related eligible trustee when applying section 912AC (s 912AC(2A)). An eligible trustee is a related person who is both an eligible trustee of a wholesale equity scheme and a related body corporate of the manager (s 912AC(2B)).

The instrument therefore creates a set of numeric and process-based obligations, supported by detailed accounting definitions and an auditor attestation requirement, with targeted reliefs for incidental providers and specified consolidated manager-trustee arrangements.

The instrument targets a narrowly defined group of Australian financial services licence-holders. The primary affected population is any financial services licensee that:

• holds an Australian financial services licence authorising it to provide a custodial or depository service, and
• is not either (i) an APRA-regulated body that is not required to comply with paragraph 912A(1)(d), or (ii) a market participant, or (iii) a clearing participant (s 912AC(1)).

The exclusion for APRA-regulated bodies is specific: it applies only where the APRA-regulated body is not required to comply with paragraph 912A(1)(d) of the Corporations Act; that is, the instrument recognises duplicative prudential regimes and excludes those regulated by APRA from this particular statutory test (s 912AC(1)(b)(i)). Market participants and clearing participants are excluded, but the instrument itself defines market participant and clearing participant in ways that restrict the exclusion to participants operating on certain recognised markets and complying with particular market integrity rules (see s 912AC(12) definitions for market participant and clearing participant). For example, market participant refers to participants in markets operated by named operators such as ASX Limited and others and requires compliance with ASIC Market Integrity Rules (Capital) 2021 (s 912AC(12) market participant definition).

Who pays (directly and indirectly)

• The direct compliance costs fall on the licence-holders who must prepare ongoing cash-flow projections, maintain prescribed NTA and liquidity buffers, obtain and lodge annual auditor opinions, and provide requested compliance statements to appointing licensees (s 912AC(3), (4), (7), (8), (10)-(11)). Where a licensee uses related eligible trustees for managers, the manager must include trustee cash flows and balances if the manager meets the specified conditions (s 912AC(2A)-(2B)), which may expand the manager’s administrative and capital obligations.

• Indirectly, appointing licensees who appoint custodial/depository providers receive information rights and notice rights (s 912AC(8)-(9)), which may affect their counterparty selection and contracting costs. Sub-custodians, eligible custodians, and custodians who provide written assurances to incidental providers receive a flow of demand for written assurances (s 912AC(5)-(6)) and may incur legal costs in supplying those assurances.

Who is eligible for relief or different treatment

• Incidental providers are treated differently. A licensee is an incidental provider if its custodial/depository services are ancillary to other financial services the licensee or its related bodies corporate provide, those services are not part of an IDPS, and custodial/depository services revenue is less than 10% of financial services business revenue (s 912AC(12) incidental provider definition). Incidental providers have lower NTA floors (s 912AC(4)(b)) and can be exempted from NTA requirements altogether where client assets are held by authorised custodians or eligible custodians that the licensee reasonably believes are non-incidental and compliant (s 912AC(5)-(6)).

Special categories: managers and trustees

• A manager that holds an AFS licence authorising wholesale equity financial services and carries specified licence conditions matching ASIC’s wholesale equity trustees instrument can consolidate the assets/liabilities/cash flows of eligible trustees who are related bodies corporate into its own calculation for the purposes of the section (s 912AC(2A)-(2B)). This creates an operational link between manager and trustee, making the manager’s compliance obligations depend on trustee-level positions and vice versa.

Interaction with appointing licence relationships

• The instrument creates duties to respond to appointing licensees’ written requests about compliance status and incidental-provider status (s 912AC(8)), and to notify appointing licensees of contraventions reported to ASIC under s 912DAA(1) immediately (s 912AC(9)). These duties affect the contract and disclosure relationship between custodians and their clients who are licence-holders.

Geographic and counterparty scope of eligible undertakings and providers

• The definition of eligible provider includes Australian ADIs, certain governments and their agencies, foreign deposit-taking institutions regulated by an ASIC-approved regulator or approved in writing, Australian CS facility licensees, and entities otherwise approved by ASIC (s 912AC(12) eligible provider). Eligible undertakings must be irrevocable and enforceable and may be approved by ASIC (s 912AC(12) eligible undertaking). These provisions channel reliance towards regulated banking counterparties, governments, recognised market infrastructure participants and ASIC-approved entities.

Time horizon and sunset

• The instrument applies from its commencement date and is repealed at the start of 1 October 2028 (s 2; s 6). Licence-holders therefore face an ongoing regime while it is in force, with the certainty that the instrument is temporary unless renewed or replaced.

In sum, the instrument is aimed narrowly at non‑APRA-regulated, non-market-participant, non‑clearing-participant AFS licence-holders authorised to provide custodial or depository services, imposing quantifiable capital and liquidity requirements, operational governance obligations, and auditor attestations on those entities and creating specific duties towards appointing licensees.

This section sets out the principal duties the instrument imposes on affected licensees, the rights it creates for other parties, and the corresponding documentation and timing obligations. Each duty and right is supported by the specific subsection cited.

Duties of licence-holders

1. Prepare, approve and maintain a 12-month cash-flow projection (s 912AC(3)(a)-(b))

• Duty: Licence-holders must prepare a projection of cash flows over at least the next 12 months based on a reasonable estimate of likely events (s 912AC(3)(a)). The projection must be approved in writing at least once a quarter by the directors (for a body corporate), partners or trustees (for partnerships or trusts), or the natural person (for a sole practitioner) (s 912AC(3)(b)). This imposes a periodic governance approval duty on the entity’s decision-makers.

2. Document calculations and assumptions; update when necessary (s 912AC(3)(c)-(d))

• Duty: Licence-holders must document the calculations and assumptions used to prepare the projection and write why those assumptions are appropriate (s 912AC(3)(c)). They must update the projection if it ceases to cover at least 12 months or there is reason to suspect an updated projection would materially differ or show non-compliance with later requirements (s 912AC(3)(d)).

3. Assess resources against liabilities and cash requirement (s 912AC(3)(e))

• Duty: The projection must include a documented assessment of whether, during the projected 12-month term, the licence-holder will have access when needed to sufficient financial resources to meet liabilities and will be able to comply with the cash requirement under s 912AC(7)(a) at all times (s 912AC(3)(e)).

4. Maintain minimum NTA levels unless excused (s 912AC(4)-(6))

• Duty: Unless excused under subsection (5), the licence-holder must maintain NTA at all times equal to specified floors: for non-incidental providers the greater of $10 million and 10% of average revenue; for incidental providers the greater of $150,000 and 10% of average revenue (s 912AC(4)). Incidental providers can avoid the NTA requirement if all relevant products are held by an authorised non‑incidental custodian or eligible custodian or sub-custodian or if they hold a recent written assurance from such a custodian (s 912AC(5)-(6)).

5. Maintain cash and liquid asset minima (s 912AC(7))

• Duty: Unless s 912AC(5) applies, licence-holders must at all times hold cash or cash equivalents at least equal to 50% of required NTA, and liquid assets at least equal to 100% of the required NTA (s 912AC(7)(a)-(b)). Money in account held for s 981B purposes cannot be counted (s 912AC(7) sentence 2). Other cash equivalents that are also liquid assets can be counted for both requirements (s 912AC(7) sentence 3).

6. Provide statements to appointing licensees on request and notify appointing licensees of certain ASIC reports (s 912AC(8)-(9))

• Duty: On written request from an appointing licensee that appointed the licensee to provide services, the licensee must provide within a reasonable time a written statement regarding compliance with s 912AC and whether it is an incidental provider at the time (s 912AC(8)). If the licensee lodges a report to ASIC under s 912DAA(1) about contravention of s 912AC, it must immediately notify each appointing licensee in writing (s 912AC(9)).

7. Lodge annual auditor opinion with ASIC and comply with ASIC directions for other periods (s 912AC(10)-(11))

• Duty: The licensee must lodge with ASIC, for each financial year, an audit opinion by a registered company auditor addressing specified matters: compliance with the projection approval, NTA and cash/liquid assets requirements, the projection’s presence and correctness, adequacy of systems and reasonableness of assumptions, and incidental-provider assertions where relevant (s 912AC(10)). The audit opinion must be lodged with the balance sheet required under s 989B and for any additional periods ASIC directs, by the dates ASIC directs (s 912AC(11)(a)-(b)).

8. For managers: include eligible trustees in calculations where applicable (s 912AC(2A)-(2B))

• Duty: A manager covered by the section and meeting the licence conditions set out must treat assets, liabilities, cash inflows and outflows of any eligible trustee who is a related body corporate as included in the manager’s numbers for the section (s 912AC(2A)). Eligible trustee is defined tightly in s 912AC(2B).

Rights or entitlements created

1. Compliance treated as compliance with licence conditions (s 912AC(2))

• Right: A licensee that complies with s 912AC is taken to comply with licence conditions (if any) relating to a cash needs requirement, net tangible assets that apply because it provides custodial or depository services, and the obligation to lodge an auditor opinion to the extent the opinion covers periods when the licensee was covered by s 912AC (s 912AC(2)). In effect, compliance with 912AC operates as a substitute for certain licence conditions.

2. Procedural and evidentiary rights in relation to incidental-provider relief (s 912AC(5)-(6))

• Right: Incidental providers who can demonstrate that clients’ products are held by specified custodians or provide written assurances have a mechanism to remove the NTA requirement (s 912AC(5)-(6)). Subsection (6) creates a taken-to-have-reasonable-belief rule where a written assurance has been obtained within the preceding 13 months.

3. ASIC direction and lodgement timing (s 912AC(11)(b))

• Right: ASIC can direct lodgement of audit opinions for periods beyond the financial year; the licensee has the right to rely on the lodgement dates specified by ASIC (s 912AC(11)(b)). This gives ASIC a regulatory tool and licensees a clear procedural pathway for compliance with special directions.

Auxiliary duties embedded in definitions and measurement

• Adjusted assets and liabilities definitions impose complex measurement tasks, for example excluding intangible assets, certain receivables, treating subordinated debt and guarantees in specified ways, and recognising eligible undertakings in adjusted assets (s 912AC(12) adjusted assets and adjusted liabilities definitions). Adequately secured collateral must meet market value haircuts and liquidity/marketability criteria (s 912AC(12) adequately secured). These measurement duties are substantive and will drive accounting and legal processes for asset admission and valuation.

Reporting thresholds and audit scope

• The auditor is asked to opine not merely on mathematical compliance but on whether there is any reason to believe certain systems or assumptions are inadequate, which creates a qualitative obligation on auditors to consider systems for managing risk of insufficient financial resources in the relevant period (s 912AC(10)(b)(i)). That extends the auditor’s focus from balance-sheet figures to governance and risk systems.

Together, these duties and rights combine process, quantitative capital and liquidity floors, reporting and disclosure obligations, and tailored relief for particular arrangements. The instrument frames compliance with s 912AC as the primary route by which affected licence-holders satisfy certain existing licence conditions, while preserving ASIC’s discretionary powers to require lodgement for additional periods.

The instrument itself does not create new criminal offences or new civil penalties. It operates by modifying the application of Part 7.6 of the Corporations Act to a class of licence-holders and by creating statutory duties and reporting requirements that are enforceable under the Corporations Act framework. Enforcement and compliance consequences therefore arise from the existing regulatory architecture of the Corporations Act, referenced directly within the instrument.

Placeholders for enforcement in the instrument

• Statutory backing: The instrument is made under s 926A(2)(c) of the Corporations Act (s 3). It inserts s 912AC into Part 7.6, the Part of the Act that governs financial requirements and other licence-related obligations. Compliance with s 912AC is described as being taken to satisfy related licence conditions under s 912AC(2). That framing suggests that non-compliance with s 912AC would amount to a failure to comply with a statutory requirement under the Corporations Act and therefore engage whatever enforcement tools the Act provides for non-compliance with financial requirements and licence conditions.

• ASIC lodgement directions and monitoring: The instrument empowers ASIC to direct lodgement of the audit opinion for specified periods beyond the default annual requirement (s 912AC(11)(b)). That is an enforcement tool: ASIC can require more frequent or different timing of audit opinions. The instrument also requires licensees to provide written statements to appointing licensees upon request (s 912AC(8)) and to notify appointing licensees immediately upon lodgement to ASIC of a report under s 912DAA(1) relating to a contravention of s 912AC (s 912AC(9)). Those duties create enforceable disclosure obligations.

• Auditor obligations and verification: The audit opinion (s 912AC(10)) requires the registered company auditor to opine on compliance and on whether there is reason to believe certain systems or assumptions are inadequate. Auditors are officers subject to their own regulatory obligations and professional standards; the instrument embeds the auditor’s role as a key compliance gatekeeper.

Enforcement mechanisms available under the Corporations Act (as referenced)

• The instrument refers to existing sections of the Corporations Act without restating all enforcement options. For example, s 912DAA(1) (referred to in s 912AC(9)) deals with reporting to ASIC about contraventions, and s 989B is referenced for lodgement of balance sheets accompanying the audit opinion (s 912AC(11)(a)). Non-compliance with s 912AC would therefore engage those reporting mechanisms and licensee obligations under Part 7.6. The instrument’s Note also states that licence conditions may include other requirements in relation to adequate financial resources for paragraph 912A(1)(d) (s 912AC(2) Note), signalling that other licence conditions and enforcement provisions available to ASIC continue to operate.

Practical enforcement implications (grounded in the instrument)

• ASIC can require additional audit opinions for other periods (s 912AC(11)(b)), which provides a path for targeted supervisory attention and further regulatory evidence-gathering.

• The immediate-notification duty to appointing licensees on reporting to ASIC under s 912DAA(1) creates a reputational and contractual enforcement pressure, since appointing licensees will be informed where the licensee itself has reported a contravention (s 912AC(9)).

• The auditor’s opinion includes statements that the auditor has “no reason to believe” particular failures exist (s 912AC(10)(b)-(c)). That language places qualitative demands on the auditor and creates a documented instrument of compliance for ASIC to rely on.

What the instrument does not specify

• The instrument does not itself list civil penalties, pecuniary fines, licence cancellation processes, or criminal sanctions tied specifically to breach of s 912AC. Those enforcement pathways are left to the underlying Corporations Act framework and ASIC’s regulatory powers. The instrument does not create an administrative infringement notice regime or statutory penalty provisions unique to s 912AC; it relies on existing Act provisions and ASIC’s powers to supervise licence conditions and compliance.

• The instrument does not set out a schedule of supervisory monitoring activities, remedial directions (except for lodging audit opinions and ASIC’s ability to direct lodgement), or template forms for the written assurance from custodians that incidental providers may rely upon (s 912AC(5)-(6)).

Implementation and audit enforcement risk

• Enforcement will rely on a combination of (a) ASIC direction powers over lodgement (s 912AC(11)(b)); (b) the statutory requirement to lodge the auditor opinion with the balance sheet under s 989B (s 912AC(11)(a)); (c) reporting under s 912DAA(1) (which triggers immediate notification obligations to appointing licence-holders) (s 912AC(9)); and (d) any further enforcement action available under the Corporations Act if those statutory requirements are breached. The instrument thus places emphasis on disclosure, audit attestations and ASIC-directed reporting as the principal enforcement levers.

In practical terms, affected licensees should anticipate ASIC scrutiny via lodgement timing and content of audit opinions, and through their obligations to inform appointing licensees. The instrument leaves detailed sanctioning mechanisms to the Corporations Act regulatory framework rather than creating new, instrument-specific penalty rules.

This instrument is deliberately drafted as a modification to the application of Part 7.6 of the Corporations Act, and it cross‑references multiple statutory provisions and other ASIC instruments. The interaction points determine scope, carve-outs, definitional coverage and cross‑regulatory overlap.

Primary statutory interface: Corporations Act Part 7.6

• The instrument inserts s 912AC into Division 3 of Part 7.6 of the Corporations Act (s 5). That means the obligations operate within the financial-services licence framework and interact with existing licence conditions under Part 7.6, including paragraph 912A(1)(d) (adequate financial resources). The instrument expressly substitutes compliance with s 912AC for compliance with licence conditions relating to cash needs, NTA and certain auditor opinion obligations to the extent relevant (s 912AC(2)). Therefore, s 912AC functions as an alternate compliance pathway within the Corporations Act licensing architecture.

References to specific Corporations Act provisions

• The instrument references s 926A(2)(c) as its making power (s 3). It references s 912A(1)(d) to recognise APRA-regulated bodies that may be excluded (s 912AC(1)(b)(i)). It references s 912DAA(1) for the reporting mechanism that triggers notification duties to appointing licensees (s 912AC(9)). It also ties the auditor opinion lodgement to the balance sheet lodgement under s 989B (s 912AC(11)(a)). The instrument therefore operates alongside the Act’s existing reporting and lodging provisions.

Interaction with APRA prudential regulation

• The instrument explicitly excludes APRA‑regulated bodies that are not required to comply with paragraph 912A(1)(d) (s 912AC(1)(b)(i)). That design recognises that entities subject to APRA prudential rules are governed under a different prudential architecture. The instrument therefore limits regulatory duplication by excluding such APRA-regulated entities from the s 912AC regime, where the APRA-regulated entity is not otherwise required to comply with the specified paragraph of the Corporations Act.

Interaction with market and clearing infrastructure rules

• The instrument excludes market participants and clearing participants from application of s 912AC (s 912AC(1)(b)(ii)-(iii)), but the definitions in the instrument determine the scope of those exclusions. The definition of clearing participant references participants in the ASX Clear clearing and settlement facility and compliance with ASX Clear’s operating rules (s 912AC(12) clearing participant). The definition of market participant references participation on specified markets (ASX, Cboe, FEX market, National Stock Exchange, ASX 24, Sydney Stock Exchange) and compliance with ASIC Market Integrity Rules (Capital) 2021 (s 912AC(12) market participant). The instrument therefore interacts with market operator rules and the ASIC Market Integrity Rules by excluding participants who operate under those market-specific financial requirements and integrity rules.

Interaction with ASIC instruments and definitions

• The instrument cross-references other ASIC instruments and definitions. For example the term "approved foreign market" is given the meaning provided by s 9 and “is notionally inserted by ASIC Corporations (Definition of Approved Foreign Market) Instrument 2017/669” as noted (s 912AC(12) adequate secured definition note). The instrument also refers to the ASIC Corporations (Wholesale Equity Scheme Trustees) Instrument 2017/849 in granting a manager the ability to include eligible trustees’ assets/liabilities (s 912AC(2A)). The IDPS reference is aligned with ASIC Corporations (Investor Directed Portfolio Services) Instrument 2023/669 for the meaning of IDPS used to define incidental-provider exclusions (s 912AC(12) IDPS definition). These cross-references mean the instrument’s operation depends in detail on other ASIC instruments and the definitions they contain.

Interaction with client-money rules

• The instrument excludes money that is in an account held by the licensee for the purposes of section 981B from counting towards the cash or cash equivalent and liquid asset requirements (s 912AC(7)). Section 981B relates to client-money and trust-accounting requirements under the Corporations Act. That interplay implies that client money segregated under s 981B cannot be relied upon to meet the licensee’s own liquidity buffers under s 912AC, preserving client protection.

Eligibility of foreign counterparties and undertakings

• The definition of eligible provider permits foreign deposit-taking institutions provided they are regulated by a regulator approved in writing by ASIC or are approved in writing by ASIC for this purpose (s 912AC(12) eligible provider). The instrument therefore offers a route to include foreign regulated deposit-takers and sovereign or government agencies, subject to ASIC approval. Eligible undertakings must be enforceable, irrevocable and may be approved by ASIC (s 912AC(12) eligible undertaking). Those approval pathways create an interface between ASIC’s prudential approver role under the Corporations Act and cross-border counterparty risk.

Interaction with managed investment/CCIV regimes

• The definitions exclude certain assets from adjusted assets (excluded assets), including assets held as beneficial interests in a managed investment scheme or shares held in a CCIV where the licensee may exercise power or control (s 912AC(12) excluded assets). The instrument therefore recognises the distinctive legal and liquidity characteristics of managed fund interests and CCIV shares in measuring NTA and adjusted assets.

Interaction with lending, guarantees and subordinated debt provisions

• Adjusted liabilities allow subtraction of liabilities under subordinated debt approved in writing by ASIC (s 912AC(12) adjusted liabilities definition). Adjusted liabilities must add the maximum potential liability of guarantees subject to specified exclusions (s 912AC(12) adjusted liabilities definition (e)). That places guarantees and subordinated debt within a regime where ASIC approval can materially change balance-sheet treatment, giving ASIC a regulatory clearance function.

Summary

• The instrument is an annexed regulatory regime that modifies Part 7.6, but relies heavily on cross-references to other Corporations Act provisions, ASIC instruments and market and APRA regimes. It interacts with client‑money rules, market-participant rules and other ASIC instruments that define key terms and allow ASIC to approve foreign counterparties or subordinated debt. Practitioners should read s 912AC alongside the referred provisions and instruments for a complete compliance picture.

The instrument itself contains the full amendment action taken and basic metadata. There is a succinct record within the instrument of when it was made, by whom, the statutory authority under which it was made, the commencement rule, and the scheduled repeal date. The instrument does not record prior amendments to this instrument or subsequent amendments within its own text.

Key points from the instrument about amendments and lifecycle

• Enactment and delegate: The instrument was made by Leah Sciacca, a delegate of ASIC, and dated 30 August 2023 (header and s 5 context). The instrument is registered as ASIC Corporations (Financial Requirements for Custodial or Depository Service Providers) Instrument 2023/648 (title).

• Authority: The instrument is made under s 926A(2)(c) of the Corporations Act 2001 (s 3). That section provides ASIC with a legislative instrument power to make declarations or modifications to how parts of the Corporations Act apply. The instrument therefore uses ASIC’s delegated legislative capacity.

• Commencement: The instrument commences on the day after registration on the Federal Register of Legislation (s 2). The instrument includes a note that the register may be accessed at the legislation.gov.au website (s 2 Note).

• Content: The instrument inserts a new section (912AC) into Part 7.6 of the Corporations Act, specifying definitions and obligations; the precise insertion language is quoted at s 5.

• Repeal: The instrument is expressly repealed at the start of 1 October 2028 (s 6). The repeal clause sets a fixed sunset date for the instrument. The instrument therefore creates a temporary regulatory framework that will cease to have effect unless it is renewed or replaced before that date.

What the instrument does not contain about amendment history

• The instrument text includes no prior amendment record, no historical sequence of versions, no transitional provisions apart from the commencement/sunset dates, and no provision for review or legislative reporting to Parliament. It also does not indicate any staged implementation dates for particular provisions; all operative provisions take effect on commencement unless otherwise stated.

Practical implications for counsel and compliance

• Because the instrument is repealed on a set date, compliance planners and counsel must be aware of the sunset and prepare for either the regime’s termination or its replacement. Any compliance systems, auditor reporting schedules and contractual representations should anticipate that s 912AC will be in force up to 1 October 2028 but may not survive beyond that date without action. Where licensees rely on reliefs (for example, incidental-provider relief under s 912AC(5)-(6)), they should track whether ASIC publishes replacement instruments or guidance before or after the repeal.

• ASIC’s power to direct lodgement for additional periods (s 912AC(11)(b)) may create administrative burdens during the instrument’s life. Where ASIC exercises those direction powers, licensees and their auditors should ensure timely compliance and retain records to demonstrate compliance through the lifecycle of the instrument.

In short, the instrument’s amendment history is straightforward: it was made by ASIC’s delegate on 30 August 2023 under s 926A(2)(c), effective the day after registration, and contains an express repeal date of 1 October 2028. No further amendment history is recorded in the instrument itself.

The instrument does not reference any court decisions, tribunal determinations, or adjudicative history. It is an administrative legislative instrument made by ASIC under its statutory power and does not contain or cite judicial interpretations or case law. There is therefore no litigation history recorded within the instrument.

What the absence of litigation history in the instrument means for practitioners

• No judicial construction: There are no reported judicial or tribunal decisions interpreting s 912AC because the provision is created by the instrument and no cases are cited in the instrument text. Practitioners therefore cannot rely on judicial precedent to clarify ambiguous points within s 912AC; instead they must rely on the statutory text, related Corporations Act provisions and any ASIC guidance or practice notes.

• Potential dispute areas: While not a substitute for case law, the instrument’s dense definitions and reliance on qualitative auditor statements create predictable areas where disputes or litigation could arise in future when parties litigate compliance or contravention issues. Examples based on the instrument’s text include:

  • Reasonableness of projections and assumptions: s 912AC(3)(a)-(c) and s 912AC(10)(b)(v) require reasonable projections and impose auditor scrutiny of assumptions. Disputes may arise about what is reasonable.
  • Measurement of adjusted assets/liabilities: Definitions in s 912AC(12) detail multiple carve-ins and carve-outs. Litigation could involve contested valuation or classification of assets and receivables.
  • Adequacy and enforceability of eligible undertakings: s 912AC(12) requires eligible undertakings to be enforceable and irrevocable without ASIC’s consent. Disputes could focus on whether an undertaking meets those thresholds.
  • Incidental provider determinations and “reasonable belief” tests: s 912AC(5)-(6) rely on the licensee’s reasonable belief in the custodian’s status, and auditors must opine on incidental-provider assertions (s 912AC(10)(c)); litigation could examine the evidence underpinning such beliefs.

• Reliance on auditor opinions: Because the audit opinion asks the auditor to state whether they have “no reason to believe” certain failures exist, disputes may later involve recounting an auditor’s duty and whether their statement was accurate or negligent. The instrument’s wording brings auditors squarely into potential litigation narratives.

• No current decisions to guide practice: In absence of precedent, parties will have to rely on statutory interpretation principles, contemporaneous guidance from ASIC, and professional standards applying to auditors to assess compliance risk.

Practical counsel recommendation (procedural)

• Practitioners should monitor ASIC licensing decisions and any ASIC guidance, and maintain robust contemporaneous documentary records that would support compliance positions if disputes arise. Records should include the cash-flow projections, approvals, assumptions, calculations, auditor communications, and any written assurances obtained from custodians or eligible providers that are relied upon under s 912AC(5)-(6).

To reiterate, the instrument itself contains no litigation history; the likely areas of future litigation are suggested by the instrument’s text and the duties it imposes but are not documented within the instrument.

This instrument embeds several technical traps and operational difficulties that may not be obvious on first reading. The following are concrete frictions and compliance hazards that the text itself creates.

1. Revenue and NTA floors interact with accounting and forecasting conventions (s 912AC(4); s 912AC(12) average revenue and revenue definitions)

• The required NTA is the greater of a dollar floor and a percentage of average revenue (s 912AC(4)). “Average revenue” is defined with specific rules depending on whether the licensee is in its first, second, third or later financial years (s 912AC(12) average revenue definition). For early-year licensees, forecasting rules apply that can materially affect the numerator used to calculate the 10% metric. Firms in their first three years need to prepare estimates that will factor into enforceable NTA minimums; mis-estimation can inflate the required NTA or expose the licensee to non-compliance. Revenue importantly includes amounts paid for custodial/depository services even if performed by another entity (s 912AC(12) revenue definition para (b)). That means outsourced service arrangements do not remove revenue from the calculation.

2. Cash equivalents and commitments have strict availability/notice conditions (s 912AC(12) cash or cash equivalents)

• Cash equivalents can include eligible undertakings and commitments by eligible providers to provide cash upon request within 5 business days, but those commitments must not expire within six months and cannot be withdrawn by the provider without at least six months’ written notice; any cash provided must not be repayable for at least six months (s 912AC(12) cash or cash equivalents(d)(i)-(ii)). That combination of short execution window (5 business days) with long notice/expiry conditions (6 months) is operationally burdensome. Credit lines or commitments that are retractable on short notice will not qualify.

3. Client money tracked under s 981B is excluded from liquidity buffers (s 912AC(7))

• Money in an account held for the purposes of s 981B cannot be counted towards either the 50% cash or cash equivalents requirement or the 100% liquid assets requirement (s 912AC(7)). Licensees that hold client money cannot rely on that segregated pool for meeting their own buffer requirements, potentially necessitating duplicative capital or liquidity.

4. Double-counting nuances and asset eligibility (s 912AC(7) and s 912AC(12) liquid assets; cash or cash equivalents)

• The instrument allows some cash or cash equivalents that are also liquid assets to be counted for both the 50% and 100% requirements (s 912AC(7) last sentence). However, money in s 981B accounts is disallowed. Practically, licensees must granularly classify assets as cash, cash-equivalents, liquid assets, excluded assets, encumbered assets, etc., and document this classification. Errors in classification can lead to overstating compliance.

5. Excluded assets and receivables from associates are broadly excluded except in narrow cases (s 912AC(12) excluded assets)

• Excluded assets include receivables from associates and assets invested in funds over which the licensee exercises control (s 912AC(12) excluded assets(a)-(d)). Exceptions exist, for example where receivables are adequately secured or fall within small-value thresholds or where ASIC consents (s 912AC(12)(e)). Licensees with group-related receivables or internal loans must either secure them, rely on narrow exceptions, or exclude those amounts from adjusted assets,potentially reducing NTA materially.

6. Adequately secured collateral requires marketability and valuation haircuts (s 912AC(12) adequately secured)

• To be “adequately secured,” a security interest over a financial product must be over certain regularly traded products or interests where withdrawal or redemption may be effected within five business days, and must meet market-value haircuts: at least 109% for debt instruments and at least 120% for other products (s 912AC(12) adequately secured(i)(ii)(A)-(B)). Real-estate mortgages must be backed by valuations of at least 120% (s 912AC(12) adequately secured(b)). These haircuts and liquidity timelines are demanding and may limit the value that custodians can attribute to collateral.

7. Eligible undertakings must be irrevocable without ASIC consent (s 912AC(12) eligible undertaking)

• Eligible undertakings must be enforceable and expressed to be irrevocable without ASIC’s written consent (s 912AC(12) eligible undertaking(a)). Providers seeking to rely on undertaking letters must ensure the drafting meets those thresholds and that the provider is on the eligible provider list or is approved by ASIC. Obtaining ASIC approval for counterparties or undertakings can be time-consuming and uncertain.

8. Incidental-provider relief requires written assurances or reliance on reasonable belief (s 912AC(5)-(6))

• An incidental provider will have no NTA requirement only if all relevant client products are held by a qualifying custodian and the licensee reasonably believes the custodian is not an incidental provider and complies with the section, or if the licensee has a written assurance within 13 months from such a custodian (s 912AC(5)-(6)). The reasonable-belief test places evidentiary demands on licence‑holders; written assurances are the more robust path but require custodians to provide formal statements which they may resist or price.

9. Auditor opinion content is expansive and qualitative (s 912AC(10))

• The auditor must opine not only on numeric compliance but on whether they have “no reason to believe” the licensee lacks adequate systems, failed to document assumptions, will not have access to resources for 12 months, or will not hold required cash during the projection period, and whether assumptions were unreasonable (s 912AC(10)(b)). The “no reason to believe” standard implicates auditor professional judgement, procedures and potential liability. Auditors will need access to director-level approvals, forecasting models, risk-management system documentation and evidence of liquidity holdings to form these opinions.

10. Manager-trustee consolidation can expose managers to trustee positions (s 912AC(2A)-(2B))

• Managers authorised to provide wholesale equity services and subject to specific licence conditions must include the assets, liabilities and cash flows of eligible trustees who are related bodies corporate in the manager’s calculations (s 912AC(2A)-(2B)). That can materially affect a manager’s NTA and liquidity requirements and creates dependency on trustee-level recordkeeping and asset segregation practices.

11. ASIC direction for further lodgement can impose ad hoc audit cycles (s 912AC(11)(b))

• ASIC may direct lodgement of the audit opinion for additional periods; licensees must therefore maintain audit-readiness for periods that ASIC may specify. That creates potential ad hoc compliance burden.

12. Sunset of the instrument requires transitional planning (s 6)

• The instrument is repealed at the start of 1 October 2028 (s 6). Licensees must plan for the end of the regulatory regime and for any successor framework ASIC or Parliament may introduce before repeal.

These are concrete “gotchas.” Each arises from the text’s definitions, quantitative floors, availability conditions, the interplay with client-money segregation and the auditor opinion requirement. Practical compliance requires precise classification of assets, rigorous forecasting and governance, and pre-arranged documentation and custodian undertakings.

This section sets out practical steps, documentation checklists and internal controls grounded in the instrument’s text. The goal is to translate statutory duties into compliance processes with references to relevant subsections.

1. Establish governance and approval processes for cash-flow projection (s 912AC(3)(a)-(b))

• Action: Implement a documented process to prepare a rolling 12‑month cash‑flow projection at least quarterly and more frequently if conditions change. Ensure directors, partners, trustees or the natural person sign written approvals at least once a quarter as required (s 912AC(3)(b)). Maintain a sign-off log and minutes or written approvals evidencing the quarter‑end approval.

• Documents to retain: the projection model, dated spreadsheets, supporting schedules, approval signatures, meeting minutes or written approvals showing the approver’s name and role.

2. Prepare forecast methodology and assumptions pack (s 912AC(3)(c); s 912AC(10)(a)(iii)-(b)(v))

• Action: Create a formal assumptions pack that documents each assumption used in the projection and provides a written rationale for its reasonableness (s 912AC(3)(c)). Ensure the pack explains sources, scenario analysis, stress tests and sensitivity analyses.

• Documents to retain: assumptions narrative, model run outputs, scenario testing notes, stress-test results.

3. Update projections on trigger events and maintain a rolling 12-month horizon (s 912AC(3)(d))

• Action: Establish update triggers (for example, material changes in revenue, large client redemptions, loss of a major appointing licensee, or significant counterparty distress) that require an immediate revision of the projection. Ensure the projection always covers at least the next 12 months; if it ceases to do so, update immediately (s 912AC(3)(d)).

• Documents to retain: change logs, revised projections, evidence of trigger events, updated approvals.

4. Maintain NTA and liquidity buffers and classify assets correctly (s 912AC(4), (7), and s 912AC(12) adjusted assets/liabilities, cash or cash equivalents, liquid assets, excluded assets)

• Action: Calculate adjusted assets, adjusted liabilities and NTA according to the definitions (s 912AC(12)). Ensure that intangible assets and receivables from associates are excluded unless they meet exception criteria (s 912AC(12) excluded assets). Maintain cash or cash equivalents equal to at least 50% of required NTA and liquid assets equal to at least 100% of required NTA, excluding money held under s 981B accounts (s 912AC(7)).

• Documents to retain: detailed balance-sheet schedules reconciling accounting balances to adjusted balances, evidence of asset encumbrance status, valuation reports for collateral, signed confirmations for cash-equivalent commitments.

5. Where relying on eligible undertakings or eligible providers, secure documentary proof and ASIC approvals if necessary (s 912AC(12) eligible provider; eligible undertaking)

• Action: Obtain written eligible undertakings that are enforceable and irrevocable without ASIC’s written consent or seek ASIC approval for the undertaking or provider. Ensure commitments meet the timing requirements: cash on demand within 5 business days, commitment not expiring within 6 months, and inability of provider to withdraw without 6 months’ written notice (s 912AC(12) cash or cash equivalents(d)(i)-(ii)).

• Documents to retain: executed undertakings, provider approval letters from ASIC where relevant, legal opinion confirming enforceability, and records of the provider’s regulated status.

6. For incidental providers, obtain custodian assurances or verify reasonable belief (s 912AC(5)-(6))

• Action: If seeking the incidental-provider exemption from the NTA requirement, obtain written assurance from the custodian within the preceding 13 months that the custodian complies with s 912AC and is not an incidental provider (s 912AC(6)). If relying on “reasonable belief,” document the due diligence and evidence supporting that belief.

• Documents to retain: written assurances, due diligence reports on custodians, copies of custodial agreements, correspondence confirming custody arrangements.

7. Prepare for auditor engagement and scope (s 912AC(10)-(11))

• Action: Engage a registered company auditor early in the financial year to plan for the audit opinion. Provide the auditor with the projection, assumptions pack, governance approvals, liquidity and NTA calculations, evidence supporting cash-equivalent commitments, and records that demonstrate adequate risk-management systems. Note that the auditor must opine on qualitative matters including whether they have reason to believe systems are adequate and assumptions reasonable (s 912AC(10)(b)).

• Documents to retain: management representation letters, audit schedules, audit engagement letter specifying scope regarding s 912AC items.

8. Lodgement and ASIC directions (s 912AC(11))

• Action: Lodge the audit opinion with ASIC together with the balance sheet required under s 989B for each financial year (s 912AC(11)(a)). Stay ready to comply with any ASIC directive to lodge an audit opinion for additional periods and by specified dates (s 912AC(11)(b)). Maintain a lodgement calendar aligned to statutory deadlines.

• Documents to retain: copies of lodgements, ASIC correspondence, dated proof of delivery or lodgement confirmations.

9. Responding to appointing licensee requests and reporting contraventions (s 912AC(8)-(9))

• Action: Implement a procedure to respond to written requests from appointing licensees about compliance and incidental-provider status within a reasonable time (s 912AC(8)). If the licensee lodges a report to ASIC under s 912DAA(1) relating to contravention of s 912AC, notify appointing licensees immediately in writing (s 912AC(9)).

• Documents to retain: correspondence logs, copies of statements provided, evidence of lodgement under s 912DAA(1), and evidence of notifications to appointing licensees.

10. Asset encumbrance control and valuation (s 912AC(12) adequately secured; excluded assets)

• Action: Maintain clear records of which assets are encumbered and for what obligations, secure independent valuations for pledged real-estate mortgages (which must be valued at least 120% for adequate-secured status, s 912AC(12) adequately secured(b)), and ensure that financial-product collateral meets the marketability and haircut requirements (s 912AC(12) adequately secured(i)).

• Documents to retain: security registers, registration evidence, independent valuations, legal opinions on enforceability of security interests.

11. Board and senior management responsibilities (s 912AC(3)(b))

• Action: Ensure directors and senior managers understand their statutory sign-off obligations and the factual record needed in the event of an ASIC enquiry or auditor challenge. Establish board papers and risk committee documentation demonstrating the oversight of liquidity, NTA and the projection.

• Documents to retain: board papers, committee minutes, director attestations, policy documents.

12. Transition and sunset planning (s 6)

• Action: Track the instrument’s repeal date of 1 October 2028 and plan for the regime’s end. Prepare to adapt financial-resources processes if ASIC replaces or extends the instrument or if substantive legislative change occurs before repeal.

• Documents to retain: compliance calendar entries tracking repeal date, contingency plans and stakeholder communication plans regarding transition.

Checklist summary (minimum documentation)

• Rolling 12-month projection and quarterly approvals (s 912AC(3)).
• Assumptions pack and stress-test outputs (s 912AC(3)(c); (10)(b)(v)).
• Detailed adjusted assets/liabilities schedules and NTA calculation (s 912AC(12)).
• Evidence of cash-equivalents and liquid assets and exclusion of s 981B monies (s 912AC(7); (12)).
• Written assurances from custodians where relied upon (s 912AC(5)-(6)).
• Eligible undertakings and ASIC approvals where used (s 912AC(12)).
• Engagement letter and working papers for the registered company auditor (s 912AC(10)-(11)).
• Records of responses to appointing licensee requests and notifications of contravention reports (s 912AC(8)-(9)).
• Board minutes, director sign-offs and governance records (s 912AC(3)(b)).

Practical notes on sequencing

• Early-year licensees should forecast revenue carefully because “average revenue” calculation rules differ across the first three financial years (s 912AC(12) average revenue). Where possible, secure written custodian assurances early to capture the 13-month lookback rule (s 912AC(6)). Engage auditors early to ensure the auditor understands the qualitative aspects of the opinion and to give time to address system or documentation gaps before year-end lodgement (s 912AC(10)-(11)).

By translating the instrument’s text into governance, documentation and audit steps, licensees can align internal processes to the statutory requirements and create an evidentiary trail sufficient to support auditor opinions and ASIC lodgements.