Australia: New financial requirement for responsible entities

Last Updated: 12 November 2011
Article by Matthew Daley and Matt Anderson

Key Points:

The net tangible assets requirement has been significantly increased.

Following some high-profile collapses of responsible entities of managed investment schemes in the wake of the global financial crisis, ASIC has been reviewing the financial requirements which apply to responsible entities. ASIC has now finalised new requirements, in the first major change to this part of the regime since the managed investment laws were introduced a decade ago.

ASIC says that the increased compliance costs on responsible entities are outweighed by the benefits to investors and managed investments sector.

What are the new financial requirements for responsible entities?

Under the changes implemented through ASIC Class Order 11/1140 and outlined in Regulatory Guide 166 Licensing: Financial requirements and Pro Forma 209 Australian financial services licence conditions, responsible entities will have new requirements for net tangible asset capital, liquidity and reporting.

Cash-flow projections

Responsible entities must prepare 12-month cash-flow projections which must be approved at least quarterly by directors, and reviewed annually by auditors. This is a change from the current three-month period.

A responsible entity would be required to demonstrate, based on the cash flow forecast, that over the projection period it will have:

  • access to sufficient resources to meet its liabilities; and
  • sufficient resources to comply with the cash or cash equivalents component of its net tangible asset requirement.

It would be allowed to include the value of any eligible undertaking provided by an eligible provider as part of its cash balance.

Net tangible asset (NTA) capital requirements

Currently responsible entities must hold a minimum of $50,000 and 0.5% of funds under management. This is being increased – they will now have to hold the greater of:

  • $150,000
  • 0.5% of the average value of scheme property (capped at $5 million), or
  • 10% of the average RE revenue (uncapped).

However, where a responsible entity has not engaged an eligible custodian to hold the scheme assets or where the scheme assets are not of a prescribed nature (being "Tier $500,00 class assets" or "special custody assets") then it must hold the greater of:

  • $5 million, or
  • 10% of the average responsible entity gross revenue (uncapped).

"RE revenue" includes the responsible entities revenue for accounting purposes and to the extent not otherwise captured, payments out of scheme property that relate to fulfilling a responsible entity's obligations under the Corporations Act, even if some of those obligations are outsourced to other entities. The average gross revenue is calculated by reference to the previous 24 months and a forecast for the next 12 months.

Excluded from the NTA are:

  • potential liability under any personal guarantees provided by the responsible entity; and
  • parent entity eligible undertakings.

New NTA liquidity requirement

Currently there is nothing preventing a responsible entity from using non-liquid assets to satisfy its NTA requirement. To ensure that the NTA can be drawn on quickly to fulfil a responsible entity's obligations to members, the greater of $150,000 or at least 50% of its minimum NTA requirement will have to be held as cash or cash equivalents.

"Cash or cash equivalents" are:

  • cash on hand, demand deposits and money deposited with an ADI that is available for immediate withdrawal;
  • short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value; and
  • the value of any eligible undertakings provided by an eligible provider.

The balance of its minimum NTA requirement must held as liquid assets, meaning they:

  • can reasonably be expected to be realised for its market value within six months; and
  • are free from encumbrances and, in the case of receivables, free from any right of set-off.

Reporting on NTA requirement

A responsible entity will have to report its NTA requirement, actual NTA, average value of scheme property, average gross revenue and cash or cash equivalents as at the end of each financial year.

What's prompted the changes?

ASIC says the changes are intended to boost investor confidence and stability in the managed investment sector, and have been prompted by a combination of factors.

The first is the change in the managed investment sector since the minimum financial resource requirements were introduced in 2002. The amount of assets under management has increased, as has the number of schemes, and schemes now have differ in size, complexity and nature.

The second factor is that familiar issue in our sector, the global financial crisis. As investor inflows dried up, outflows increased, and fees earned by responsible entities suffered accordingly. Those with low capital bases and/or illiquid assets were particularly exposed. If they then collapsed, there were not enough assets to meet the costs of administrators and other professional service providers engaged to wind down or transition assets. This, says ASIC, "contributed to a loss of investors' funds and a corresponding, but harder to measure, loss of investor confidence in the managed investment industry."

The transition period

Responsible entities will have to meet these new requirements in November 2012. ASIC says it is open to an extended transition period of 12 months to 1 November 2013, but this is on a case-by-case basis, and only when a responsible entity can demonstrate extenuating circumstances.

It will also consider granting temporary relief from some or all of the new financial resource requirements when the new NTA requirement is unreasonably burdensome, having regard to the circumstances of a particular responsible entity.

Responsible entities will of course need to carefully consider how they will meet the new requirements before November 2012 and in particular those responsible entities which have a significant revenue base may need to consider whether steps might be taken to reduce that revenue base, for example, by shifting non-scheme related revenue activities to another group entity.

You might also be interested in ...

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions