ASIC simplifies cash requirements for AFS licensees

TheAustralian Securities and Investments Commission(ASIC) has moved to make it easier for corporate groups to satisfy the cash needs requirement under Policy Statement 166: Financial requirements (PS166).

Under PS166, all holders of an Australian Financial Services licence (AFSL) must ensure that they have adequate cash to meet their liabilities, taking into account commercial contingencies, and prepare cash flow projections covering at least the next three months to demonstrate this.

However for entities within a corporate group, the previous regulations meant that cash flow projections had to be prepared on an individual entity basis, even though cash flow may be managed on a group basis.

ASIC has now varied Pro Forma 209 and PS166 to provide greater flexibility by allowing licensees to satisfy the cash needs requirements if an entity (that is an Australian authorised deposit-taking institution) provides an enforceable and unqualified financial commitment to pay an unlimited amount to the licensee, or to meet the licensee’s liquidity obligations under their licence.

This financial commitment must cover the next three month period at any time, and may be provided in the form of an eligible undertaking, a guarantee for the benefit of creditors, or a trustee acting on behalf of creditors.

ASIC will also consider applications from foreign deposit-taking institutions to become eligible to provide the financial commitment under the revised policy.