ASIC requires an Australian Financial Services Licensee (AFSL holder) to maintain financial resources that are adequate for the financial services it provides. The financial resource requirements apply throughout the life of the licence and are intended to ensure the licensee can operate its business, manage risks and meet its obligations to clients and counterparties.
Expanded Answer
The Corporations Act requires AFS licensees to maintain adequate financial, technological and human resources to provide the financial services covered by their licence. ASIC’s financial resource requirements are risk-based and vary depending on the nature, scale and complexity of the licensee’s business. Different requirements apply to different categories of licensees, including providers of custodial services, responsible entities, margin lending businesses and firms that hold client money or property.
Meeting the financial resource requirements is an ongoing obligation rather than a one-off licensing requirement. Licensees should maintain sufficient cash flow, capital, and financial management processes to continue operating under normal business conditions and during periods of financial stress. ASIC expects licensees to monitor their financial position, maintain appropriate financial records and identify emerging financial risks before they affect the business’s ability to comply with its licence obligations.
Applies when: a business holds or applies for an AFSL.
Requirements increase when: the licensee provides higher-risk financial services, holds client assets or operates a larger or more complex business requiring additional financial capacity and risk management.
Why it matters
Inadequate financial resources can affect a licensee’s ability to meet its legal obligations, protect clients and respond to operational disruptions. ASIC may take regulatory action where a licensee no longer satisfies its financial resource obligations or cannot demonstrate ongoing financial resilience.
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Practical guidance
- Assess financial resources against the nature, scale and complexity of the licensed business on an ongoing basis.
- Monitor capital, liquidity and cash flow regularly to identify financial risks before they affect compliance.
- Document financial management processes and review them whenever the business model or licence authorisations change.
Further reading
What are the requirements for an AFSL? A practical guide for prospective licensees
Demonstrating organisational competence beyond responsible managers