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Alternative means to satisfy cash needs

THE Australian Securities and Investments Commission has announced another way entities within a corporate group can satisfy the cash needs requirement under its Licensing: Financial Requirements policy.

The policy required groups to prepare cash flow projects on an individual entity basis.

The cash needs requirement of the policy demands that all holders of an Australian Financial Services license have adequate cash to meet their liabilities, taking into account commercial contingencies.

In its current form it requires all licensees to prepare cash flow projections covering at least the next three months.

ASIC has agreed to vary the policy to provide greater flexibility to licensees in satisfying their cash needs requirements.

This approach has been taken in recognition that some licensees who belong to a corporate group would have difficulty preparing cash flow projections on an individual entity basis as they manage their cash flow on a group basis.

Under the variation a licensee can now meet the cash needs requirement 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 license.

The licensee will need to be satisfied that the financial commitment will cover at least the next three month period at any time it is relied on, taking into account all commercial contingencies for which the licensee should reasonably plan.

The financial commitment may be in the form of an eligible undertaking but may also be in the form of a guarantee for the benefit of creditors or a trustee acting on behalf of creditors.

To further assist corporate groups, ASIC will consider applications on a case-by-case basis to approve foreign deposit-taking institutions that are regulated in accordance with the guidelines promulgated by the Basle Committee on Banking Supervision in a way that is comparable to the regulation of Australian authorised ADIs.

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