ASIC set to increase capital requirements for fund managers

NTA levels set to increase

ASIC’s Consultation Paper 388 Net tangible assets requirement for responsible entities (CP 388) signals a likely uplift in capital requirements for responsible entities (REs) in the retail funds management sector.  It also points to the beginning of a broader review that could eventually extend to wholesale trustees.

For some fund managers, particularly smaller responsible entities or those with multiple schemes, the proposals could have a material impact on their capital requirements and overall viability.

Why now?

ASIC suggests that the proposed changes to the net tangible asset (NTA) and other financial requirements are not a direct reaction to criticism of its failure to prevent investor losses in failed registered schemes, Shield Master Fund and First Guardian.  Instead, ASIC says the review is being conducted because the minimum requirements that apply now were set in 2012 and have not been indexed to the consumer price index.

That explanation is difficult to reconcile given ASIC consulted on possible changes to the NTA requirements three years ago and concluded that Class Order [CO 13/760] Financial requirements for responsible entities and operators of investor directed portfolio services, the ASIC instrument that contained those measures at the time, was ‘operating effectively and efficiently, and continues to form a necessary and useful part of the legislative framework’¹.  The only reason there was even consultation about the NTA requirements at all was because CO 13/760 was due to sunset in October 2023 and had to be renewed under the legislative framework to continue to operate.

When ASIC remade CO 13/760 into ASIC Corporations (Financial Requirements for Responsible Entities, IDPS Operators and Corporate Directors of Retail CCIVs) Instrument 2023/647 in August 2023, it set a sunset date of five years to ‘provide sufficient certainty for industry’.  Less than three years later, the settings are back under review.

There is little or no evidence to suggest that the failure of the Shield Master Fund or First Guardian was a result of the REs of those schemes failing to hold sufficient capital.  On the material currently available, those failures appear to have involved broader governance and compliance problems, including conflicted conduct, disclosure issues, distribution failures and imprudent investment decisions.

Moreover, CP 388 acknowledges, but does not engage in any real depth with, the work Treasury is doing in its recent consultation on enhancing oversight and governance of managed investment schemes.  That review (refer to our submission on our website) is considering potential changes to the framework for setting financial requirements for responsible entities altogether, not just changing metrics.

What ASIC is proposing

ASIC has put forward three options on how the NTA requirements could be increased.

Option 1: CPI-based increases only

The most incremental option is to increase existing thresholds in line with inflation since 2013. Indicatively, this would:

• increase the $150,000 minimum to around $200,000;
• increase the $500,000 threshold relevant to Tier $500,000 class assets to around $700,000;
• lift the $5 million cap that applies to the average value of fund assets limb of the concessional net tangible asset (NTA) requirement to around $6.9 million; and
• increase the $10 million minimum to around $13.8 million.

This is the most modest of the options ASIC has proposed. It would preserve the existing structure while updating the thresholds to reflect inflation since 2013.

Option 2: Increasing the concessional minimum

ASIC is also considering a more substantive uplift to the concessional NTA requirement by:

• increasing the current $150,000 minimum to a higher fixed amount (potentially up to $1 million); or
• applying the $150,000 minimum on a per scheme

Option 3: Increasing the $5 million cap

ASIC is also seeking feedback on the option of increasing the $5 million cap that applies to the ‘average value of fund assets’ limb under the concessional test.

This would primarily affect larger fund managers that currently benefit from the cap and would increase the extent to which funds under management drive capital requirements.

Liquidity and concessional settings in focus

ASIC is not only looking at headline dollar thresholds. CP 388 also asks whether the current liquidity settings remain appropriate, including whether the cash and liquid asset requirements should change if the NTA thresholds are increased.

ASIC is also revisiting the broader justification for the concessional NTA regime itself. At present, lower requirements may apply where scheme assets are held by a qualifying custodian or where certain asset-based exceptions apply. ASIC is now expressly asking whether that remains appropriate, noting that the purpose of the NTA requirement is not limited to asset custody, but also extends to ensuring the responsible entity itself has sufficient substance and financial resilience.

That is a significant issue. If ASIC ultimately narrows or removes elements of the concessional regime, the impact on some fund managers could be more material than a simple CPI uplift.

What this means for fund managers

While CP 388 is framed as a technical review of NTA thresholds, its commercial implications are broader.

Even a modest uplift will require responsible entities to reassess capital adequacy and liquidity settings. More significant reforms, particularly increases to the concessional minimum or changes to the concessional regime itself, could reshape parts of the market by raising barriers to entry and increasing the cost of operating multiple schemes.

CP 388 also signals a continued regulatory shift away from purely disclosure-based frameworks and towards a stronger emphasis on financial resilience and operational substance. In that context, capital is being positioned as a core element of governance rather than a compliance minimum.

Flow-on impact across the sector and implementation timing

ASIC has also proposed extending any changes to IDPS operators and corporate directors of retail CCIVs to maintain regulatory parity across comparable fund structures.

In addition, CP 388 flags potential future reform by seeking feedback on whether NTA requirements for other AFS licensees, like wholesale trustees, should be reviewed or expanded.

This makes CP 388 more than a narrow capital thresholds review. It may be an early step in a broader reassessment of ASIC’s financial resource settings across the funds and financial services sector.

ASIC has also indicated that, if any of the proposals are adopted, a transition period of six months would likely apply to allow responsible entities time to adjust their capital and liquidity positions.

Key takeaway

CP 388 is more than a routine recalibration of financial thresholds. It signals a broader regulatory focus on ensuring responsible entities are appropriately capitalised for the scale and complexity of their operations.

For fund managers that are REs, the consultation underscores the need to reassess capital settings, stress-test current structures and prepare for a potential uplift in financial requirements.

For further information about the potential changes, please contact Chris Mee at cmee@cnmlegal.com.au or Jessica Bauers at jbauers@cnmlegal.com.au, or call 07 3211 4010.

¹ CONSULTATION PAPER 367: Remaking ASIC class orders on financial requirements: [CO 13/760], [CO 13/761] and ASIC Instrument 2022/449 at paragraph 15.