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Hi Damien,


Thanks for your question.


Issuing shares is one way to raise sufficient capital to meet ASIC’s financial resource requirements.  However, this is not the only way.


ASIC’s Regulatory Guide 166 (RG 166) sets out the financial resource requirements for AFSL holders. Holders of a limited AFSL will need to meet the base level financial requirements which are made up of solvency and positive net assets requirement, the cash needs requirement and audit requirement – although a limited AFSL holder will not need to meet the audit requirement if they don’t hold client money and lodge an annual compliance certificate.


In respect of the positive net assets requirement, total assets must exceed total liabilities and the AFSL holder must at all times have no reason to suspect that total assets would no longer exceed total liabilities on a current balance sheet. RG 166 does state that if you have more liabilities than assets, you can apply an alternative test. You can calculate on the basis of adjusted assets and/or adjusted liabilities. These are specifically defined in RG 166. For example, for the calculation of adjusted assets an undertaking from certain providers may be taken into account while for adjusted liabilities debt that has been subordinated may be excluded from the calculation of liabilities. You should take a close look at RG 166 and the definitions of adjusted assets and adjusted liabilities to determine whether they assist you to meet the positive net asset requirement.


You can also consider using a deed of subordination – see RG 166.102-103.


For further information please contact our Financial Services Team.


Authors: Fiona McCord & Jesse Vermiglio


Co-contributor: Carmelene Greco


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