AUSTRALIA: ASIC Consults on Proposed Changes to the Capital Requirements for Market Participants

Wednesday July 4 2018

On the 4th July 2018, Australian Securities and Investments Commission (ASIC) released a consultation paper proposing changes to the capital requirements for market participants, which prescribe the minimum amount of capital a participant must hold.  These changes aim to better protect investors and the integrity of the market by strengthening the risk profile of market participants and reducing the risk of a unsystematic or non-compliant wind-up.

The paper proposes to improve and simplify capital requirements, combine two market integrity capital rulebooks into a single standardised capital rulebook. ASIC requests that future market participants comply with a risk based capital regime in place of the net tangible asset requirement. Additionally ASIC requests at least A$1,000,000 of core capital to be held at all times.

Another proposal set out by ASIC would be to increase the minimum core capital requiring for securities market participants to A$500,000 as well as creating new rules such as an underwriting risk requirement.  Simultaneously, ASIC proposes to remove redundant rules and forms and align the capital requirements more closely with the financial requirements of the Australian financial services licensing regime.

The assessment identified elements of the capital requirements that were outdated and not able to adequately address the risks of operating a market participant business.

Overall it is intrinsic for market participants to maintain a financial buffer of liquid and core capital to decrease the chances of market disruption from a wind-up. Market participants who are well capitalised are able to absorb losses better and are much more likely to meet clients financial obligations.

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