Role of a Custodian
Custodians play a key role in safeguarding the wealth of Australians. Their role is to hold assets separately to other assets, ensuring they are protected against theft or loss. Custodians perform a wide range of services such as legal ownership of scheme assets, recording transactions in identifiable accounts, reconciliation of bank accounts, execution of documents and reporting.
Appointment of a Custodian
In carrying out its obligations to ensure that the assets of a Trust are protected, a responsible entity or trustee may appoint a custodian to hold scheme property and perform a range of related services. In some cases, the responsible entity or trustee may elect to provide self-custody, but must be able to demonstrate that the assets are held separately from its own assets and meet net tangible asset requirements.
Requirements of a Custodian
In relation to a registered scheme, it is a requirement that:
- if the assets of the scheme are not special custody assets or tier $500,000 class assets and if the responsible entity does not hold net tangible assets (NTA) being the greater of $10 million or 10% of average revenue, then all the scheme property and other assets of the scheme not held by members must be held by a custodian appointed by the responsible entity. The external custodian must have an NTA of $10 million and be an eligible custodian;
- if the assets of the scheme are special custody assets or tier $500,000 class assets and if the responsible entity does not hold an NTA of $500,000, then all the scheme property or assets of the scheme not held by members that are special custody assets or tier $500,000 class assets must be held by a custodian appointed by the responsible entity (or a sub-custodian appointed by that custodian).
Custodians are also required to prepare 12 month cash flow projections, be subject to audit requirements and hold at least 50% of the required NTA in cash or cash equivalents.
The rationale for this is to ensure that a custodian is an entity of some substance and also that it has sufficient financial resources to enable assets to be transferred if it ceases to be a custodian.
Benefits of Appointing a Custodian
Clearly, whilst the benefits of appointing a custodian include meeting legal requirements, other benefits include:
- Ensuring assets are properly segregated from the assets of other trusts
- Safeguarding asset portfolios to protect investors
- Enabling the responsible entity/trustee and trust manager to concentrate on managing the fund
- Assisting with the marketing of the fund to investors by increasing investor’s confidence
- Demonstrating corporate governance
- Protecting investor’s assets in the event of an insolvency event of the responsible entity/trustee
- Utilising the custodian’s scale to minimise transaction costs and operational efficiency
One Investment Group’s custody team are recognised as one of Australia’s most experienced and professional custody service providers within Australia. Should you be considering appointing a custodian, please contact us here or call (02) 8277 0000 to find out more.