In carrying out its obligations to ensure that the assets of a Trust are protected, a responsible entity or trustee may appoint a custodian whose job it is to hold scheme property. The responsible entity or trustee may also elect to provide self-custody, but must be able to demonstrate that the assets are held separately from its own assets.
In relation to a registered scheme, a responsible entity has 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 of $5 million, 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 custodian must have $5 million of net tangible assets or is 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).
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.
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
- 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 to find out more.