ASIC caution on external risk consultants
The Australian Securities and Investments Commission (ASIC) has signaled regular review of the risk management systems employed by managed funds responsible entities amid concerns that smaller firms are too reliant on one or two crucial people or overly reliant on external consultants.
The regulator this week produced a report which, while broadly positive, pointed to particular concerns with respect to responsible entities not regulated by the Australian Prudential Regulation Authority (APRA).
Indeed, the report pointed to both the use of external consultants and reliance on just one or two internal compliance personnel as being possible indicators "of inadequacy of the risk management systems in place".
The ASIC report also pointed to the impacts of the global financial crisis and the manner in which the managed funds industry was undergoing significant transformation.
"This environment is exacerbating risk aversion and creating higher expectations from retail investors, as well as increasing cost pressures and reducing inflows," the report said.
"These factors are driving responsible entities to integrate and consolidate. Business integration poses new and emerging risks that need to be managed by a number of the selected responsible entities."
Commenting on the release of the report, ASIC commissioner Greg Tanzer flagged that the regulator would conduct regular reviews of risk management systems and, in particular, when market shocks occur.
He said such reviews would not only analyse resource adequacy within managed funds but succession "and independent monitoring to address key person risk and the risk of over-reliance on external compliance and risk management consultants".
Recommended for you
Licensee Centrepoint Alliance has completed the acquisition of Brighter Super’s annual review service advice book, via Financial Advice Matters.
ASIC has launched court proceedings against the responsible entity of three managed investment schemes with around 600 retail investors.
There is a gap in the market for Australian advisers to help individuals with succession planning as the country has been noted by Capital Group for being overly “hands off” around inheritances.
ASIC has cancelled the AFSL of an advice firm associated with Shield and First Guardian collapses, and permanently banned its responsible manager.
