Compliance
your obligations as an AFS licensee
As an AFS licensee you have obligations relating to:
- conduct and disclosure
- the provision of your financial services
- the competence, knowledge and skills of your responsible managers, as well as their good fame and character
- the training and competence of your representatives and authorised representatives
- ensuring your representatives (including authorised representatives) comply with the financial services laws
- compliance, managing conflicts of interest and risk management
- the adequacy of your financial, technological and human resources, and
- your dispute resolution and compensation arrangements (if your clients are retail clients).
This is not an exhaustive list of your obligations. You must comply with the conditions of your licence as well as the Corporations Act 2001. You also have a general obligation to do all things necessary to ensure that you provide your financial services efficiently, honestly and fairly.
Most AFS licensees tell ASIC that they will conduct annual external reviews using a professional compliance services provider.
The compliance services provider will normally visits your site, this may take between half a day and three days, depending on the size of your business. They review your office policies and procedures, and client files, in light of your licence conditions, the Corporations Act and Regulations, ASIC’s regulatory guides and what the industry considers as “best practice”. This would usually involve a review of the following areas:
- compliance with licence conditions;
- licence activities;
- outsourcing arrangements;
- compliance arrangements;
- risk management;
- responsible officers;
- appointing, supervising and training representatives;
- giving advice;
- IT resources;
- human resources;
- dispute resolution procedures;
- conflicts of interest;
- breach reporting; and
- promotional material.
The compliance services providers also look at your disclosure documentation, like your Product Disclosure Statements (PDS) and your Financial Services Guides (FSGs) and your Statements of Advice (SOAs) and Statements of Additional Advice (SOAAs) and Records of Advice (ROAs) where applicable.
We check the documentation off against the law, and ASIC policy. The compliance services providers look at whether advice (if provided) has a reasonable basis, and whether the documentation shows the required paper trail.
The compliance services provider then prepare you a report, detailing necessary action points, without overlooking and acknowledging the licensee’s strengths. The compliance services providers usually will also provide template procedures to fill any gaps identified in the licensee’s processes.
ASIC Audits
Sometimes, ASIC requires an AFS licensee to conduct a compliance audit using external compliance professionals. It may do this instead of requiring the licensee to enter an enforceable undertaking (EU), or it might require it when granting an AFS licence. The typical wording in the licence looks like this:
Compliance Consultant Requirements
The Licensee must:
(a) by 25 October 200X engage an external compliance consultant ( ” the Consultant”) whose appointment and terms of reference are to be approved by, ASIC
(b) require the Consultant to:
(i) comprehensively review the licensee’s compliance measures generally to ensure that they comply with condition 3 of this licence; and
(ii) Provide a report in writing to the licensee and ASIC that sets out;
(A) a description of the review being undertaken by the Consultant
(B) an assessment of whether the licensee’s compliance measures comply with condition 3 of this licence; and
(C) any specific or general recommendations on the steps to be taken by the licensee to ensure that it complies with Condition 3 of this licence
(c) cause the Consultant’s report required by subparagraph (b) (ii) of this condition for the period from the date of this licence to 25 October 200X ( the due completion date) be completed by 17 November 200X and
(d) ensure that within 7 calendar days after the due completion date:
(i) the consultant lodges with ASIC a copy of the report; and
(ii) the licensee provides a report to ASIC on the steps to be taken, including a timetable for the
implementation of any recommendations in the Consultant’s report referred to in sub paragraph (b) (ii); and
(e) not vary the terms of reference for the Consultant without the advance written approval of ASIC.
