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ASIC has fired a warning to responsible entities (REs) and superannuation trustees highlighting various compliance issues following recent surveillance activities.
Perhaps most importantly for REs, ASIC found notable concerns regarding:
- the adequacy of internal processes;
- failures to comply with established internal procedures;
- inconsistencies between funds’ governing documents and internal policies; and
- inadequate record keeping to demonstrate compliance with licensee obligations.
Taking a closer look at the RE sector, ASIC highlighted three key compliance concerns.
Disclosure and Advertising Materials – As part of its surveillance, ASIC found more examples of misleading or deceptive marketing materials. ASIC’s current focus on advertising materials seems to be a common trend across the financial services sector in general, although ASIC seems to think that the problem within the RE sector was exacerbated by the absence of effective controls over the authorisation and review of promotional materials.
So, what is an effective control according to ASIC?
In the first instance the regulator expects that licensees “develop, maintain and comply with documented processes”. These processes should include methods to review and approve advertising material to ensure that they fully comply with legal requirements and best practice.
This sounds straightforward enough but the objective test of whether certain material is misleading and deceptive, coupled with the rapid expansion and availability of media tools used to communicate marketing messages (Facebook, LinkedIn, YouTube, Twitter etc), has made the management of risks in this area even more challenging.
In practice, documented policies alone won’t be enough. Additional controls are required such as ongoing training for any representative involved in the communication of information to ensure that the documented processes are clearly understood and followed. This should be an ongoing training procedure and not a ‘train and forget’ approach.
Compliance Deficiencies – Secondly, and perhaps more worryingly, ASIC highlighted a range of deficiencies in compliance and governance frameworks, including:
- inadequate internal processes;
- failures to comply with existing internal processes;
- inconsistencies within organisational frameworks; and
- a lack of adequate record keeping.
It is not clear whether these failures related to scheme compliance issues or whether the weaknesses were in relation to overall compliance controls, including non-scheme controls. It is an important distinction as the adequacy of scheme compliance is subject to various tests including, of course, external audit. Any weaknesses identified by ASIC which also relate to scheme compliance would presumably also point to weaknesses in external auditing.
Published Returns – Thirdly, there were inconsistencies between the returns information provided by certain REs and the returns published by third party data aggregators. ASIC reiterated that all licensees are expected to have periodic reconciliation controls on returns to prevent the occurrence of material discrepancies.
Next steps for REs
ASIC expects licensees to document their compliance measures, fully implement them, monitor and report on their use, regularly review the effectiveness of these measures and ensure they are up-to-date. In ASIC’s view, failure to do this will make it more difficult to comply with the general obligations and to demonstrate compliance with them.
As a result of its surveillance activity ASIC also directed some REs to make changes to their risk management arrangements and implement additional measures to monitor the reporting of returns.
It is a challenging time for the sector and, as covered in previous blogs, REs are still waiting for more prescriptive guidance on risk requirements for the sector, via proposed Class Order and ASIC Regulatory Guides. It is not clear when these enhanced RE risk requirements will become effective, particularly as the draft requirements were first due to be released in August 2013.
How can CompliSpace help?
In summary, ASIC expects REs to have up to date policies and procedures and a system of assurance to monitor and report on compliance performance. This is the model on which our core services are delivered, providing REs with tailored content, tools and services designed to meet these ASIC expectations and requirements.
For more information on how we can help contact James Cozens, Director Commercial, on 02 9299 6105 or email email@example.com.
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