Key Takeaways from ASIC’s Surveillance on Holding Assets

If you have custodial and depository authorisation on your AFSL, pay attention! Yesterday ASIC released Report 531: Review of compliance with asset holding requirements in funds management and custodial services, which highlights key areas identified during market surveillance undertaken in 2016/17. ASIC’s objective was to assess how well licensees were complying with RG 133 and related instruments following the conclusion of the two year grace period in November 2015.

So, what are the Key Takeaways from ASIC’s Report?

Capacity is key to identifying conflicts

A lack of understanding and management of conflicts of interest which may arise between custodian and RE function was a key concern. It is essential that you consider the different capacity and obligations which arise to ensure that you are identifying and managing conflicts appropriately.

Selection and oversight of external custodians is not up to scratch

Ensuring that quality of service rather than price be a key driver in the selection of any custodian services is essential to ensure that you meet your ongoing obligations as a licensee. Reliance on self-certification (including GS007 Reports) is not enough for REs to satisfy its oversight and monitoring requirements, particularly where related custodians are appointed. This will mean regular on-site visits are recommended.

Custodial staff need training

The qualifications and skills of custodian staff are important, particularly the ongoing training of custodial staff to ensure that they understand the requirements of holding assets.

Poor governance and record keeping

Inadequate breach reporting processes, together with poor record keeping and governance processes, was highlighted by ASIC.  Ensuring that you have a copy of the current custodial agreement (including any addendums) is essential and to us obvious, but ASIC’s surveillance unearthed that many RE’s did not have their house in order.

AFS licence to clearly identify incidental providers

ASIC indicated that it will review licence information so it is clear when a licensee is a incidental provider.

NTA requirements remains unclear for some

ASIC's focus on holding assets including compliance with NTA requirements in not new, but one that ASIC has indicated that will keep a close eye on.

One of the burning questions in recent times has been meeting the NTA requirements in circumstances where a licensee has a custodial authorisation on its licence but does not utilise that authorisation in the conduct of its business operation.

That question remains unanswered and we encourage you to speak to your auditors and legal advisors to clarify any concerns you may have on that issue.

How CompliSpace can help

CompliSpace delivers industry specific web-based programs to manage your risk and compliance requirements that can be quickly tailored and configured to suit an organisation’s needs and are kept up-to-date with legal and regulatory changes by our team of specialists. CompliSpace also offers consulting services, to help financial service providers through their compliance and risk management requirements.

CompliSpace Assurance is a secure online governance, risk and compliance workflow management tool that integrates with CompliSpace Fundamentals. Assurance reduces the complexity of managing your legal and regulatory obligations and provides you with a platform for continuous improvement.

Our team of compliance professionals and lawyers combine extensive expertise alongside practical technology-enabled solutions to simplify the complexity of the financial services regulatory environment to allow clients to focus on allocating resources toward improving financial performance.  

Please contact Brooke Benson to discuss your compliance and risk management requirements further.

Financial Services Updates

Financial Services Updates