Posted: 16 Nov. 2020 05 min. read

AFS licence compliance

Stand back and look at the whole picture

AFS licensees & COVID-19

AFS licensees are subject to several regulatory obligations under various financial services laws. The underlying objective of these regulations is to ensure financial services providers continue to have the required capabilities to provide the services authorised under their licence and to ensure those services are provided in the best interest of their customers.

It is evident that in the last few years, market and regulator expectations of financial services providers has increased significantly. Businesses have responded by investing heavily in their risk and compliance frameworks including people, processes and systems. Layers of compliance checks and controls have been added to meet these enhanced expectations. However, amidst this complex web of compliance controls and activities, it is often easy to lose sight of the underlying objective.

The COVID-19 pandemic and its broader effects on everyday life has further compounded the regulatory and operational risk challenges.

Is it time to increase compliance processes and controls?

Perhaps not. Deloitte’s National Professional Practice Director, Gary McLean, recently said “it is time to stand back and look at the whole picture”. It is time to pause and take stock of what we already have and utilise it more effectively. Understand the impact of recent developments and assess whether the existing risk and compliance arrangements continue to produce the desired outcomes in an efficient manner.

For AFS licensees, this could mean a check against the core obligations in section 912A of the Corporations Act.

These core obligations are ‘outcome’ based rather than ‘rules’ based. Australian standard on compliance AS ISO 19600 defines compliance as an ‘outcome’ of an organisation meeting its obligations. The focus is on the intended outcome rather than the process itself. ASIC has reinforced this view in its regulatory guide RG132.

In spite of putting in their best efforts, organisations do not always feel confident about the extent of their compliance with these core obligations.

What should AFS licensees do?

Take a step back and assess whether in the big picture, the current compliance arrangements are adequate and ‘fit for purpose’ to achieve the desired compliance outcomes. For instance, assess whether:

  • The existing service delivery and supervision model is adequate to ensure that the financial services continue to be provided efficiently, honestly and fairly
  • There are any changes in the responsible managers and if so, does the licensee continue to have the required organisational competence to function under its AFSL
  • Lack of physical proximity with the business requires alternate compliance and risk arrangements and, if so, whether they continue to be adequate
  • The current technological resources are sufficient to support the business operations as more people work from home and if there are any new risks that may arise from such arrangements
  • The current and projected financial resources (cash, liquidity, NTA) will be sufficient to meet the requirements under RG 166 including the appropriateness of the assumptions used to prepare the cash flow projections.

Deloitte’s regulatory compliance experts are available to discuss any specific aspects of your AFS licence compliance.

More about the author

Sandeep Agrawal

Sandeep Agrawal

Principal, Audit & Assurance

Sandeep is passionate about making regulatory compliance a key strength and differentiator for his clients by helping them design ‘fit for purpose’ and ‘meaningful’ compliance arrangements. As a regulatory compliance expert and auditor with 20+ years of experience, he helps clients and adds value by providing actionable insights, benchmarking and industry best-practice ideas. With his deep knowledge of the regulatory requirements for financial services, he often works with the regulator and the industry to shape new regulations. More recently, he has worked on RG132 Funds Management: Compliance and Oversight that has a wide impact on the funds management industry. Sandeep leads the Financial Services Regulatory Assurance Team ('FS Reg CoE'), which provides compliance assurance services for AFS licenses, compliance plans of registered schemes, APRA requirements etc. Passionate about transformation, Sandeep has also led firm-wide initiatives to improve the quality and effectiveness of the audits making them future ready.