ASIC prepares RE risk management guidelines

The Australian Securities and Investments Commission (ASIC) has signaled it will develop good practice guidance on risk management systems for responsible entities (REs) in 2013 after its review found the sophistication of risk management systems varied across the industry.

It said it had identified a number of improvements, particularly to entities not regulated by Australian Prudential Regulation Authority (APRA).

Recent consolidation of the managed funds sector had also introduced a number of risks and challenges, ASIC commissioner Greg Tanzer said.

He encouraged REs to engage with ASIC on significant merger activities and the possible risks involved.

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Smaller REs faced increased instances of key person risk where the loss of one or two staffers produced a major impact on operations and performance of the RE, as well as risks stemming from an over-reliance on external compliance and risk management consultants, ASIC said.

It said the RE may not have the capabilities to assess the third party's work.

ASIC is currently looking at a number of proposals including regular and special case reviews of risk management systems, and forward-looking analysis of resource adequacy.

Succession planning and independent monitoring of key and third party risk, and quantitative or actuarial analysis for stress testing risks on an 'if not, why not?' basis, were other proposals being assessed by ASIC.

"Australian financial services (AFS) licensees, including responsible entities, are legally required to have adequate risk management systems in place. These systems are intended to mitigate exposure to relevant risks and as such, play a fundamental role in building investor confidence," Tanzer said.

"Our review and commitment to developing good practice guidance, together with the new financial resource requirements for responsible entities that come into effect on 1 November 2012, will strengthen this sector and investor confidence in it," he said.