An ASIC review of the funds management sector has concluded the risk management practices currently being employed can be improved.
In particular, the corporate regulator singled out those responsible entities not currently part of an Australian Prudential Regulation Authority (APRA) regulated group as organisations that most needed enhancement in this area.
ASIC found the risk management systems of fund managers varied great in relation to the level of sophistication present and improvement was generally required due to the scale, nature and complexity of financial services business across the board.
“It is important to have good business practices and strategies to manage current and emerging risks to effectively respond to the dynamic financial markets and industry consolidation. We encourage responsible entities to engage with us early on significant and complex merger and acquisition activity and the risks that may arise as a result,” ASIC commissioner Greg Tanzer said.
Specific findings showed smaller responsible entities had to deal with a greater level of key person risk where the loss of one or two individuals had a significant impact on the operation of the business, and perhaps relied too heavily on external compliance and risk management consultants.
In a follow-up to the findings of the review, the regulator is looking to develop good risk management practice guidelines in conjunction with the industry via a consultation process.
Elements of the guidelines to be considered include regular risk management system reviews, particularly in the event of market shocks, forward analysis of resource adequacy, succession planning in the context of key person risk and the reliance on consultants, and the stress testing of risks stemming from quantitative and actuarial analysis.
“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,” Tanzer said.
