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Thursday 21 March 2013

13-059MR ASIC consults on risk management for responsible entities

ASIC today released a consultation paper and proposed regulatory guidance on risk management practices for responsible entities in the managed funds sector.

ASIC Commissioner Greg Tanzer said the need to standardise fundamental risk management practices was essential.

‘This sector has gone through a transformation in recent times, including consolidation, and the ability to identify and act upon risks before they emerge as an issue, is key for businesses and for promoting confident and informed investors,’ ASIC Commissioner Tanzer said.

‘One of the lessons for financial regulators since the global financial crisis is the need to become more proactive and respond to market trends. We think our draft guidance can help responsible entities better recognise and manage the risks they face before they eventuate, and we would like your views on our proposals.’

Consultation Paper 204 Risk management systems of responsible entities (CP 204) and the proposed guidance are based on many current practices of responsible entities, including:

  • ensuring risk management systems comprise processes to identify, assess and treat risks

  • ensuring these processes are suitable for individual business objectives and operations

  • ensuring that risk management systems address all material risks, including strategic, governance, operational, investment and liquidity risks, and

  • reviewing risk management systems regularly, and no less than annually, for appropriateness, effectiveness and relevance to individual businesses.

ASIC’s proposals also reflect international standards and developments in risk management.

Submissions in response to CP 204 are due by 3 May 2013.


Responsible entities, as Australian financial services (AFS) licence holders, have an ongoing obligation under s912A(1)(h) of the Corporations Act 2001 to have adequate risk management systems, unless they are regulated by the Australian Prudential Regulation Authority (APRA).

ASIC’s existing guidance on meeting this obligation is limited and is contained in Regulatory Guide 104 Licensing: Meeting the general obligations (RG 104) and applies across all AFS licensees.

In September 2012 ASIC released Report 298 Adequacy of risk management systems of responsible entities (REP 298). The report reviewed the risk management systems of a selected cross-section of responsible entities of diverse size and complexity to assess the adequacy of their risk management systems (refer: 12-220MR).

The report found responsible entities that are part of APRA-regulated groups appeared to have more sophisticated risk management systems. ASIC’s review also found most responsible entities indicated that their risk management system did not change as a result of the global financial crisis.

As a result of the review, ASIC indicated its intention to develop good practice guidance on risk management systems for responsible entities. Given the fundamental nature of certain risk management practices, and our interest in standardising these practices across the managed funds sector, we consider they are better positioned as requirements and the attached draft regulatory guide shows how these requirements will apply. ASIC seeks your views on this proposed approach.


CP 204 (includes draft RG)

RG 104

Last updated: 21/03/2013 12:00