RG 132 funds management: compliance and Oversight

After 20 years ASIC has updated its Regulatory Guide 132 Funds Management: Compliance and Oversight (RG132).

When originally issued in 1998, RG132 focused on ‘how to prepare a compliance plan’. In the last 20 years there have been a number of regulatory changes including the introduction of general obligations for Australian Financial Services licensees (AFS licensees) under section 912A of the Corporation Act 2001 (the Act) (for example, take reasonable steps to ensure that the licensee’s representatives comply with the financial services laws).

ASIC has therefore taken this opportunity to expand the scope of RG132 and included additional guidance for various types of fund operators to meet their broad compliance obligations in s912A.

This new guidance is based on Australian Standard AS ISO 19600:2015 Compliance management systems.

What is in RG132?

The new RG132 focuses on three key areas of compliance for the funds management industry:

  1. Compliance management systems (CMS)The new guidance outlines key features of an effective and responsive CMS:

    ASIC has also clarified that compliance and risk management are not mutually exclusive, but operate together – compliance risk can be considered as a subset of operational risk. Moreover, compliance plans of registered schemes are an intrinsic part of the CMS.

    A key thing to note is that the requirement to have an appropriate CMS is applicable widely across all types of fund operators including wholesale scheme operators and not just responsible entities of registered schemes. This is also applicable to IDPS operators, MDA providers and Australian passport fund operators.

    Is your CMS really effective and responsive? Does it demonstrate a strong commitment to comply with regulatory obligations?

  2. Compliance plansWhat is considered ‘adequate measures’ in a compliance plan to meet the requirements of section 601HA of the Act? The new RG132 provides enhanced and consolidated guidance in this regard.

    Want to know what the regulator may focus on when looking at your compliance plan?

    RG132 now includes a list of likely ‘areas of focus’ by ASIC based on various asset types and investment strategies. For example, where the fund invests in alternative assets such as property, the regulator might be interested in compliance measures related to liquidity, expertise, valuation, leverage and related party arrangements. Needless to say that responsible entities must ensure that the relevant ‘areas of focus’ for their particular schemes are well covered in the compliance plans.

    Transition

    The legislative requirements for compliance plans have not changed and therefore, there is no formal transition period for adopting the new guidance. However, ASIC do not expect to undertake any significant regulatory review of this area until the start of FY 2019-20. Accordingly, we would advise responsible entities to update and lodge their refreshed compliance plans at the latest by 30 June 2019.

    Compliance plan auditors have been advised by ASIC not to assume that the compliance plan was necessarily compliant in the past including at the time the scheme was registered. Hence, your auditors will most likely provide a fresh challenge based on the new guidance in RG132.

    “Fund operators and their auditors should work together earlier in the process to ensure an effective and smooth transition” – Neil Brown, National Investment and Wealth Management Sector Leader, Deloitte.

  3. OversightFor the first time, ASIC has provided new guidance about:
    • How compliance committees can perform their functions under section 601JC of the Act to a high standard
    • What compliance plan auditors should address to meet their obligations under section 601HG(3) and
    • The role of independent oversight entity and the conduct of the annual implementation review in relation to Australian passport funds.

    We recommend that these oversight functions should revisit their processes and documentation in light of the expectations set by the regulator. We understand that the Auditing and Assurance Standard Board (AUASB) will review and update its Guidance Statement GS 013 Special Considerations in the Audit of Compliance Plans of Managed Investment Schemes to ensure it is consistent with the guidance in RG132.

Practical tips to help you implement RG 132

RG132 was recently discussed at Deloitte’s Financial Services Compliance Forum in Melbourne and Sydney. The panel included Michelle Reid from ASIC who was instrumental in shaping this regulatory guide. Some practical insights shared in these sessions were:

  • Start now (refer expected timeline above)
  • Involve the relevant business functions, the Board as well as the auditors
  • Keep it simple, meaningful and measurable.

For the full content of RG132 click here.


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