Corporate regulator, the Australian Securities and Investments Commission (ASIC) has emphasised the importance of risk management in the funds-management industry after a “proactive review” found that the “sophistication of risk-management systems varied greatly.”

“While they generally had adequate risk-management systems adapted to the nature, scale and complexity of their financial services businesses, we observed that improvements could be made,” ASIC said in a statement.

The review, which began last year, particularly identified organisations not regulated by the Australian Prudential Regulation Authority (APRA) as needing to address their risk systems.

ASIC commissioner Greg Tanzer said smaller entities faced their own challenges, such as key-person risk, in which the loss of one or two people could have a major impact on operations.

Another issue for smaller firms was on over-reliance on external-compliance and risk-management consultants in situations where in-house executives did not have the skills or resources to assess the quality of their services.

The regulator says it is considering a number of proposals, such as regular risk management reviews and reviews “when market shocks occur.”

ASIC was also considering quantitative or actuarial analysis for stress testing on an if-not-why-not basis.

Another proposal could look at succession planning and independent monitoring to address key-person risk and over-reliance on external advice.

The review process began with the aim of understanding the ability of AFS licensees to comply with their license conditions and encourage better preparedness for future market volatility.

The review also examines whether the global financial crisis had prompted any change in risk management.


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