AFS holders that are companies must have their licences audited, and problems are arising. The Australian Securities and Investments Commission (ASIC) has stated that the financial and compliance audit should cover whether the licensee is complying with both the license conditions and the requirements of the FSRA. However, a traditional audit of a company only covers reporting on the company’s financials and the adequacy of financial and statutory record keeping.

“This distinction is creating certain tensions given the different set of skills required for a compliance audit as opposed to a financial audit,” said Marianne Robinson, manager, compliance solutions at Phillips Fox. “It is new territory for everyone and as auditors are not experts in the law related to licensing there have been some issues arising.”

Also causing problems are the conflict of interest arrangements. “Licensees are required to identify the potential and actual conflicts in order to control the conduct, avoid conflicts wherever possible and have adequate mechanisms in place where the conflict cannot be removed. Once again, the emphasis is on the licensee demonstrating that its processes are adequate to manage, monitor and control,” Robinson said.

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Robinson recommended Australian Standards AS/NZS4360 and AS3806 1998 for AFS licensees due to their use as benchmarks by ASIC when considering the legislative obligations of AFS licensees.

Stuart Fagg is the Editor of Risk Managementmagazine, Lawyers Weekly’s sister publication.