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GRC Professional : GRC Summer 2012
WHAT WENT WRONG? 12 GRC Professional • Summer 2012 Colonial First State talks to ASIC about a financial planner’s poor advice The latest enforceable undertaking by ASIC on a financial services company has highlighted the need for businesses to ensure there are no holes in their risk and compliance systems. BY CHRIS SHEEDY THE AUSTRALIAN SECURITIES and Investments Commission (ASIC) has accepted an enforceable undertaking (EU) from Commonwealth Financial Planning Limited (CFP) after an investigation revealed inappropriate advice had been offered by one of its advisers. CFP, which operates under the advice structure of Colonial First State, self- reported the issue to ASIC after it was discovered internally. The problem, of course, was that damage had already been done by the time the matter was revealed. Nathan Lynch, Head Regulatory Analyst Australia/NZ at Thomson Reuters Governance, Risk and Compliance, says the EU indicates that the risk management system was inadequate. “It is certainly not as though there are systemic problems with the advisers at CFP but, at the same time, the regulator noted it could go beyond one ‘rogue’ operator,” Lynch says. “It appears that ASIC’s initial concern was that this issue was not identified quickly enough. What the subsequent investigation showed is that the overall risk management system at CFP was inadequate. In terms of compliance breaches, that becomes the real issue in cases like this. A relatively isolated incident can lead the regulator to uncover more fundamental problems.” Lessons learned The first lesson that comes out of this and other situations is that, without the correct risk management and compliance systems in place, it could happen to anyone. For large organisations with thousands of individual advisers across the country operating under their name, the chance of a slip-up is always there, which is why the risk and compliance framework must be rock solid. The second lesson is that if something does go wrong, an EU is an enormously expensive and time-consuming undertaking that is designed to ensure a far more rigorous approach to risk management and compliance. “An EU is costly and cumbersome,” Lynch says. “It’s an undesirable process that distracts you from your core reason for being, which is to run a successful business. CFP did have a framework in place – there is no indication in the EU that it was absent. It is more that it was inadequate.” Colonial First State, having self-reported the issue, is using the opportunity to firm up its risk management structures. “A number of changes have already been implemented, including the integration of administration systems, an enhanced focus on training and education and the continuation of a detailed review program that examines the advice provided to affected clients,” says Marianne It is certainly not as though there are systemic problems with the advisers at CFP but, at the same time, the regulator noted it could go beyond one ‘rogue’ operator. NATHAN LYNCH Head Regulatory Analyst Australia/NZ, Thomson Reuters Governance, Risk and Compliance
GRC Spring 2011
GRC Autumn 2012