ASIC has released a consultation paper and proposed guidance on the risk management obligations of Responsible Entities (REs). The proposals are a result of the Parliamentary Joint Committee report on the inquiry into the collapse of Trio Capital.
ASIC's review of REs in 2011-12 showed that improvements to risk management systems could be made, particularly for REs that were not part of an APRA-regulated group. It said that selected REs that were part of an APRA-regulated group had more sophisticated risk management systems than those that weren’t. The review also found most REs indicated that their risk management system did not change as a result of the global financial crisis.
The proposed requirements by ASIC would only apply to REs that are not regulated by APRA. The requirements would be fundamental risk management practices, such as:
• relying on key employees or external service providers;
• fostering a risk management culture;
• choosing processes for identifying and assessing risks;
• monitoring compliance with risk management systems;
• reviewing the effectiveness of risk management systems; and
• using stress testing or scenario analysis.
ASIC has called for feedback on the proposed guidance, including alternative approaches, the likely compliance costs and the likely effect on competition.