“The gap between expectation and reality is always large in the beginning, but with time and effort, it narrows.” – Aung San Suu Kyi.

Bridging the gap between expectations and reality is a fundamental challenge in Australia’s financial services compliance landscape. While this divide may initially seem vast, consistent effort can narrow it over time. For licensees and regulators, aligning perspectives is critical for successfully navigating the sector’s grey-areas and complexities.

In our experience working with some of Australia’s leading businesses, Australian Financial Services Licensees (AFSLs) often grapple with concerns that do not seamlessly align with the Australian Securities and Investments Commission’s (ASIC) current priorities. This article explores the key regulatory issues that concern Responsible Managers, while also examining ASIC’s areas of focus and recent enforcement activities.

Licensees’ Primary Concerns

Licensees face several pressing regulatory concerns:

• Compliance with General Obligations: Licensees are particularly concerned about the broad scope of the “general obligations” they must fulfil, which require adherence to AFS licence conditions, the Corporations Act 2001, and ensuring financial advisers comply with professional standards and ASIC’s shifting expectations. [23-310MR and 23-147MR].
• Robust Risk Management Frameworks: Maintaining adequate compliance and risk management systems to identify, assess, and mitigate risks across financial services is a significant concern. Traditionally focused on regulatory compliance, risk management now extends into areas like data security and cyber resilience. [24-071MR and ASIC v RI Advice Group Pty Ltd [2022] FCA 496]
• Implementing the Quality of Advice Review: Implementing the Delivering Better Financial Outcomes (DBFO) reforms to improve the accessibility and affordability of financial advice is a pressing issue for licensees. This includes potential changes to the regulatory framework for financial advice. However, while implementing the DBFO reforms may be a source of future anxiety, the imminent commencement of the Compensation Scheme of Last Resort (CSLR) is, perhaps, a more pressing issue. 
• Enhanced Breach Reporting Regime: The enhanced breach reporting regime poses challenges due to regulatory complexity, ambiguity surrounding the thresholds for “significant breaches,” and tight reporting deadlines. Licensees grapple with efficient breach detection, reporting, and managing potential penalties or reputational damage. [23-288MR and 22-295MR]
• Cybersecurity and Data Protection: With the escalation of cyber threats, licensees must remain vigilant about maintaining robust cybersecurity measures and safeguarding client data. This concern has escalated due to high-profile cyber incidents in the industry. [22-305MR and 22-104MR]

ASIC’s Priorities and Enforcement Activities

While licensees navigate these concerns, understanding ASIC’s enforcement priorities and approach is paramount. As a general observation. ASIC’s current focus includes addressing misconduct that damages market integrity, targeting gatekeepers who facilitate misconduct, emphasising compliance with financial services laws, protecting vulnerable consumers, and promoting fair, efficient markets.

Notable enforcement activities span scrutinising non-compliant licensees (such as the action against Lanterne Fund Services Pty Ltd [24-071MR]), targeting greenwashing practices (like the case against Mercer Superannuation [23-043MR]), enforcing internal dispute resolution standards (the first civil penalty proceedings against Telstra Super [23-295MR]), maintaining a strong stance on individual accountability, and prioritising consumer protection through actions against fee misconduct and misleading disclosures.

Bridging the Divide

The apparent divide between licensee concerns and ASIC’s current focus is not merely a simple misalignment. It is a complex interplay of regulatory evolution impacts, lingering effects of past enforcement actions, industry dynamics, market forces, and regulatory intricacies.

ASIC’s priorities and enforcement actions cast a long shadow, shaping licensees’ compliance focus for years. Even as ASIC’s focus evolves, licensees may be hesitant to de-prioritise areas that were previously high on the regulator’s agenda.

This divide underscores the need for continuous, transparent dialogue between regulators and the regulated entities. ASIC must clearly communicate its evolving priorities and expectations, and licensees must adapt to emerging challenges without compromising their current focus or robust compliance practices.

Closing the gap requires open communication channels, proactive compliance measures, and an agile approach to adapting to shifting priorities across the financial services sector.

If you are an AFSL seeking expert guidance on navigating this ever-changing landscape, Assured Support can provide invaluable assistance. Our team combines deep regulatory expertise with innovative technological solutions to help you operate with certainty. 

Don’t allow the compliance divide to become an unbridgeable chasm – contact us today.