ASIC doesn’t prescribe a specific process for identifying emerging compliance risks. However, AFS licensees should maintain processes to identify emerging and evolving compliance risks before they lead to regulatory breaches or consumer harm. Effective risk identification relies on analysing both internal and external information, rather than responding only after incidents occur.
Expanded Answer
ASIC expects AFS licensees to maintain adequate risk management and compliance arrangements appropriate to the nature, scale, and complexity of their business. Identifying emerging compliance risks requires licensees to monitor indicators suggesting that existing controls may no longer be effective, or that new regulatory obligations, business activities, or market conditions are creating additional exposure. Risk identification should be an ongoing governance activity rather than an annual compliance exercise.
Prudent licensees use multiple information sources to identify emerging risks. These include compliance monitoring, advice file reviews, breach investigations, complaints, remediation outcomes, adviser supervision, internal audits, regulatory developments, ASIC publications, AFCA determinations, business growth, technology changes and operational incidents. Analysing trends across these sources helps distinguish isolated events from systemic risks requiring management attention.
Key indicators:
- Monitor trends rather than individual compliance events.
- Analyse complaints, breaches, file reviews and supervision findings together.
- Review emerging regulatory developments and changes to business activities.
- Escalate recurring control weaknesses before they become systemic.
- Update risk assessments when new risks or control failures are identified.
Emerging risks should result in documented changes to monitoring, supervision, controls or governance where appropriate. A compliance framework that identifies risks but does not adapt is unlikely to demonstrate effective risk management. For further guidance, see From samples to signals: a smarter approach to AFSL surveillance.
Why it matters
Early identification of emerging risks enables an AFS licensee to strengthen controls before compliance failures become widespread. A proactive approach also provides stronger evidence that governance arrangements are responsive, risk-based and capable of supporting ongoing compliance with licence obligations.
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Practical guidance
- Review compliance data regularly to identify recurring trends across monitoring, complaints and breaches.
- Update compliance risk assessments whenever business activities, regulatory obligations or control effectiveness change.
- Document management decisions and adjust supervision, monitoring and controls in response to emerging risks.
Further reading
From samples to signals: a smarter approach to AFSL surveillance
Root cause analysis for AFS licensees: a comprehensive guide
What does a defensible compliance framework look like for AFSL and credit licensees?