An effective compliance function should be appropriately resourced, independent where practicable, risk-based and integrated into the licensee’s governance framework. It should support ongoing compliance by identifying risks, monitoring controls and providing objective reporting to management and the board.
Expanded Answer
ASIC expects AFS licensees to maintain adequate compliance arrangements appropriate to the nature, scale, and complexity of their business. An effective compliance function is more than an administrative or advisory role. It helps the licensee identify regulatory obligations, assess compliance risks, monitor control effectiveness and support timely remediation when issues arise. The function should have sufficient authority, capability and access to information to perform these responsibilities effectively.
An effective compliance function operates within a clear governance framework. It should maintain an obligations register, coordinate compliance monitoring, analyse the quality of advice and conduct risks, oversee breach and complaint trends, support policy development, report emerging risks to management and the board, and monitor the effectiveness of remediation activities. Although complete independence is not always practical, particularly for smaller licensees, the function should be able to provide objective challenge and escalate concerns without undue influence from operational business areas.
Key characteristics:
- Appropriately resourced for the nature, scale and complexity of the business.
- Risk-based and focused on areas of greatest regulatory exposure.
- Supported by clear governance, reporting lines and accountability.
- Uses data and monitoring to identify emerging compliance risks.
- Drives remediation and continuous improvement rather than reporting issues alone.
An effective compliance function is demonstrated by its outcomes as much as its structure. If recurring issues are identified but not escalated, investigated or resolved, the function is unlikely to provide effective compliance oversight. For further guidance, see What does a defensible compliance framework look like for AFSL and credit licensees?.
Why it matters
A strong compliance function enables an AFS licensee to identify risks earlier, strengthen governance and demonstrate effective oversight during ASIC surveillance. Weak compliance functions often contribute to broader governance failures because issues are not identified, escalated or addressed in a timely manner.
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Practical guidance
- Define the compliance function’s responsibilities, reporting lines and escalation authority within the governance framework.
- Review whether compliance monitoring, reporting and remediation activities remain proportionate to the business’s risk profile.
- Assess the effectiveness of the compliance function regularly using independent assurance and management feedback.
Further reading
What does a defensible compliance framework look like for AFSL and credit licensees?
Who is accountable for AFSL compliance?
Modernising compliance management: a guide for credit providers