As one of the most tightly regulated industries in the country, Australian Financial Services licensees need to continuously stay on top of their compliance requirements. Whether offering financial product advice, dealing with a financial product or providing a custodial or depository service, as an AFS business grows, so do their compliance obligations.
Allen Audit & Advisory senior auditor Amanda Pereira outlines the critical steps AFS licensees must take to ensure they’re operating within regulation, particularly as they expand.
What bodies regulate the AFS industry?
Several bodies are responsible for ensuring compliance with Australia’s financial services laws and regulations, including:
- Australian Securities and Investments Commission (ASIC)
- Australian Prudential Regulation Authority (APRA)
- Reserve Bank of Australia (RBA)
- Australian Transaction Reports and Analysis Centre (AUSTRAC)
- Australian Competition and Consumer Commission (ACCC)
Amanda says the role of each varies, with ASIC the primary body responsible for enforcing and regulating laws to protect consumers, investors and creditors. “Your individual business will determine what bodies you may have contact with, so it’s important to receive advice from a qualified professional so you understand your unique obligations,” she says.
“This also ensures you stay across the frequent changes and updates to regulation. For example, from 1 July 2024 AFS licensees must notify ASIC within 30 business days of receiving a written declaration if an adviser is using the experienced provider pathway.
“This is available to financial advisers with at least 10 years’ experience, gained between January 2007 and December 2021, who have a clean disciplinary record. It allows them to meet mandatory qualification standards without undertaking further education and training.”
What compliance responsibilities do AFS licensees need to adhere to?
All AFS licensees are required to audit their financial statements annually. “Depending on their specific AFSL conditions, the nature of their business, and the risk profile as determined by ASIC, they may also need to complete a compliance audit,” says Amanda.
“There are benefits to conducting financial and compliance audits simultaneously, although the decision to do so should be based on the AFS licensee’s size, complexity, internal resources, and specific circumstances.”
Amanda notes, AFS licensees must also keep their financial records for at least seven years, in line with ASIC requirements.
When should AFS licensees undertake their financial and compliance audits?
Your auditor’s report and audited financial statements must be with ASIC within three to four months of the fiscal year’s end. The compliance audit typically covers the same period, and you’re required to notify ASIC of any significant breaches.
Amanda recommends AFS licensees begin the audit process ahead of the end of the financial year to ensure it runs smoothly. “Audits can be intimidating, but if you receive the correct advice and do the preparation, they run simply and effectively,” she notes.
“Understanding the purpose of the audit, having open communication with your auditor, and reaching out early gives you time to plan.
“Maintaining accurate and up-to-date financial records, including all transactions, reconciliations, and supporting documents, such as compliance policies, procedures, and practices like training records, internal audits, and risk management activities, also helps facilitate a successful audit.”
What does a financial audit cover, and what are the key steps in the process?
The financial audit ensures financial statements are accurate, complete, and in compliance with standards and regulatory requirements. “We ensure AFS licensees present a true and fair view of their financial position and performance, their financial statements comply with the Australian Accounting Standards and the Corporations Act 2001, and they meet financial requirements stipulated by ASIC,” says Amanda.
She notes the key steps in the financial audit process include:
- Planning and risk assessment: understanding the business, its internal controls, and regulatory environment to identify any risks of material misstatement.
- Internal control evaluation: evaluating the effectiveness of internal controls over financial reporting to identify any deficiencies.
- Substantive testing: performing detailed testing of transactions and account balances.
- Compliance testing: checking compliance with ASIC financial requirements.
- Audit report: assessing if financial statements present a true and fair view, are in line with legislation, and discussing any issues.
What does the compliance audit cover, and what are the key steps in the process?
The compliance audit assesses if you’re adhering to requirements and license conditions, ensuring you’re operating within ASIC’s legal and regulatory framework. Amanda lists the key steps in the process as:
- Planning and risk assessment: identifying key areas of compliance risk and developing an audit plan.
- Document review: auditing relevant documents such as policies, procedures and compliance documentation.
- Internal control evaluation: assessing the effectiveness of internal controls in complying with regulatory requirements.
- Compliance testing: checking the licensee is complying with regulatory requirements.
- Reporting: outlining recommendations, audit findings and any non-compliance issues.
- Following up: assessing if any issues have been addressed and compliance improved.
What do AFS businesses need to be aware of as they expand?
Amanda advises compliance requirements frequently change as firms grow. “To guarantee continued compliance, AFS licensees must be aware of changes and make adjustments,” she says.
“Expanding businesses are faced with more rigorous compliance requirements and more frequent audits or inspections. They become more complex, with a larger client base, more transactions and diversification of financial products and services, meaning they need to stay on top of evolving compliance requirements.
“More staff equals greater responsibilities, including the need to implement comprehensive training programs to ensure compliance from all team members.
“You may also invest in more advanced compliance technology and reporting systems.”
Who can AFS licensees engage to undertake their financial and compliance audits?
AFS licensees must engage a registered company auditor or licensed audit firm, registered with ASIC, to conduct their financial audit. Compliance auditors, consultants or specialised audit firms focusing on regulatory compliance can be engaged for the compliance audit.
Amanda says it is crucial to engage a specialist AFS auditor, who has a deep understanding of regulatory requirements, industry experience and best practice insights. “Specialist auditors, such as Allen Audit & Advisory, provide accurate and reliable findings, giving credibility to your financial statements for investors and regulators,” she says.
“We’re experienced working with single financial advisers through to large investment funds, using the latest software to provide efficient and reliable audits with actionable insights that ensure continuous improvement and that you’re ticking all the necessary regulatory boxes.”
If you’re an AFS licensee seeking specialised financial or compliance audit and advisory services, please call Allen Audit & Advisory on 07 5503 1709 or email info@allenaudit.com.au.
