AFSL Holders: Coronavirus and ASIC requirements – what do you need to do?

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Now is the Time to Review Your Risk Management Plan

All Australian Financial Services Licence (“AFSL”) holders must ensure they take precautions and be vigilant about the risks brought about by the increasing number of confirmed COVID-19 cases in Australia and globally.

We suggest you review the following systems and documents:

  • Business Continuity Plan:
    • review, update and test the plan regularly, incorporating new information and address emerging challenges;
    • ensure back-up arrangements operate as planned with allocated resources, considering your human and technical resources;
    • implement an Incident Response Plan for a pandemic that:
      • outlines actions to limit the loss of life and property before, during and immediately after a pandemic;
      • aims to shorten recovery time and minimise business losses following a pandemic; and
      • sets timeframes for resumption of usual business operations.
  • Risk Management Systems:
    • implement a Risk Management Plan for a pandemic that identifies and assesses risks to your business, as well as strategies to manage these risks;
    • execute a Business Impact Analysis for a pandemic by identifying activities that are critical for the survival of your business and prioritise what has to be done to maintain them; and
    • conduct stress testing of systems and financial positions, in case markets fall further or experience further shocks which increase pressure on systems.

Key Areas of Consideration

As the cases of COVID-19 rise, we recommend you consider the following questions to identify potential areas of concern in relation to your organisation:

  1. Have you incorporated new information to address emerging challenges in your Business Continuity Plan?
  2. When did you last test your back-up arrangements?
  3. Have you considered your own exposure and that of your clients to industries affected by COVID-19 such as air and local transport, ports, manufacturing and technology supply chains?
  4. Have any services provided by your organisation or affiliates abroad been disrupted or subject to business continuity arrangements abroad?
  5. Have you provided guidance or imposed limitations on domestic and/or international travel and if so, what are the limitations in place?
  6. Have you observed any clients in financial distress and if so, how are you managing that?

More generally, we encourage all financial services licensees to assess the impacts of COVID-19 in respect of your ability to meet the following requirements:

ObligationRequirements
Have adequate financial, technological and human resources to provide the financial services covered by your licence and carry out supervisory arrangements s912A(1)(d)
Explicitly identify the risks you face and have measures in place to keep those risks to an acceptable minimums912(1)(h); RG104 and RG259
Do all things necessary to ensure the financial services covered by your licence are provided efficiently, honestly and fairlys912A(1)(a)
Comply with the conditions on your licences912A(1)(c)

What has ASIC said so far?

On 2 March 2020, ASIC sent a cautionary email to all retail over-the-counter (“OTC”) derivative issuers encouraging them to review their preparedness in line with many of the items outlined above.

Pandemics can severely upset business operations by causing high absenteeism and impede ability to deliver products and services.

If you have any questions regarding your current business continuity plan or risk management system, or any extraordinary staffing measures you intend to take, please contact Sophie Grace.

About The Author

Melody Gao

Melody assists in preparing, reviewing and negotiating legal documentation for participants in the financial services industry. Melody also assists with developing, reviewing and amending compliance documentation. She also supports the Compliance Consultants with the preparation of AFSL and ACL applications, variations and compliance reviews. Melody provides ongoing legal support and also assists in implementing ongoing compliance support, updating procedural documentation and preparing compliance reporting for Compliance Committees and Boards of Directors.