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Boards failing to rein in compliance risks: ASIC review

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Financial company managers are operating outside board compliance risk appetites for months and years at a time without serious attempts made to rein them in, an Australian Securities and Investments Commission (ASIC) report has found.

ASIC’s new Corporate Governance Taskforce finds that risk appetite statements are not used well, while risk committees are wading through document packs that are often 300 pages long.

“Our review revealed that boards, some more so than others, were grappling to oversee non-financial risk and their oversight was less developed than what we had hoped to see,” ASIC Chairman James Shipton said last week.

“Boards were not actively holding management nor themselves to account for prolonged failures to operate within the risk parameters the board itself had determined.”

The report on non-financial risks focuses mostly on compliance failures, when rules are not followed.

Commonwealth Bank, ANZ, NAB, Westpac, AMP, IAG and IOOF participated in the review.

The taskforce examined nearly 30,000 documents, interviewed 60 directors and executives and considered external advice on international trends and behavioural factors that influence decision making.

Mr Shipton says the global financial crisis was a watershed in improving the focus on financial risks and a similar moment has arrived for non-financial issues.

“Globally, there is an increasing appreciation of the need to recognise the impact that these issues can have, individually and collectively, on the longevity and profitability of a company,” he said.

“There is also an awareness of the impact that they can have on the community more broadly, particularly customers.”

The report is the first from ASIC’s Corporate Government Taskforce, which aims to improve practices and address causes of problems before they cause harm.

The Chairman and CEO of the companies participating in the review received private feedback, while the published report highlights issues for regulated firms to consider in general.