Financial Services independent compliance experts, or ICEs, are third-party entities responsible for helping organisations meet crucial compliance obligations. You can engage these experts proactively to review your compliance arrangements and identify regulatory risk, or reactively to comply with a regulator’s remedial requirements. Either way, the goal is to minimise compliance issues and protect the entire financial landscape, one organisation at a time.

However, there’s much to know about ICEs, including how to engage them, what they do and what steps they take to help firms meet compliance requirements. Here’s a closer look at these entities.

Defining an Independent Compliance Expert

An ICE may be a third-party individual or firm with established expertise and extensive experience in regulatory compliance activities. You, or a law firm representing you, can engage these entities to review your business or a particular area of your business. Their job is to assess whether you’re meeting the relevant compliance obligations, essentially determining if your internal policies and processes are appropriate, effective and accurate.

There are two ways an Australian Financial Services Licence (AFSL) holder (or their legal advisers) may end up working with an ICE:

  • Voluntarily: If you want to be proactive and review your regulatory compliance arrangements before facing potential disciplinary actions or to reduce a particular regulatory risk, you may engage an ICE to review and support your work. 
  • Involuntarily: When regulatory bodies take enforcement action against you, they may require you to appoint an ICE to act as an independent reviewer and provide an opinion as to the appropriateness of your compliance arrangements, and/or to monitor your continuous improvement.

ICEs vs. Expert Witnesses

Expert witnesses (EWs) are experts who provide their expert opinion when legal proceedings against an AFSL holder or individual are either contemplated or in progress. They’re usually engaged by a law firm representing the AFSL holder or individual.

While EWs lend their expertise in legal contexts, ICEs offer much broader services. The latter is generally involved in responding to the outcome of a regulator’s enforcement action — for example, as a result of a court enforceable undertaking, imposing AFS licence conditions or a court order — and not in the case itself. An ICE may also have a role to play in helping AFSL holders carry out specific remediation activities, compliance assessments and reports.

However, a single individual, firm or entity may offer both ICE and EW services.

Requirements for Independent Compliance Experts

It’s important to note that ICEs themselves are also subject to specific requirements. This helps ensure they perform their duties appropriately and deliver accurate and impartial reports. 

According to Regulatory Guide 111 (RG 111) and Regulatory Guide 112 (RG 112), ASIC provides guidance in relation to independent compliance experts in three main areas:

>Independence

An ICE must both be and appear to be completely independent, displaying impartial judgment, objectivity and integrity. This is crucial to protect the integrity of any work they do.

ASIC notes that previous relationships or interests in transactional outcomes may impact independence and therefore credibility. The ICE must identify its own connections and those of its employees, associates and even family members; it is required to disclose these relationships prior to being engaged and also in any formal reports the ICE produces.

>Genuine Opinions

ASIC explains that an ICE must provide genuine opinions that are “a product of the expert’s professional judgment.” This means they can’t tailor the opinion to support any party’s views or interests. It also can’t be misleading or deceptive, as is the case when the expert provides opinions that have no reasonable basis or are based on methodologies it disagrees with.

>Reporting

When drafting a report which outlines the ICE’s opinion, it must also follow specific guidelines, including:

  • Using expert skill, judgment and a reasonable basis to choose appropriate methodologies.
  • Using more than one methodology when possible.
  • Basing opinions on reasonable, specific and definite assumptions.
  • Leveraging clear, concise and effective communication.
  • Providing supportable statements, including reasonable grounds and forward-looking information.
  • Notifying stakeholders if a significant change impacts the report’s findings after publication.

The report preparer must also be able to demonstrate that it is an expert in the relevant field — a person or firm whose profession or reputation gives their statements authority. 

Independent Compliance Experts: Roles and Responsibilities

Independent compliance expert services vary depending on the nature of your relationship. They may include:

  • Compliance assessments: In these assessments, the ICE analyses your compliance activity, controls and monitoring systems for potential regulatory risk and underlying causes. The ICE should identify both strengths and weaknesses. These assessments may be performed annually as a preemptive measure.
  • Risk remediation: If the ICE identifies compliance issues, it may help implement specific, fit-for-purpose solutions that empower your firm to meet its obligations. This may include improving your business processes, redesigning internal policies and programs, preventing future risks and working with regulatory bodies when necessary.
  • Mock audits: An ICE may perform a mock audit to simulate scrutiny from regulatory bodies, such as the Australian Securities and Investments Commission (ASIC). The goal is to ensure you align with regulatory enforcement priorities and can provide evidence of your compliance activity.
  • Employee training: When necessary, the ICE also helps employees understand their role in compliance monitoring and risk prevention.
  • Expert reporting: ICEs create independent expert reports assessing your firm’s compliance challenges, solutions and continuous improvement. This may involve multiple review methodologies to ensure the expert conclusion is reliable, accurate and helpful.

An ICE may also support your firm in specific contexts, including:

>Court Enforceable Undertakings

ASIC court enforceable undertakings (CEUs) are an agreement between you and the regulator. If ASIC identifies compliance issues, you may present a CEU as a solution to address the activities that led to a breach. Part of the agreement may include having an ICE review and report on your improvements.

You, your legal representative or ASIC may select the expert, but you’ll generally have to pay for the services as part of the CEU. In return, you’ll get expert recommendations on corrective actions, including specific remediation plans. The ICE will also create an expert report covering its findings, activities and outcomes.

>AFS Licence Conditions

In some cases, ASIC may place additional conditions on your AFSL, essentially requiring you to appoint an ICE to review and report on compliance concerns identified by the regulator. Often these conditions will include a follow-up review by the ICE to provide an opinion as to whether the recommendations from the initial report have been appropriately implemented. These additional AFSL conditions contain prescribed periods for the ICE to conduct the initial report and for the AFSL holder to remediate. 

Should the regulator believe that the compliance concerns have not been appropriately addressed during the ICE process, the regulator may act to suspend or cancel your license. 

The Benefits of Independent Compliance Experts

Although ICEs are perhaps most valuable when you enlist their support proactively and voluntarily, their services provide a long list of benefits, no matter the context. Examples include:

Proactive Solutions

If you voluntarily appoint an ICE to review a regulator’s enforcement priorities before an incident occurs, you can prevent significant time, money and reputational losses down the road. ICEs present proactive solutions that allow you to stay on top of everything from regulatory changes to licence obligations.

Even if ASIC mandates an ICE appointment, you can still leverage these services to lay the groundwork for future proactive solutions — for example, identifying and eliminating small issues that could become future breaches of your obligations.

Expert Support

ASIC requires ICEs to both have and demonstrate expertise in relevant areas. This means they’re an excellent resource to help you manage the complexities of ongoing compliance, especially when adhering to regulations from multiple regulatory agencies. ICEs don’t simply point out where the problems are; they provide advice, recommendations, improvements and support, making continuous improvement both possible and practical.

CEU Responses

A CEU can complicate your day-to-day operations, but an ICE helps you work through each requirement with specific solutions. This helps balance the requirement to make progress and prove it to ASIC with the need to continue doing business and serving clients.

Improved Compliance

ICEs help you meet every regulatory requirement — and in many ways, this is its own reward, allowing you to avoid disciplinary action and other risks. It also improves your reputation among current and potential clients, showing your valuable due diligence, attention to detail and prioritisation of fair dealings.

Additional Resources

If your teams are struggling with an ASIC requirement, AFSL condition or compliance function, an ICE can provide the support and resources you need. These entities can address skill and knowledge gaps without the need to hire new employees.

Reduced Costs

It’s often far more affordable to voluntarily engage an ICE than wait for mandates from a regulatory body. Additionally, you may save money by avoiding some legal fees and lost revenue.

Case Study: MIntegrity’s Role as an Independent Expert in Client Money Handling

This case study examines the role of MIntegrity, an independent expert, in assessing the controls, systems and processes of Societe Generale Securities Australia Pty Ltd (SGSA) as an AFSL holder and a participant of the ASX24 market.

ASIC commissioned MIntegrity to conduct an independent review of SGSA’s operations. The review focused on evaluating the effectiveness of SGSA’s controls, systems and processes in complying with regulatory requirements and mitigating risks regarding the handling of client money.

MIntegrity’s Role

As an independent expert, MIntegrity brought objectivity and specialised expertise to the assessment process. Our role involved:

  • Document Review: Examining SGSA’s policies, procedures and records to understand their control framework.
  • System Analysis: Evaluating the design and effectiveness of SGSA’s systems in identifying and managing risks.
  • Process Walkthroughs: Observing and analysing key processes to identify potential weaknesses or areas for improvement.
  • Interviews: Gathering insights from SGSA personnel to understand their roles and responsibilities concerning risk management and compliance.
  • Reporting: Providing ASIC with a comprehensive report outlining their findings and recommendations.

Outcomes

MIntegrity’s independent review did not identify any continuing deficiencies in SGSA’s controls, systems and processes. This finding provided ASIC with assurance that SGSA was operating in compliance with regulatory requirements and had effective risk management procedures in place.

Find out more here.

Get Independent Expert Compliance Support

Do you need help keeping up with obligations from regulatory agencies? Are you facing a CEU or licence conditions that may impact your ability to do business? Would you benefit from a proactive compliance assessment or review?

No matter your circumstances, an independent regulatory compliance expert can support your firm. At MIntegrity, we have experience in both ICE and EW contexts, making us an effective partner for all your compliance needs. We can also help you lay the foundation for compliance and operational frameworks, apply for your AFSL, perform annual reviews and educate your teams.

Ready to get started? Contact the MIntegrity team today to put stress-free compliance within reach.

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