AFS Licensee Obligations_ ASIC Audit Preparation Guide

1. AFS Licensee Obligations: ASIC Audit Preparation Guide brokerssupport.com.au/blog/afs-licensee-obligations-asic-audit-preparation/ Aagam Shah October 29, 2025 Preparing for ASIC Audits: Guide to AFS Licensee Obligations Preparing for ASIC Audits: Guide to AFS Licensee Obligations When you hold an Australian Financial Services Licence (AFSL), compliance isn’t just an administrative requirement, it’s a professional obligation that reflects your firm’s credibility and integrity. Whether you’re an established licensee or a new entrant, understanding your AFS licensee obligations is essential to maintaining trust, meeting regulatory expectations, and passing ASIC audits with confidence. ASIC (Australian Securities and Investments Commission) regularly conducts reviews and inspections to ensure that licensees uphold the standards set under the Corporations Act 2001. While many businesses treat audits as an occasional compliance event, the reality is that maintaining year-round readiness is far more effective and less stressful. Understanding ASIC Audits An ASIC audit is a formal review of how well a licensee adheres to their AFSL compliance framework. These audits are designed to ensure that advice is delivered ethically, that client interests come first, and that internal controls function as intended. 1/6

2. ASIC typically conducts three types of reviews: Routine or periodic audits – scheduled to assess ongoing compliance standards. Thematic reviews – focusing on specific risk areas such as advice quality or fee disclosure. Reactive audits – triggered by complaints, breach reports, or market intelligence. The aim isn’t to penalize businesses but to confirm they have effective systems for managing risks, reporting breaches, and demonstrating competence in all licensed activities. Core AFS Licensee Obligations Every licensee must operate in accordance with the conditions outlined in section 912A of the Corporations Act 2001, commonly referred to as the s912a corporations act obligations. These form the backbone of what ASIC expects from every AFS license holder. Here’s a breakdown of the main AFS licence obligations: 1. Act efficiently, honestly, and fairly This principle underpins all financial advice activities. Licensees must demonstrate that client interests come before commercial gain and that advice is supported by evidence and rationale. 2. Maintain adequate resources ASIC requires that licensees have sufficient financial, human, and technological resources to deliver services responsibly. 3. Ensure organisational competence Responsible Managers must have the appropriate qualifications, experience, and knowledge to supervise representatives and ensure compliant advice delivery. 4. Implement risk management and compliance systems A licensee must have structured processes to identify, monitor, and manage operational and compliance risks. 5. Supervise and train representatives All representatives must meet education and competency requirements under RG 146 and complete ongoing CPD (Continuing Professional Development). 6. Manage conflicts of interest Proper conflict management frameworks ensure that recommendations align with clients’ best interests rather than internal incentives. 7. Maintain adequate records ASIC places heavy emphasis on record keeping. Every piece of client advice, disclosure, and communication should be properly documented and accessible. 8. Meet financial and reporting obligations This includes timely breach reporting, financial audits, and notifying ASIC of material changes within the business structure. 2/6

3. Failing to meet any of these AFSL compliance requirements can lead to sanctions, licence suspension, or reputational damage. Common Areas ASIC Reviews During Audits ASIC’s reviews are typically evidence-driven. They assess both the quality of advice provided and the governance systems supporting it. During an audit, the following areas often come under scrutiny: Advice documentation: Are SOAs (Statements of Advice) and ROAs (Records of Advice) complete and compliant? Fee arrangements: Are ongoing fee consent and disclosure statements properly managed? Client best interest duty: Does each recommendation demonstrate compliance with the Best Interests Duty under s961B? Record-keeping practices: Are client files detailed enough to show the reasoning behind each recommendation? Training records: Are all representatives maintaining their CPD hours and knowledge standards? Breach and complaint registers: Are these updated, and are incidents reported within 30 days? As explored in K&L Gates’ article on AFSL holders and AI, ASIC warns that some licensees are adopting AI tools faster than they are updating their risk and compliance frameworks, which can create significant governance and compliance risks. 3/6

4. Preparing for an ASIC Audit Preparation begins long before ASIC arrives. The best approach is to maintain continuous readiness, an internal culture where compliance is a day-to-day responsibility rather than an occasional obligation. Here’s how you can prepare effectively: 1. Review your internal compliance framework Regularly assess your policies and procedures against ASIC’s latest guidance notes and RG updates. 2. Conduct periodic file reviews Use a structured paraplanner audit checklist to review SOAs, ROAs, and advice templates. This helps identify missing disclosures, weak justifications, or outdated information before an external review exposes them. 3. Train and upskill your team Ensure all advisers and paraplanners understand the key AFS licensee obligations and know how to demonstrate them in their client work. 4. Test your breach and complaint processes Simulate scenarios to ensure your team knows what constitutes a breach and how to report it correctly within the 30-day timeframe. 5. Engage independent reviewers Consider external or outsourced paraplanning support to review advice files objectively. This not only improves quality but ensures ongoing adherence to AFSL compliance requirements. 6. Update Responsible Manager records ASIC may request proof of competence for Responsible Managers, so keeping CVs, qualification certificates, and role descriptions updated is critical. According to the Mondaq article on ASIC’s 2024-25 industry funding model, licensees should “build this cost into cash-flow projections” because the levy is calculated on all authorisations on the AFSL, even those not utilised during the year. What to Expect During the Audit When ASIC schedules an audit, the process usually unfolds in stages: 1. Notification and scope – You’ll receive formal notice detailing the purpose, focus areas, and documents required. 2. Data and document submission – ASIC will request client files, compliance manuals, training records, and breach logs. 3. Interviews and follow-ups – Key staff, such as Responsible Managers or compliance officers, may be interviewed. 4. Findings and feedback – ASIC provides a report outlining areas of strength and those needing remediation. 5. Remediation phase – Licensees must address deficiencies and confirm improvements within a set timeframe. 4/6

5. As noted by KPMG in its review of Australian Securities and Investments Commission’s 30 June 2025 surveillance program, ASIC continues to focus on “areas requiring significant judgement including revenue recognition, asset valuation and provisions”. Being transparent and cooperative during the process can make a significant difference in the outcome. Common Mistakes That Lead to Findings Even well-prepared licensees can make errors that trigger ASIC findings. Some recurring issues include: Outdated disclosure templates or FSGs. Poor record keeping of advice justifications. Failure to report breaches promptly. Insufficient supervision of authorised representatives. Missing or incomplete training and CPD records. Weak conflict of interest management. Identifying and rectifying these early through routine reviews can prevent more serious consequences later. Best Practices for Ongoing AFSL Compliance Remaining audit-ready year-round requires a proactive mindset. Here are a few habits that support strong compliance: Maintain a compliance calendar with regular review dates. Conduct quarterly internal file audits using the paraplanner audit checklist to ensure documentation standards remain consistent. 5/6

6. Review your risk management framework annually. Use technology for document tracking and breach notifications. Partner with experienced compliance consultants or paraplanning teams to handle complex documentation. Encourage open communication, every staff member should understand their role in maintaining compliance. Building these habits ensures that when ASIC does review your operations, compliance isn’t an afterthought, it’s already embedded in how you do business. The Role of External and Outsourced Support Many AFS licensees and advisory firms find that outsourcing parts of their compliance or paraplanning work significantly improves efficiency and quality. Outsourced professionals can provide independent reviews, help maintain consistent documentation, and ensure that your advice files align with ASIC’s current standards. This collaboration allows advisers and licensees to focus on client relationships and strategic growth, while specialists handle compliance-heavy documentation and technical accuracy. For many, this is a cost-effective way to meet AFSL compliance requirements while improving audit outcomes. Conclusion Meeting AFS licensee obligations isn’t just about passing an ASIC audit, it’s about upholding the ethical and professional standards that define Australia’s financial advice industry. By embedding compliance into everyday processes, staying informed about regulatory updates, and using tools like a paraplanner audit checklist, licensees can build stronger, more resilient businesses. Audits shouldn’t be viewed with apprehension but as opportunities to strengthen systems, refine processes, and demonstrate professional accountability. With the right preparation, and the right support from partners such as Brokers Support Global, staying compliant becomes not just manageable, but an integral part of delivering quality financial advice. © Copyright 2025. All rights reserved. Designed by NCS Corp Pty Ltd. 6/6