Making The Most Of Compliance Committees

Monday 14 November, 2005

by Tony Macvean

Compliance committees are an important element of the regulatory platform on which retail managed investment schemes operate. The Corporations Act 2001 sets out the functions, responsibilities and composition of scheme compliance committees at a general level.

In light of this, and the fact that many responsible entities operate a range of differing types of schemes, it falls on the responsible entity to appropriately empower its compliance committees and give them specific functions and responsibilities. To get the greatest benefit out of compliance committees, a responsible entity should consider how the functions and responsibilities of the committee can be tailored to the particular scheme in respect of which the committee has been appointed.
The following are some tips for making the best use of your compliance committees:

• Charters / terms of reference
  
  Adopting a committee charter or terms of reference that specifically relates to the nature of a particular scheme will allow the committee to better carry out its functions at the level of the particular scheme rather than in relation to the suite of schemes that a responsible entity may operate.
  
  This is particularly relevant in the context of listed schemes, which are subject to an additional layer of regulation under the ASX Listing Rules (see below).
  
• Breach notification
  
  Timely notification by the responsible entity’s compliance department of compliance breaches to the compliance committee (or at least a nominated member) will place the committee in a better position to discharge its reporting responsibilities rather than standardised quarterly reporting to the committee.
  
• Appropriate composition / size
  
  Considering the appropriate composition and size of the committee is important. In our experience, compliance committees are usually comprised of three members who tend to have accounting or legal backgrounds. However, it is prudent to appoint at least one committee member who has particular knowledge and expertise relevant to the type of scheme for which the committee has been established. Committees should also consider appointing additional members where appropriate.
  
• Experts / advisers
  
  The committee should be empowered to engage independent experts or advisers to assist and advise the members on matters related to its role and functions. This could be specifically included in the committee’s charter or terms of reference.
  
• Self assessment and evaluation
  
  The committee should be required to regularly review and assess its performance against its charter and raise any concerns or suggested improvements with the responsible entity’s board. Again, the committee’s charter or terms of reference could specifically contemplate this.

Compliance committees can also perform additional functions where this is relevant to a particular scheme.
In the context of listed schemes, for example, the scope of the compliance committee’s responsibilities may be broadened to empower the committee to support and advise the responsible entity on its and the scheme’s compliance with the ASX Listing Rules and associated corporate governance requirements.
For example, the compliance committee of a listed scheme may:

Audit

Serve the function of an audit committee as required under the ASX Principles of Good Corporate Governance, by being charged with the additional responsibility of reviewing the integrity of the scheme’s financial reports and overseeing the independence of the external auditors of the scheme’s financial statements.

Risk management

Assist the responsible entity’s board in relation to risk oversight and management and internal controls in respect of the relevant scheme.

Continuous disclosure

Monitor the responsible entity’s compliance with continuous disclosure obligations in relation to the scheme. 

Source:ceonline.com