Compliance Officer Obligation

I was reading through an earlier Ombud determination when I came across the following:

Third respondent goes on to state that the Second respondent met with the clients personally to re-allocate the clients’ portfolio due to the concerns that they had over the market. At that stage, the resources sector was the only one providing positive returns and the Second respondent allocated many of his clients solely into resource based funds. He suggested this allocation to the client and informed them that although it would be much more volatile he firmly believed in this approach. Outraged by second respondent’s conduct, Third respondent contacted their compliance officers to report these actions and asked them to intervene but to no avail.

How should a compliance officer react in such a situation?

The following principle, concerning an auditor, applies in exactly the same manner to a compliance officer:

“Despite anything to the contrary contained in any law, the auditor of an authorised financial services provider must report to and inform the registrar in writing of any irregularity or suspected irregularity in the conduct or the affairs of the authorised financial services provider concerned of which the auditor became aware in performing functions as auditor and which, in the opinion of the auditor, is material.”

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