The Australian Securities and Investments Commission has accepted an enforceable undertaking (EU) from Neo Financial Solutions Pty Ltd (Neo) following concerns about the adequacy and application of Neo’s risk management and compliance.

Neo is based in Perth in Western Australia, with approximately 160 individual and corporate authorised representatives. Its sin appears to be a failure to improve and extend its compliance controls along with the impressive growth of its business.

Between July last year and February this year, ASIC conducted a 'surveillance review' of Neo Financial Solutions and its compliance with its statutory obligations. The regulator focused on Neo's general obligations as a licensee and reviewed, among other things, its compliance and risk management including programmes, prosedures, policies and controls. It also looked at the firm's advice to retail customers regarding financial products and the audits and remediation reviews it had conducted.

ASIC's advice concerns included failing to address important client objectives, not making reasonable enquiries to determine all relevant client circumstances and not fully considering the consequences when replacing existing financial products.

ASIC believes that Neo's risk management and compliance efforts failed with regard to the nature, size and complexity of its business, which had grown considerably since its inception. In particular, in ASIC's view, Neo had:

• inadequate resources to carry out monitoring and supervision;
• inadequate identification, recording and assessment of risks;
• audit and remediation efforts that were not timely and effective in identifying and remediating advice conduct and deficiencies;
• vetting policies and procedures that were not consistently applied or adequate to manage compliance risks; and
• failed to take reasonable steps to ensure its authorised representatives complied with financial service laws.

Neo is to appoint an 'independent expert' to monitor its efforts at remediation. It must give him any information 'reasonably requested.' If the expert finds that any recommendations relating to the 'remediation of clients' (i.e. the putting-right of bad advice to any clients who have been found to have suffered) have not been heeded, within seven months of the initial licence review report being sent to ASIC, Neo will have to redo the client remediation assessments for all remediation clients.