ASIC flags AFSLs for reporting standard shortfalls

The Australian Securities and Investments Commissions (ASIC) on Tuesday released its second publication on information lodged under the reportable situations regime, which revealed that 16,000 reports were made between 1 July 2022 and 30 June 2023.

Notably, only 9 per cent of all Australian Financial Services (AFS) licensees and credit licensees lodged a report during this time – a figure, the corporate regulator noted, that was much lower than expected.

This was in addition to 71 per cent of all reports being lodged by just 21 licensees.

“We will be taking stronger measures to achieve enhanced compliance with the regime, including by undertaking a range of surveillance activities and potential enforcement action,” ASIC said in its latest report.

According to the corporate regulator, this round of data showed that little improvement had been made in key areas of concern that was highlighted in the first publication on insights from this regime last year.

Namely, the proportion of the licensee population that had lodged a report since October 2021 remained very low, at 11 per cent, indicating that some licensees may not have in place the systems and processes required to detect and report breaches.

As such, ASIC has commenced surveillance activity with a focus on licensees that are not reporting or are reporting significantly less than expected given their nature, scale, complexity, and when compared to peers.

It was further identified that, in 17 per cent of reports received for the year ended 30 June 2023, it took the licensee more than one year to identify and commence an investigation into an issue after it had first occurred.

Timeliness of remediation activities was also flagged as a concern, with 8 per cent of the total reports involving compensation to customers estimated to have taken more than one year to finalise compensation.

Moreover, ASIC highlighted that licensees may still not be adequately identifying the underlying root causes for breaches, with the most common (66 per cent) continuing to be staff negligence or error, even where there are repeat or multiple breaches, or multiple breaches were grouped together.

“The reportable situations regime has now been in place for over two years and licensees have had ample time to take the necessary steps to ensure full compliance with the requirements,” commented ASIC chair Joseph Longo.

“Since its commencement, ASIC has been working with stakeholders to improve the operation of the reportable situations regime, including through providing guidance and modifications,” Mr Longo added.

“ASIC will now move to taking stronger regulatory action to drive improved compliance with the regime, including enforcement action where appropriate.”