Tougher AFSL breach reporting obligations proposed

The ‘Self-reporting of contraventions by financial services and credit licensees’ paper – released by the ASIC Enforcement Review Taskforce – proposes a set of reforms that are intended to improve transparency and accountability in the financial services sector.

The proposed reforms will:

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• reduce ambiguity around whether a breach is significant and must be reported to ASIC by introducing an objective ‘reasonableness’ test, making it easier for businesses to make decisions about reporting and strengthening ASIC’s position when it takes enforcement action for failure to report;
• enhance accountability for licensees, and their employees and representatives, by expanding the class of reports that must be made to expressly include misconduct by individual advisers and employees;
• introduce new and heightened penalties for non-reporting, giving ASIC greater flexibility to impose a range of penalties in response to a failure to report;
• require ASIC to publish data on breach reports for major licensees; and
• introduce an equivalent reporting regime for credit licensees (who are currently subject only to annual compliance reporting).

“The proposals outlined in this paper are aimed at improving transparency and accountability in the financial services sector by broadening and strengthening the obligations on licensees to make timely reports to ASIC about misconduct or suspected misconduct that they become aware of,” said Minister for Revenue and Financial Services Kelly O’Dwyer.

“The taskforce is now taking the important step of gathering community and industry feedback on these proposals before making final recommendations to the government in September.”

The consultation paper comes after ASIC recently announced the findings of its review into how financial advice institutions have dealt with non-compliant advisers.

ASIC said it found licensees failed to notify the regulator about serious non-compliance concerns regarding adviser conduct. It also found significant delays between the institution first becoming aware of the misconduct and reporting it to ASIC.