There needs to be a “mindset change” around breach reporting by licensees and advisers as, rather than be pleased, the regulator will more likely be suspicious if a firm has no breaches, according to a compliance expert.
In October, data from ASIC under the reportable situations regime showed almost three-quarters of complaints of the 16,000 reports were submitted by just 21 licensees.
Some 88 per cent of these Australian financial services licensees (AFSLs) who reported a breach had over $1 billion or more in reported revenue, but ASIC stressed licensees of all sizes should be following the regime.
Licensees also have to report their internal dispute resolution (IDR) regime data by 29 February, many for the first time this year, and it is expected this will be broken down by ASIC in a similar way based on licensee cohorts.
Richard Hopkin, senior associate at Cowell Clarke, said: “There needs to be a mindset change around how we treat breaches and how they are reported and resolved. The mindset is still instinctive that it’s bad to have any reports.
“But it’s the opposite – it’s bad to have an empty breach register and ASIC will be wondering what is happening, it is impossible to go a whole year without having any incidents.
“ASIC is expecting you to get some, it would be a red flag for them not to have any. It is clear they think poorly of those licensees who aren’t reporting much.”
As well as their fears about the regulator, he added there needs to be a better relationship between advisers and their licensee in some cases as they may be cautious about giving a full report to their licensee.
“Compliance departments understand but frontline advisers need some practical education around what they need to report, but also around relationship management with their licensee. Sometimes they fear they will be dealt with punitively if they report a breach, and that is a concern for them.
“The adviser needs to feel confident they will be supported by their licensee. Some breaches do need consequences, but many are often only small. It needs to be a no-blame environment where the adviser can have the confidence to admit they have messed up.
“If you are worried that a breach will reflect badly on you, then those are the ones that are probably most serious.”
The new Financial Services and Credit Panel (FSCP) also gives greater flexibility if there is a serious breach rather than a disqualification or licence cancellation.
“ASIC used to have a sledgehammer and not all of the breaches warranted such action, but ASIC didn’t have the right toolkit to address it. Now we have the FSCP, there should be a broader range of possible outcomes, not just disqualification, which should make people more confident to report.”
Any acknowledgement of a mistake by an adviser to a body (licensee or ASIC) that has the ability to admonish or discipline the adviser understandably causes a degree of anxiety. The writer has clearly shown that errors need to be reported in a manner that they are seen as for statistical purposes only, not as a “breach”.