ASIC has proposed additional relief for AFSLs under the reportable situations regime, with the FSC welcoming the changes to an “excessively burdensome” system.
In an announcement on 18 February, the corporate regulator said the relief seeks to reduce the reporting burden on the financial services industry while ensuring ASIC still receives reports of high regulatory value.
“We are inviting feedback on our proposal to give relief from reporting certain breaches of the misleading and deceptive conduct provisions, and certain contraventions of civil penalties.”
This will apply in four scenarios where:
- The breach has been rectified within 30 days from when it first occurred (this includes paying any necessary remediation).
- The number of impacted consumers is not more than five.
- The total financial loss or damage to all impacted consumers resulting from the breach is not more than $500 (including where the loss has been remediated).
- The breach is not a contravention of the client money reporting rules, and clearing and settlement rules.
ASIC is seeking feedback on these changes until 11 March 2025, it stated.
The Financial Services Council (FSC) welcomed ASIC’s proposal, which will see financial services businesses no longer be required to report minor or technical breaches that do not cause financial loss to consumers under certain circumstances.
A survey canvassing 29 of the FSC’s superannuation, financial advice licensees and fund management members discovered that it costs $3,800 in extensive documentation, senior executive time and auditor reviews every time a minor breach is reported to the ASIC portal.
“The regulator has acknowledged industry concerns that reporting these minor breaches is excessively burdensome. These proposals go some way to addressing some of the problems, however more work needs to be done,” said Blake Briggs, chief executive of the FSC.
“Our survey found unnecessary regulation in the financial services breach reporting regime has resulted in almost $4,000 wasted every time a minor breach is reported, or $24 million annually, showing a significant need for streamlining the reporting system to get rid of disproportionate regulation which results in businesses and ASIC incurring unnecessary time and expense.”
Moreover, FSC’s research found the current increased compliance costs are likely being passed onto consumers in the form of higher fees and slower resolution of breaches.
Briggs continued: “Good businesses have in place risk compliance identification and management systems, which flag incidents and minor breaches. Businesses should continue to identify minor breaches, however, the requirement to report these to the regulator is what creates unnecessary compliance costs.”
In November last year, ASIC chair Joe Longo confirmed the thoughts of many advisers that the reportable situations regime is too complicated.
“That regime was introduced with the best of intentions and indeed this time last year we announced it would be one of ASIC’s enforcement priorities.
“One of the challenges we have encountered in administering and enforcing the regime has been the number of modifications, and the number of pages of guidance that have been required to help industry meet their obligations and ensure the regime meets its objectives – in other words, to make it work,” he explained.
“In short, the complexity of that regime is affecting how we translate its intent to get the full benefit.”
