The Australian Securities and Investments Commission (ASIC) has proposed more stringent breach reporting requirements of misconduct by banks and financial services firms and licensees after publicly expressing concerns with the effectiveness of the existing regime.
The ASIC Enforcement Review Taskforce released a consultation paper, in which it said these concerns led to the Government’s decision to include breach reporting in the terms of reference for the ASIC Enforcement Review.
The consultation paper, titled ‘Self-reporting of contraventions by financial services and credit licensees’, called for the ‘significance’ test, introduced in 2003, to be retained but the significance of breaches should be determined according to an objective standard rather than licensees determining whether the breach was severe enough to warrant reporting.
“The introduction of the significance test however, while effective in reducing these regulatory and administrative burdens, has given rise to ambiguity as to whether the threshold for the obligation to report is triggered in any given circumstance,” ASIC’s report said, adding the significance test was subjective and relied on a licensee’s judgement and a subjective criteria list to determine if the breach warranted reporting.
This could mean the licensee may determine that a breach that would be considered significant by objective standards did not warrant reporting as it was not significant in the context of its overall obligations.
ASIC has also called for the introduction of the obligation for licensees to report significant breaches or other significant misconduct by an employee or representative, increase penalties for failure to report as and when required, and introduce a civil penalty in addition to the criminal offence for failure to report as and when required.
“A criminal sanction is inappropriate for more minor or inadvertent infractions, and conversely, the modest nature of the fine is an insufficient deterrent to be effective in encouraging licensees to self-report offences at the more serious end of the spectrum,” the report said.
The terms of reference include “the adequacy of the frameworks for notifying ASIC of breaches of law, including the triggers for the obligation to notify; the time in which notification is required to be made; and whether the obligation to notify breaches should be expanded”.
The taskforce, which was established by the Federal Government in October 2016, includes senior members of the Treasury, ASIC, the Attorney-General’s Department and the office of the Commonwealth Director of Public Prosecutions, and representatives from industry bodies, consumer groups and academia.
Submissions for the consultation close on 12 May while the taskforce will provide its recommendations to the Government by the end of September.
