Compliance firm Cowell Clarke has shared information on how licensees should investigate a possible reportable situation at the firm.
In a webinar, senior associate Richard Hopkin said Australian financial services licensees (AFSLs) must notify ASIC of a reportable situation within 30 days after the licensee first knows or is reckless with respect to whether there are reasonable grounds to believe a reportable situation has arisen.
They must report an investigation into a possible breach if it exceeds 30 calendar days.
These investigations are expected to be completed within a “timely manner”, but ASIC does not give a specific time frame – although 30 days is a good guideline.
Hopkin said: “The clock starts when the licensee begins to look into the matter and takes steps to ascertain if a significant breach has occurred.
“Don’t wait for a formal investigation. In a large licensee, a formal investigation could look like terms of reference for a formal investigation or reviewing 10 per cent of files to determine if it’s a large-scale problem.
“But if you wait for a formal investigation to start, then ASIC will see that as you gaming the system because you are longing out your obligation to report. ASIC expects you to start an investigation and complete it in a timely manner.”
Instead, AFSLs should take steps such as commencing a file review, talking to relevant staff and representatives, and seeking external legal advice.
He said ASIC expects the matter is investigated as a matter of priority and that resources should be reallocated to focus on the possible incident.
“How long is ‘timely’ will depend on the circumstances, but if there is a serious incident, the regulator expects that resources should be reallocated by the firm to resolve that.
“This can be an issue because most licensees are fairly thinly resourced, and an investigation takes more resources than you have planned in. The compliance teams aren’t sitting there waiting for investigations to start; there are lots of other tasks they are already working on.”
ASIC findings
In ASIC’s report covering reportable situations from July 2022 to July 2023, it found 17 per cent of reports indicated it took licensees more than one year to identify and commence an investigation after an issue first occurred.
The median time taken was 55 calendar days and the mean was 327 calendar days. In 820 reports, it took licensees more than five years.
“We expect licensees’ systems to promptly identify non-compliance. Delays create challenges for the timely investigation and rectification of issues, and can mean that customers wait longer for remediation,” it stated.
Licensees completed or expected to complete investigations in a median of 18 calendar days, and a mean of 49 calendar days. There were 523 reports where the investigation took, or was expected to take, more than one year to complete in the current reporting period.
Dobbing in
Hopkin also said he had not seen any instances in his work regarding dobbing in by a licensee of another financial adviser because they believed a reportable situation had arisen.
“There’s a fair amount of reluctance to go down this path, and it’s hard to establish if a situation has arisen because you don’t have access to all of their information. It’s actually a high bar to meet and that’s why we haven’t seen a lot of it in practice as yet.
“One example might be if you bought a book of clients and you open the files and realise there are significant compliance breaches, that would be a case of identifying reasonable grounds that the previous adviser has seriously contravened financial services laws.”
