“In my life, there is only one concept that I have determined. It’s that everything is gray. Every person, every question, every tragedy, even every victory, they all have nuance. Pay attention to the nuance.”
— Kristen Bell’s commencement speech to the undergraduates of USC School of Dramatic Arts
To report or not to report, that is the question.
With ASIC’s release of Report 740 in October, we gained insights from reportable situations for the period October 2021 to June 2022.
While the report only covers “significant breaches of core obligations” or “anticipated breaches of core obligations” it does provide key insights for Advisers and Licensees. For example, the new breach reporting regime appears to have had an inconsistent application across the financial services industry.
Although 8,829 initial reports were lodged (and 2,530 updates provided) only 6% of the licensee population has lodged reports, this is significantly lower than what the regulator had anticipated.
ASIC has taken the view that “failure to lodge reports is an indicator that licensees may not have in place the systems and processes required to detect and report non-compliance.”
“Given the low level of reporting, we will be undertaking a range of activities to strengthen compliance with the regime”.
Read ASIC report 740
The bare bones
Lets breakdown the reports to date
- 34% false or misleading statements about a product, regarding service information or within warning statements
- 21% lending
- 19% licensee obligations; and
- 14% fees and costs
60% of the reports identified staff negligence or human error as the root cause.
As the festive season draws closer, staff fatigue may start to crawl in, as we know, fatigue can play a part in human error. Have you thought about what extra measures could be in place to assist you? Have you examined your current internal monitoring processes and asked the question, are they sufficient?
Alas Smith and ASIC
ASIC recently accepted a court enforceable undertaking from financial advisory firm Lasarith Pty Ltd (AFSL) and its sole director and responsible manager, Adam Smith.
ASIC found the AFSL and Authorised Representatives failed to provide Statements of Advice to clients in accordance with s946A of the Corporations Act on at least 24 occasions during 2016/2017 and 2017/2018 financial years. ASIC also found at least 30 occasions during the same time period where the AFSL and Authorised Representative failed to provide a Statement of Advice to clients within the specified period in accordance with s946C of the Corporations Act.
ASIC’s investigation found the responsible manager, Adam Smith knew about the failings in March 2017, however he failed to take sufficient action to prevent breaches of the Corporations Act until September 2017. That’s 6 months post the initial finding. Furthermore, the AFSL did not notify ASIC of the breaches until September 2021. That’s 4.5 years, yes you read right, 4.5 years post initial findings.
Understandably ASIC found Adam Smith did not fulfill his obligations as a responsible manager during the 2016/2017 and 2017/2018 financial years. As a consequence, Mr Smith is unable to be a responsible manager of any other AFSL holder for a period of 18 months. The AFSL will cease operating its financial services business and commence the cancellation process by 8 February 2023.
The reason we’re highlighting this release is not to suggest that it’s common practice for well-run licensees, but to highlight the role responsible managers play when identifying breaches, and the importance to act promptly and swiftly when investigating potential breaches. RG78.90 states the definition of ‘knowledge’ is set out in s5.3 of the Criminal Code as: ‘A person has knowledge of a circumstance or a result if he or she is aware that it exists or will exists in the ordinary course of events.’
In fact, RG 78.85 states ‘You must report to ASIC within 30 days after you first know that, or are reckless with respect to whether, there are reasonable grounds to believe a reportable situation has arisen: see s912DAA of the Corporations Act, s50B of the National Credit Act.’
If in doubt, speak up
ASIC Report 740 highlighted the important role your staff and your internal monitoring and supervision activities play. We continually emphasise the role all staff play in identifying potential breaches. Assured Support has provided breach identification and reporting training to many of our licensee clients. The continued up-skilling of all staff will compliment your positive compliance culture and drive change and enhancements within your monitoring and supervision activities.
If you need help with your internal monitoring and supervision please reach out, Assured Support has reviewed 16,629+ advice files in 2022, our commercial insight is one of our most endearing qualities, that and our experienced staff.
If you found this article interesting, you may also enjoy Professional Planner Principals in Practice Podcast, where our managing director Sean Graham, and QMV Legal senior associate Gabriela Pirana discuss ‘The regulatory squeeze – Shaping an industry’.