ASIC to investigate breach reporting regime’s “implementation challenges”

ASIC has released a response to the current state of breach reporting.

“As part of its 2022-23 priorities, ASIC will focus on improving the operation of the reportable situations regime.

The new regime, which applies to Australian Financial Services (AFS) Licensees and Credit Licensees, commenced on 1 October 2021.

The lodgement of reports by licensees under the reportable situations regime provides a critical source of intelligence to enable ASIC to identify emerging trends of non-compliance in the industry. It also allows detection of significant non-compliant behaviours early, facilitating prompt regulatory action where appropriate.

ASIC Commissioner Sean Hughes said, ‘We are aware that the regime has led to a number of implementation challenges. However ASIC remains committed to the successful implementation of this regime and we have developed a comprehensive plan of work to ensure that it meets its objectives for ASIC, industry and consumers.’

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From Financial News Wire:

The financial advice industry has been vindicated. The former Government and the Australian Securities and Investments Commission (ASIC) were warned by all the major financial planning organisations that the new breach reporting regime would generate an explosion in breach reports.

Little more than a year after those warnings were sent to Treasury in the form of submissions responding to the Government’s proposed regulations, ASIC has acknowledged “we are aware that the regime has led to a number of implementation challenges”.

The implementation challenges now being encountered by ASIC could have been addressed in amendments responding to industry feedback in April, last year, but instead dealer groups and self-licensed advisers have found them having to grapple with significant legislative complexity.

It is little wonder that the Association of Financial Advisers (AFA) and the Financial Services Council (FSC) quickly welcomed the statement by ASIC commissioner, Sean Hughes, that the regulator will engage with the industry “to further understand any issues that are placing unnecessary compliance burden on industry”.

Hughes and his team from ASIC could do worse than ask Treasury to share the industry’s submissions with respect to the Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers (2020 Measures)) Regulations 2021: Breach Reporting legislation which sits at the heart of the breach reporting regime.

In its submission to Treasury, the AFA pointed to the complexity that was about to be inflicted on the sector stating: “Our serious concern … is that it is significantly moving away from the concept of significant breach reporting and that this new regime will involve an exponential increase in the number of breaches that need to be reported and many of these will be of a largely administrative nature”.

The AFA said in its submission that it had held a number of discussions with its licensee partners and was well aware of the serious concerns that many of them have with the implications of this legislation.

“In one case, a licensee who had 4 breaches reported in 2020, expected on the basis of the new legislation, that this would increase to 198,” the AFA submission said. “Their feedback suggests that the exclusion of civil penalty matters for the failure to deliver an FSG and a PDS would only marginally decrease the number of breaches that would need to be reported.”

Speaking to Financial Newswire yesterday, AFA chief executive, Phil Anderson said his organisation had recognised the issues with the breach reporting changes from the outset and he was pleased to see ASIC was willing to consult on the issue.

For its part, the Financial Services Council said it welcomed the ASIC announcement.

“The new breach reporting regime introduced in October 2021 has given rise to a number of challenges for financial services businesses, and ASIC’s engagement with the FSC and industry has been positive on this issue,” it said. “Enhancements to the breach reporting portal and better guidance on how to use it will be a positive start in addressing these problems, benefiting licensees and ultimately consumers.”

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