The counterintuitive effect of ASIC’s reportable situations complexity

ASIC chair Joe Longo has confirmed the thoughts of many advisers that the reportable situations regime is too complicated. 

In a speech in the regulator’s annual forum in Sydney on 14 November, the chair discussed how it is aware of the complexity of its regulation and how it is limiting the ability of ASIC to enforce effectively.

One area he flagged was ASIC’s reporting situations regime, which came into force in 2021 and requires AFSLs to self-report any breaches to ASIC. Its objective is to help ASIC to identify any emerging trends and detect non-compliant behaviour. 

“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.

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“In short, the complexity of that regime is affecting how we translate its intent to get the full benefit.”

During the period of FY24, licensees submitted 12,298 reports, which was a decrease of 27 per cent from the previous corresponding period. 

This decrease is due to a greater uptake by licensees in grouping similar breaches into one report and a decrease in reportable situations relating to misleading or deceptive conduct provisions and the false or misleading statements provision. 

This is divided by 913 AFSLs that lodged 8,636 reports, and 161 credit licensees that submitted 4,088 reports. The number of licensees that lodged at least one report increased by 10 per cent from the previous reporting period to 1,024 licensees.

Some 7 per cent of the reports related to financial advice, unchanged from the previous period, and 4 per cent related to investments, up from 3 per cent in the previous year.

In light of existing complexity, he announced ASIC will convene a Simplification Consultative Group made up of consumer advocates, business leaders and directors which will identify how ASIC can be more effective in administering the law. 

“The fundamental approach of this group will be to listen to consumers, investors and industry, and challenge us to simplify and streamline how these issues are addressed. They will do this by leveraging the existing consultative panels ASIC runs, and inviting additional participation of groups, all with an urgent focus on establishing the key priorities that we can help address.

“While the focus of this regulatory simplification work will start with ASIC, through this process I expect we will gain insights and ideas for new mechanisms that can provide more analysis and recommendations for reform.

“Ultimately, we want to establish a consensus about what needs to be done to ensure we tend towards simplicity for future regulatory development and implementation.”

Responding to the announcement, the Australian Institute of Company Directors (AICD) welcomed the move and said 61 per cent of directors have already flagged to the organisation that compliance as a factor impacting their risk appetite. 

In its bi-annual Director Sentiment index for the second half of 2024, a financial services director stated: “Financial services industry regulation is not calibrated to the size of the entity. The same costly and often unnecessary regulations apply, with threats from non-compliance.”

AICD managing director and chief executive, Mark Rigotti, said: "We all accept that regulation plays a critical role in protecting consumers and investors, but regulation needs to be proportionate and targeted. Regulatory overload not only squeezes out the ability of boards to focus on innovation and value creation, but it produces a more risk-averse environment.

“A simpler and targeted regulatory framework will benefit companies, the economy and society more broadly.”