Industry funds back toughening breach reporting regime
The major banks have sought to exploit deficiencies in the Australian Securities and Investments Commission’s (ASIC’s) breach report regime to avoid or delay breach reporting, according to industry funds representative body, the Australian Institute of Superannuation Trustees (AIST).
In a submission to ASIC’s enforcement review on self-reporting on contraventions, the AIST pointed out that the regulator had in March this year released a report on the conduct of licensees controlled or owned by the big four banks and AMP.
“ASIC reviewed the breach reports and other notifications provided to ASIC by the licensees between 2009 and 2015. ASIC found nearly half of the advisers about whom the licensees held serious compliance concerns were not notified to ASIC until directed to do so by ASIC,” the submission said.
“This raises serious questions about the culture of the banks, which have sought to exploit deficiencies in the regime to avoid or delay breach reporting rather than adopt an ‘if in doubt, report’ approach which would be consistent with behaviour of good corporate citizens complying with the spirit of the regime,” the AIST said.
In doing so, the industry funds body used its submission to urge both strengthening and clarification of the breach reporting rules, particularly around the so-called ‘significance test’.
It claimed that the “existing test enables large licensees to form a view that a breach that is objectively serious does not meet the threshold for self-reporting, due to the size of the breach relative to the size of the licensee,” the AIST submission said. “This is a perverse outcome– larger licensees, such as banks, need to report fewer breaches.”
Elsewhere in the submission, the AIST has also argued for a significant strengthening of the Financial Advice Register to include information about the remuneration model for each adviser, claiming “conflicted remuneration continues to be a feature of the financial advice sector despite the Future of Financial Advice reforms, because there are numerous exemptions from the specific services, for example, fee for service, asset-based, and commission”.
“These include significant exemptions that allow banks and retail superannuation funds to continue to pay staff and third parties commissions and other conflicted remuneration, including to recommend that customers and clients stay in, or switch to, a retail superannuation fund,” it said.
“The relationship between conflicted remuneration and poor quality advice that does not satisfy the obligation to act in the best interests of clients is well established,” the submission said.” For example, in 2014, ASIC released a report on its review of retail life insurance advice. The review, which covered advice given before and after the introduction of the FOFA reforms, found more than one third of the advice did not comply with relevant laws. Over 80 per cent of advisers were paid under up front commission models.”
“Conflicted remuneration was the principal driver of advice that did not comply with the law – 96 per cent of the advice assessed by ASIC as failing to comply with the law was given by advisers paid an upfront commission.”
Recommended for you
The Governance Institute has said ASIC’s governance arrangements are no longer “fit for purpose” in a time when financial markets are quickly innovating and cyber crime becomes a threat.
Compliance professionals working in financial services are facing burnout risk as higher workloads, coupled with the ever-changing regulation, place notable strain on staff.
The Senate economics legislation committee has recommended Schedule 1 of the Delivering Better Financial Outcomes legislation be passed as it is a “faithful implementation” of the recommendations.
Treasurer Jim Chalmers has handed down his third budget, outlining the government’s macroeconomic forecasts and changes to superannuation.
