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asic publishes insights from the reportable situations regime: what financial service businesses need to know

ASIC Publishes Insights from the Reportable Situations Regime: What Financial Service Businesses Need to Know

ASIC has published the first round of data received from financial services and credit licensees under the reportable situations regime.

ASIC Commissioner Sean Hughes noted the importance of this publication, saying. “This report provides crucial insights into how well industry is monitoring and responding to non-compliance under the reportable situations regime. The data ASIC has been receiving shows us that compliance with the regime requires greater regulatory attention.”

Business analyst and small business loan provider Shane Perry of Max Funding commented, “This data is beneficial to us as a financial service business. It gives us important insights into how our competitors are handling customer reports of reportable situations, which we can then use in our compliance processes to ensure that we’re following best practices. We would be keeping an eye on any future publications from ASIC.”

The data demonstrates, to name a few things, that:

Only a Minority of License Holders Reported

Out of all registered licensees, only 6% filed a report in the first nine months under this regime. This is much lower than anticipated and may imply that some licensees need proper systems and procedures to identify and record non-compliance.

At the same time, there are some areas of concern. For example, more than 20% of licensees did not report a single instance of non-compliance in the first few months under this regime. This indicates that many businesses may need to take their responsibility to report serious misconduct by their employees more seriously.

Improvements Are Necessary to Clean Up Current Practices

Almost $370 million of customer financial loss in total have been reported to ASIC. Unfortunately, in 4% of the reports that involved customer financial loss, licensees said they did not intend to compensate these individuals.

The report also found that, in many cases, it was taking licensees too long to complete the planned remediation. Licensees indicated in 12% of the total 1,952 reports (236 out of 1,952) involving compensation to customers that it had taken or was estimated to take more than one year to finalise.

Identification of Possible Breaches and Conducting Active Investigations

In 18% of reports, it took licensees more than a year to identify an issue after it had occurred and start investigating. However, ASIC expects licensees’ systems to identify non-compliance quickly. Delays in this process make it difficult to investigate and rectify problems promptly, which can cause customers to wait lengthy amounts of time for remediation.

Identifying Root Causes

In most of the reports (55%), staff negligence or error was identified as the primary cause. The licensees reported that there had been similar breaches in the past.

ASIC is concerned that, despite the licensees’ efforts, staff negligence and mistakes remain frequent causes of breaches. ASIC has warned that licensees must establish more robust systems and procedures to identify and correct system-level issues.

What Does It Mean for Financial Services Businesses?

Overall, the data in this report highlights several areas businesses need to focus on to comply with the reportable situations regime. These include strengthening internal compliance systems and procedures, training staff effectively to identify potential violations and conducting thorough investigations into each reported breach. Businesses also need to be proactive in compensating customers who have suffered financial losses due to reportable situations and work to identify root causes to prevent future breaches. With these actions, businesses can ensure that they meet the high standards expected by ASIC and minimise the risk of financial losses for their customers.

What Should Financial Service Businesses Do Next?

As the report highlights several key areas that need improvement, financial service businesses should take this as a sign that they must take action to strengthen their compliance practices and ensure that they are meeting all of ASIC’s requirements.

This may include reviewing existing systems and procedures to identify potential gaps or weaknesses, hiring additional staff with expertise in compliance issues, and partnering with external auditors like National Audits Group, who can provide expert advice and guidance on best practices.

Businesses should also focus on training their existing staff to identify and report potential breaches and conducting thorough investigations into each reported incident.

Finally, companies must work proactively to compensate customers who have suffered financial losses due to non-compliance to rebuild trust and maintain compliance. With these actions, businesses can ensure that they meet all of ASIC’s requirements and minimise the risk of future financial penalties or sanctions.

Where to Find Help

National Audits Group can help businesses assess their compliance practices and identify areas for improvement. Additionally, we offer resources and guidance to help companies stay up-to-date on regulatory changes and best practices in the financial services industry.

Connect with us today to learn more about our services and how we can help your business succeed.

Natasha Zulharmen

Auditor – National Audits Group

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