Advisers flagged on navigating pitfalls from breach reporting obligations 

For AFS licensees, the changes revamp existing reporting obligations under section 912D of the Corporations Act 2001 (Cth) (the Act). For credit licensees, the reporting obligations are entirely new and are set out in section 50A of the National Consumer Credit Protection Act 2009 (Cth) (NCCP). 

In a recent insights update, Arnold Bloch Leibler partner Caroline Goulden and lawyer Craig Evans analysed that the new requirements are reasonably onerous and are likely to significantly increase rates of reporting to ASIC, with advisers needing to go through different reporting situations and assess any compliance breaches.

“While ‘core obligation’ is a new term under the regime, these obligations generally mirror the existing obligations for AFS licensees and include the general obligations under s 47 of the NCCP for credit licensees,” Ms Goulden said.

“A ‘likely breach’ of a core obligation occurs where a licensee is no longer able to comply with a core obligation and the breach, if it occurred, would be significant.”

Investigations into breaches or likely breaches of core obligations 

Licensees will only be required to report investigations that concern a breach (or likely breach) of a core obligation, which is significant where the investigation has continued for more than 30 days, according to Ms Goulden.

For example, if a licensee investigates and determines, within 30 days, that there are no reasonable grounds to believe that a reportable situation has arisen, then there is no requirement to report. 

“The term ‘investigation’ is not defined. Whether or not an investigation has occurred will differ depending on the size of the business, the licensee’s internal systems and processes, and the type of breach,” she said.

“Licensees should consider whether there has been information gathering or human effort applied … to determine whether a breach has occurred or will occur.

“This could include a communication with representatives, staff, or potentially affected clients about the potential breach, or a request for advice from experts or professionals about the conduct.”

Reportable situations about other licensees 

Controversially, the Act also introduces a “dobbing in” obligation for licensees to lodge a report in relation to other licensees in certain circumstances. 

Ms Goulden noted licensees are required to lodge a report to ASIC if they have reasonable grounds to believe that a reportable situation (other than an investigation) has arisen in relation to mortgage brokers or individual financial advisers who provide personal advice to retail clients.   

“Examples of these situations might include where a lender becomes aware of an individual mortgage broker falsifying information in loan application documents, or where a client has received inappropriate advice from a previous financial adviser,” Ms Goulden said.

“Other reportable situations include those arising in circumstances prescribed by the regulations in s 912D(2)(c) of the Act and s 50A(2)(c) of the NCCP. 

“Given the new obligations and potential penalties for non-compliance, it is vital that you and your business are aware of any reportable situations.”