ASIC’s REP 740 Insights from the reportable situations regime: October 2021 to June 2022 is its first report on breach reporting under the changes for financial services licensees and credit licensees which commenced on 1 October 2021. Background.

ASIC says that in the 9 month period 8,829 initial reports and 2,530 updates were submitted to ASIC by financial services and credit licensees.

74% of all reports were lodged by just 23 (mainly larger) licensees.

Types of breaches
38% of reports were about credit product lines, followed by general insurance (19%) and deposit taking (10%).

34% of reports were about issues of false or misleading statements about a product, regarding service information or in warning statements, followed by lending (21%), general licensee obligations (19%) and fees and costs (14%).

60% of reports specified a root cause of staff negligence or error, followed by policy or process deficiencies (9%) and system deficiencies (6%).

The main driver for the significant volume of reports by credit providers was the lodgement of separate reports about one-off breaches of specific responsible lending obligations, where those breaches were reported as the result of staff negligence or error.

The reports that did not relate to a financial service, credit activity or product line related to a
breach of general licensee level obligations, rather than a specific product or service.

The products most commonly the subject of a report were home loans (25%) and motor vehicle
insurance (13%), which were the primary drivers of credit and general insurance reports respectively.

ASIC’s conclusions
ASIC says that:

• a much smaller proportion of licensees have reported under the regime than anticipated (Only 6% of the licensee population lodged a report during the first nine months of the regime);
• licensees are still taking too long to identify and investigate some breaches (In 18% of the reports received, it took the licensee more than one year to identify and commence an investigation into an issue after it had first occurred.);
• more work needs to be done to appropriately identify and report the root cause of breaches (55% of reports identified staff negligence or error as the sole root cause, including where the licensee had reported that there had been previous similar breaches, or multiple breaches were grouped together.); and
• further improvements are needed to licensees’ practices towards remediating impacted customers (licensees indicated that they did not intend to compensate impacted customers in 4% of reports that had identified customer financial loss.)

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