Case note: penalty for failing to report breach

In Australian Securities and Investments Commission v Statewide Superannuation Pty Ltd [2021] FCA 1650 in addition to  penalties totalling $3,500,000 in respect of Statewide’s contraventions of sections 12DB(1)(g) and (i) of the ASIC Act (misleading conduct), Statewide was ordered to pay to the Commonwealth a penalty of $500,000 in respect of Statewide’s contravention of section 912D((3) of the Corporations Act by failing to report its breaches to ASIC after it became aware of the breaches.

The Federal Court of Australia made declarations of contraventions of both the Corporations Act and the ASIC Act by Statewide Superannuation Pty Ltd as the trustee of the Statewide Superannuation Trust in respect of misleading correspondence sent to its members between 1 May 2017 and 30 June 2020 relating to their insurance cover. 

The Federal Court also made an adverse publicity order, an order requiring the establishment and implementation of a review and remediation program and an order for costs

Statewide sent its members erroneous correspondence that stated that the member held insurance cover as at 30 June of the relevant year, when the member did not then have insurance cover under the Statewide Insurance Policies.

Insurance premiums of approximately $2,700,000 were deducted from the member’s superannuation account, at times when the member did not have insurance cover under the Statewide Insurance Policies

The errors resulted from Statewide failing to adequately and properly test insurance data migrated to, and insurance coding within, its administration platform.

After May 2018 when Statewide became aware of instances of mischarging up to 1,300 members whose insurance coverage had ceased, it failed to: (1) inform those members of the overcharging, (2) prevent further overcharging of those members, and (3) prevent the issue of subsequent misrepresentations to those and other members.

Statewide argued that only a nominal penalty should be imposed for its failure to report the breaches to ASIC.

Justice Besanko rejected that argument observing that:

“The contraventions of s 12DB(1)(g) and (i) of the ASIC Act are serious. They affected a large number of members of the Fund and remediation for those members is an ongoing process. The cause of the contravening conduct was an inadequate implementation of the change to the Acurity administration system and then the failure to address adequately and in a timely fashion the problems and errors resulting from that implementation….

On the other hand, the Fund is a profit-for-members fund and none of the conduct was deliberate and, importantly, none of the conduct was motivated by a desire to generate profit. Furthermore, the likely merger with Host Plus means that the rationale of specific deterrence is of less importance in this case compared with other cases. In addition, as far as general deterrence is concerned, the likely merger and the connection between it and the contravening conduct and its consequences is relevant to how others will view the consequences of engaging in similar conduct. That is a relevant matter. I considered all the matters identified in these reasons, but the two matters I have identified led me to conclude that pecuniary penalties less than might otherwise be imposed were appropriate in the circumstances of this case. The pecuniary penalty I fixed for these contraventions was $3,500,000….

As far as the delay to report significant breaches to ASIC is concerned, the delay was not substantial and the conduct was not deliberate. The reporting obligation is an important one in terms of the regulation of the financial services industry and I reject the submission of Statewide that no penalty, or only a nominal penalty, was appropriate. Having regard to all the matters I have identified in these reasons, I fixed the pecuniary penalty in the amount of $500,000.”

Statewide is the trustee and registrable superannuation entity licensee in respect of the Statewide Superannuation Trust. Statewide holds an Australian Financial Services Licence. As at 30 June 2020, the Fund had approximately 160,000 member accounts and Statewide managed Fund assets of $9.9 billion. Statewide Super has entered into an agreement with Hostplus to merge their two funds. The merger is scheduled to take place in April 2022.

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David Jacobson

Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.

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