ASIC’s media releases often refer to “systemic misconduct” by a company, but that term is not defined in any law.
Systemic misconduct is used to refer to repeated breaches in an organisation of the same type (rather than isolated incidents) or multiple breaches of different kinds in the same organisation.
Typically, the systemic issue points to a culture in an organisation of not addressing a breach of a law through failure to monitor problems or overlooking repeated wrongful conduct.
It could be reflected in incentive systems that reward bad behaviour.
The Australian Law Reform Commission has described such offences as “system of conduct offences”, as they are based on the “system of conduct or pattern of behaviour”.
Corporate misconduct can arise from deficient systems, practices, policies, and cultures.
APRA’s CBA Report in 2018 concluded that “CBA has difficulty identifying broad, systemic issues in its businesses, including by linking sources of risk data across the institution and through analysis of customer complaints. In addition, CBA has had difficulty resolving identified issues as a result of organisational complacency, low senior-level oversight, and weak project execution capabilities.”
CBA subsequently undertook widespread organisational reform.
AFCA defines a systemic issue as an issue that is likely to have an effect on one or more consumers or small businesses, in addition to a complainant.
In ASIC RG 271 ASIC says that consumer complaints are a key risk indicator for systemic issues within a financial firm. A systemic issue is a matter that affects, or has the potential to affect, more than one consumer.
Some examples include:
• a disclosure document that is inadequate or misleading;
• a systems issue that produces errors—for example, benefit calculation errors or interest calculation errors;
• a unit pricing error that incorrectly allocates investment earnings to members;
• a documented procedure that does not comply with legal requirements—for example, it permits privacy requirements to be breached;
• a procedural weakness that is liable to recur;
• an erroneous interpretation of a superannuation trust deed provision; and
• a group insurance administration error that does not record cover for eligible members.
An apparent isolated human error could be a sign of a wider corporate problem.
The consequences of systemic misconduct could include fines, penalties, licence conditions and an enforceable undertaking for the company as well as fines, disqualification and banning for directors and officers.
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Author: David Jacobson
Principal, Bright Corporate Law
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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.
