State of Play: ASIC gives breach reporting relief

ASIC has registered the ASIC Corporations and Credit (Amendment) Instrument 2023/589 (Instrument), which provides welcome relief in relation to the ASIC breach reporting regime for Australian financial services licensees.

The Instrument commences on 20 October 2023.

The Instrument provides relief from the original position that a contravention of the misleading or deceptive conduct provisions are automatically reportable, even if the the conduct was not adverse to the client or capable of resulting in client loss or harm. This aspect of the expanded breach reporting regime was the source of considerable confusion and resource strain across the industry, with no clearly identifiable consumer or regulatory benefit - and so, ASIC's relief provides a sensible and pragmatic development to the regime.

At a glance

Misleading or deceptive conduct relief

The Instrument provides relief from the obligation to report “minor breaches” of the misleading or deceptive conduct prohibitions in section 1041H(1) of the Corporations Act and sections 12DA(1) and 12DB(1) of the ASIC Act.

In summary, a report will not need to be lodged with ASIC where the underlying circumstances in relation to the breach involves:

• only a single reportable situation;
• contravention of only one or more of section 1041H of the Corporations Act or sections 12DA or 12DB of the ASIC Act, and not a contravention of any other core obligation;
• only one client who is, or who is likely to be, impacted by the reportable situation (or if the contravention relates to a financial product that is held jointly by more than one person, only those clients are impacted); and
• no financial loss or damage which resulted, or is likely to result, from the reportable situation.

The Explanatory Statement describes the concept of a reportable situation with the same ‘underlying circumstances’ as being analogous to a reportable situation with the same ‘root cause’, as articulated in ASIC RG 78. The Explanatory Statement also provides a series of example scenarios that ASIC expects could ordinarily fall within the scope of the relief.

Importantly, the relief will not apply where the reportable situation also includes a contravention of other misleading or deceptive conduct prohibitions, such as the prohibition against misleading, false or deceptive inducement under section 1041F of the Corporations Act, or conduct that is liable to mislead the public under section 12DF of the ASIC Act.

We have previously written about the  circumstances where an unintentional error may not constitute misleading or deceptive conduct.

Reporting period relief

The Instrument also extends the number of days that a licensee has to report a reportable situation where the underlying circumstances of the situation are the same or substantially similar to a reportable situation previously reported to ASIC.

Licensees were required to lodge a report within 30 days first knowing that, or is reckless with respect to whether, there are reasonable grounds to believe that the further reportable situation has arisen. This deadline is extended to 90 days.

We have a detailed methodology that can help you consider whether a misstatement is likely to be misleading or deceptive. We can also provide an advanced breach reporting masterclass to your team. Get in touch with one of experts below or email our Breach Reporting Hotline.