The publication shows little improvement has been made in key areas of concern that ASIC highlighted in the first publication on insights from this regime last year. Among other things:

• the proportion of the licensee population reporting remains very low, indicating that some licensees may not be complying with the regime
• licensees are still taking too long to identify and investigate some breaches
• a significant number of remediation activities are still taking too long to complete, and
• there remain opportunities to improve identification and reporting root causes of breaches.

‘The reportable situations regime has now been in place for over two years, and licensees have had ample time to take the necessary steps to ensure full compliance with the requirements,’ said ASIC Chair Joseph Longo.

‘Since its commencement, ASIC has been working with stakeholders to improve the operation of the reportable situations regime, including through providing guidance and modifications. ASIC will now move to taking stronger regulatory action to drive improved compliance with the regime, including enforcement action where appropriate.’

Compliance of the licensee population with the regime

Since the regime commenced in October 2021, only 11% of the licensee population has lodged a report. This remains significantly lower than expected and indicates that some licensees may not have in place the systems and processes required to detect and report breaches.

ASIC has commenced surveillance activity targeting licensees who may not be meeting their obligations. As part of this, ASIC will focus on licensees who are not reporting or are reporting significantly less than expected given their nature, scale, complexity, and when compared to peers.

Identification and investigation of breaches

In 17% 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.

ASIC expects licensees to promptly identify non-compliance. Delays create challenges for the timely investigation and rectification of issues and can mean that customers wait longer for remediation.

Timeliness of remediation activities

ASIC is concerned that licensees are still taking too long to compensate impacted customers. Licensees indicated in 247 reports (8% of the total reports involving compensation to customers) that it had taken, or was estimated to take, more than one year to finalise compensation.

As outlined in a recent article, ASIC calls on licensees to strengthen remediation procedures, ASIC will consider regulatory action where licensees fail to deliver fair and timely remediation to affected customers.

Identification of root causes

The most common root cause for breaches (66%) continues to be staff negligence or error, even where there are repeat or multiple breaches, or multiple breaches were grouped together.

ASIC remains concerned that licensees may not be adequately identifying the underlying root causes for breaches, such as by determining the underlying reasons for repeated staff negligence or error. The accurate identification of root causes is important in enabling a licensee to put in place appropriate preventative measures to reduce the likelihood of similar breaches occurring.

Background

The reportable situations regime, often referred to as breach reporting, is a cornerstone of the financial services and credit regulatory regimes, and the reports lodged by licensees are a critical source of regulatory intelligence for ASIC. The new regime commenced on 1 October 2021. For more information, see Reportable situations for AFS and credit licensees.

The regime also requires ASIC to report annually on the information lodged by licensees. Amongst other things, this publication is intended to assist industry and customers identify where significant breaches are occurring. ASIC’s approach to reporting will evolve over time, as the regime matures, and allow for greater granularity of reporting in the future.

ASIC has recently made minor modifications to the reportable situations regime so that licensees do not have to submit notifications about certain minor reportable situations. Further information is available: Reportable situations regime: ASIC modifies licensees’ obligations.

Download

Report 775 Insights from the reportable situations regime: July 2022 to June 2023

Other resources

Regulatory Guide 78 Breach reporting by AFS licensees and credit licensees

Regulatory Guide 277 Consumer remediation

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ASIC Chair Joseph Longo said, ‘ASIC welcomes the Agreement between ASIC and the FMSB. This Agreement will help us engage with the FMSB to promote good wholesale market practices.’ 

‘ASIC is committed to ensuring Australia’s financial markets are fair and efficient, and those who provide financial services demonstrate fairness, honesty and professionalism,’ concluded Mr Longo.

Fixed income, currencies and commodities (FICC) markets underpin and drive growth in Australia’s real economy. Given the global and interconnected nature of FICC markets, FMSB standards are relevant to Australian market intermediaries as they seek a global level playing field and benchmark their practices against industry peers. 

While industry standards do not replace obligations under Australian law, the development and promotion of good industry standards can supplement principle-based laws and drive robust operational practices among market intermediaries.  

The Agreement will facilitate the FMSB’s consultation with ASIC in the development of draft guidance and other publications, and provide ASIC with periodic updates on the FMSB’s strategy. While the Agreement enables ASIC to observe open sessions of certain FMSB meetings, it does not constitute ASIC’s implicit or explicit endorsement of FMSB’s publications. 

Download

Consultation Agreement

Background

The FMSB is an industry organisation focused on developing clearer guidance across asset classes and jurisdictions to increase market discipline and prevent repetition of bad behaviour. The FMSB promotes good practices in wholesale markets globally through the publication of and adherence to standards, good practice statements and spotlight reviews. 

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It is now time for a careful and independent review of ASX’s and Digital Asset’s (DA) work to date on the CHESS Replacement and the work needed to complete the project. It is critical that ASX and the market have a high degree of confidence and certainty in a new go-live date. Industry has mobilised significant resources to date and will need to continue to invest to ensure a successful and safe launch of the CHESS replacement.

Despite the delay, the regulators expect ASX to replace CHESS as soon as this can be safely achieved by ASX and users of CHESS. CHESS is a critical clearing and settlement (CS) system for the Australian cash equity market. A stable and reliable CHESS replacement will be important to maintain investor confidence in Australian financial markets and the stability of the financial system.

ASIC Chair Joseph Longo said, ‘It is very disappointing that there is a further delay to the CHESS Replacement Project. Given the delays and duration of the project, it is critical that Accenture now undertake this review to provide assurance on the delivery of a resilient replacement for CHESS and a high degree of confidence in a revised go-live date. To achieve this we expect ASX to publish the findings of the Accenture review. It is important that the Australian financial system is served well by contemporary infrastructure that is efficient, resilient, reliable and scalable to meet existing and future needs of the market and participants.’

RBA Governor Philip Lowe said, ‘The delay in the go-live date for the CHESS replacement system is disappointing. The review initiated by ASX is an important step in providing assurance that the new CHESS application software will be fit for purpose. The replacement system must be safe and reliable to maintain investor confidence and the stability of Australia’s financial system.’

The regulators continue to closely monitor ASX’s compliance with its CS facility licence obligations, including the additional licence conditions imposed in November 2021. These additional conditions required an independent expert to be appointed as approved by ASIC to assess whether ASX’s assurance program for the replacement of CHESS is fit for purpose, identifying any shortfalls, and reporting regularly to ASIC. The independent expert, EY, has and continues to provide assurances over various aspects of the CHESS Replacement project.

Accenture’s review will form part of ASX’s assurance program and therefore be considered by the independent expert. Prior to go-live, ASX must provide all independent assurances to the independent expert and the regulators and provide senior executive and Board attestations. The independent expert must also provide to ASIC a report on the totality of the findings of the assurance reviews including whether remedial actions have been appropriately implemented by ASX.

At a minimum, the regulators’ expectations are that the new system must meet requirements that CHESS meets today for system availability, resilience, recoverability, performance and security. ASIC and the RBA will continue to closely supervise ASX’s CHESS replacement change program.

We expect ASX to continue to invest in and maintain the current CHESS system so that it continues to service the market reliably until the CHESS replacement can go live.

Background

ASIC and the RBA are co-regulators of licensed CS facilities.

The RBA and ASIC have supervisory responsibilities for the four clearing and settlement (CS) facilities in the ASX Group: two central counterparties – ASX Clear Pty Limited and ASX Clear (Futures) Pty Limited – and two securities settlement facilities – ASX Settlement Pty Limited and Austraclear Limited.

The RBA conducts annual assessments covering the CS facilities’ observance of relevant Financial Stability Standards determined by the RBA.

For more information on the RBA’s approach to supervising and assessing CS facilities, see: The Reserve Bank’s Approach to Supervising and Assessing Clearing and Settlement Facility Licensees.

ASIC has separate, but complementary, responsibilities for the licensing and supervision of CS facilities licensed under Part 7.3 of the Corporations Act. ASIC is responsible for assessing whether a CS facility’s services are provided in a fair and effective way. ASIC also has regulatory responsibilities for operators of licensed markets, including the ASX market. In carrying out supervision and assessments of CS facilities, the RBA and ASIC work closely as appropriate.

The post Delay to the ASX CHESS Replacement Project and Independent Review appeared first on AdviserVoice.

Jane Hume

In what will be his first address to the financial advice community since his appointment in June 2021, ASIC Chair, Joseph Longo, will appear on the opening day of the Association of Financial Advisers (AFA)’s upcoming EVOLVE Conference (the AFA Conference).

Mr Longo joins a distinguished line-up of expert speakers, including Senator Jane Hume, Minister for Superannuation, Financial Services and the Digital Economy, who will deliver the opening keynote, and Shadow Assistant Treasurer and Shadow Minister for Financial Services and Superannuation, Stephen Jones, MP. Former Lego executive, Conny Kalcher, from Zurich’s UK headquarters, will discuss her customer journey from Lego to Insurance, and Australia’s former Deputy Chief Medical Officer and COVID-19 expert, Dr Nick Coatsworth is the closing keynote speaker.

AFA’s new CEO, Helen Morgan-Banda, said, “I am looking forward to welcoming AFA members to our EVOLVE conference, as we celebrate 75 years as an association. I want to join with financial advisers and use this conference to start charting a way forward after a period of unprecedented change.”

Hosted by Master of Ceremonies, Nigel Collins, the AFA Conference will run from 21-22 September 2021. Delegates will have virtual access to 35 industry expert presentations which will be broadcast live across the nation and subsequently made available to delegates on demand for up to four months. The complete AFA Conference program offers up to 30 hours of CPD and delegates will be able to immediately download their CPD certificates after viewing an on-demand session via a new CPD Hub. Those joining the conference will also be able to take part in interactive sessions and visit virtual exhibitor showrooms.

Olivia Sarah-Le Lacheur, AFA Conference Chair, said, “Once again, the AFA Conference program has been expertly designed to help delegates increase their technical knowledge, while also giving them insights into how to grow their businesses. It provides an outstanding opportunity for advisers to access information that will help them to take their practices to the next level.”

The AFA Conference will also host a special 75th birthday celebration.

Other sessions include a comprehensive regulatory update from AFA General Manager, Policy and Professionalism, Phil Anderson; sessions on investment, pricing, and industry trends; updates from the AFA Foundation and Pro Bono Financial Advice Network; insights from industry heads of business, and seven panel discussions covering key issues across the profession.

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