The Federal Court has imposed combined penalties of $4 million on Statewide Superannuation Pty Ltd (Statewide) for providing members with misleading information regarding their insurance and failing to breach report the issue to ASIC in the time required by law.
ASIC Deputy Chair Sarah Court said, ‘Statewide provided misleading communication to thousands of its members, telling them they had insurance cover when they did not. It also overcharged more than $2.5 million in insurance premiums to members who no longer held insurance as part of their superannuation accounts. This led to the risk that fund members may have found themselves without insurance when they needed it.’
‘When it discovered these issues, Statewide failed to report them to ASIC in a timely manner. Breach reporting is integral to board oversight and risk management by licensees. Financial services companies have strict obligations to report contraventions of the law to ASIC, including time limits in which to do so,’ concluded Deputy Chair Court.
From 2017 to 2020, Statewide sent over 14,000 annual statements or other correspondence to at least 7,000 fund members representing that they held insurance within their superannuation in circumstances where their insurance cover had lapsed. Statewide also overcharged insurance premiums of at least $2.5m to some fund members. Statewide also failed to report these issues within ten days of becoming aware of them, as then required by law.
The Court also found that, in making these representations, Statewide breached its obligations as an Australian financial services licence holder to act efficiently, honestly and fairly and to comply with financial services laws.
On 22 December 2021, the Court imposed a penalty of $3.5 million on Statewide for the misleading correspondence it sent to its members and a penalty of $500,000 for its failure to breach report the issue to ASIC.
The Court ordered that Statewide:
undertake a remediation program to identify the members who were overcharged and remediate them in full,
reach an agreement with ASIC about engaging an independent expert to review and report on the implementation and effectiveness of that remediation program, and
publish an adverse publicity notice on its website and mobile app.
On 17 January 2022, in handing down the reasons for his decision, Justice Besanko noted that while Statewide’s conduct was not deliberate, the contraventions of the law were serious. His Honour found that Statewide’s conduct stemmed from inadequate management and risk control processes, including a failure to adequately manage systems changes.
His Honour also noted that a large number of Statewide fund members were affected by the conduct and that remediation is ongoing.
This is the first civil case in which the Court has imposed a civil penalty on a licensee for failing to report breaches to ASIC since new penalty powers were introduced in 2019.
ASIC has identified superannuation trustee practices around insurance in superannuation as requiring improvement and has been working on a number of initiatives to improve practices (20-323MR). Where necessary, ASIC will use enforcement action to deter misconduct by trustees concerning insurance in superannuation.
On 4 March 2021, ASIC commenced proceedings against Statewide alleging it made false or misleading representations about the insurance cover held by fund members (21-037MR). Statewide admitted the allegations.
On 1 October 2021, breach reporting reforms took effect to make the reporting process more consistent, clearer and timely across the industry (21-235MR).