Most licensees are across their obligations to dob themselves in to ASIC when they become aware of a ‘reportable situation’. But are you aware that you have an obligation to dob in other licensees in certain circumstances? This is the equivalent of being what we used to call, in the school playground, a dibber-dobber – except that, under the AFSL regime, it’s not optional!
I also like to call it the ‘dabbing’ provision, as it sits in section 912DAB (get it – ‘DAB’?) of the Corporations Act 2001. Dabbing evokes another image for me of school playgrounds – that of my children ‘dabbing’. You might recall this dance manoeuvre that was somewhat ubiquitous around 2015 or so.
Even more staggering than this obligation to dob in another licensee is the fact that you need to tell the other licensee when you have done it – not conducive to friendly relations between fellow licensees.
When the obligation arises
The obligation arises for a financial services licensee if there are reasonable grounds to believe that:
- A reportable situation has arisen in relation to another AFS licensee;
- Conduct forming part of the reportable situation has been engaged in by an individual who is:
- an employee of the other licensee or of its related body corporate (acting within the scope of their employment);
- a director of the other licensee or of its related body corporate (acting within the scope of their director’s duties); or
- another representative of the other licensee acting within the scope of the representative’s authority; and
- The individual provides personal advice to retail clients in relation to ‘relevant financial products’ (these are financial products other than basic banking products, general insurance products or consumer credit insurance products).
While reportable situations normally include significant breaches of core obligations, gross negligence or serious fraud, and investigations into such matters that last for 30 days or more, when it comes to dobbing in another licensee, only the first two types of reportable situation are relevant. You don’t need to worry about reporting investigations being conducted by other licensees.
The obligation also arises in relation to an individual who is themselves a licensee but, in our experience, it is very rare to find an AFSL held by individual. Most AFSLs are held by companies.
It is important to note that the obligation is triggered in relation to an individual who actually provides personal advice to retail clients in relation to relevant financial products, even if the individual is not necessarily authorised to do this. This means that the obligation may be triggered when a person who is not listed on the ASIC Financial Advisers Register or appropriately qualified as a relevant provider inadvertently (or even deliberately) provides personal advice to retail clients in relation to relevant financial products.
An example of this may be where a client comes to you for advice about a life insurance policy that has been sold to them by a licensee with an authorisation to provide general (and not personal) advice, but the client shows you correspondence that clearly indicates that an employee of that licensee provided personal advice to the client.
The explanatory memorandum (EM) to the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 attempts to give an idea of the kinds of situations in which the obligation might be triggered. It states:
In practice, a reporting licensee will likely have reasonable grounds to believe that a reportable situation has arisen in relation another financial adviser through a relationship of proximity between the two parties. For example, this may occur because of business dealings between the two parties or through mutual clients.
Although the EM refers here to a ‘financial adviser’, be careful to remember that the obligation as actually drafted relates to conduct engaged in not just by a qualified and registered relevant provider but also to any conduct engaged in by an individual who provides personal advice to retail clients in relation to relevant financial products.
Which licensees must comply
The obligation to dob in another licensee in the circumstances set out above applies to all licensees, not just those that provide personal advice to retail clients. All licensees must be mindful of, and comply with, this obligation.
For example, a superannuation trustee might seek evidence of personal advice provided to a member from time to time when auditing its processes relating to the payment of advice fees from super. As part of this exercise, it may identify a very obvious defect in disclosure in a Statement of Advice, or a very obvious concern that suggests that the best interests obligations have not been met. Even though the superannuation trustee may not itself hold a personal advice authorisation, it will still need to ensure that it complies with section 912DAB.
When the obligation does not arise
The obligation is not triggered if there are reasonable grounds to believe that ASIC is aware of the existence of the reportable situation and all of the information that would be required in a report under section 912DAB for such a reportable situation.
An example of where this might occur is (returning to the first example set out above), where the client shows you correspondence from the other licensee acknowledging that personal advice has been provided without appropriate authorisations and a reportable situation report has been lodged with ASIC. Such correspondence might be provided to the client where the other licensee is engaging in remediation.
How soon you have to report and to whom
When your licensee first knows of, or is reckless with respect to, the circumstances set out in the bullets above, the clock starts ticking for you to submit a report to ASIC in the prescribed form. You have 30 days in which to submit this report.
You must also provide the other licensee with a copy of your report to ASIC within the same 30-day timeframe that applies to reporting to ASIC. This could certainly lead to some tension, as the other licensee will know exactly who dobbed them in to the regulator.
The uncomfortable reality of complying with the law
It is understandable that some licensees might be reluctant to dob in their fellow licensees to the regulator – and to admit that they have done so. But section 912DAB has been carefully drafted to force you to make the report and share it with the other licensee, particularly by including the words ‘is reckless with respect to’. In other words, if you stick your head in the sand on this, you could still be breaking the law.
If you fail to comply with these obligations, you could find the licensee facing court-based action from ASIC, resulting in a civil penalty. An easier alternative for ASIC, if it takes the view that the licensee has breached section 912DAB, is to issue it with an infringement notice. An infringement notice specifies an amount payable. If the licensee pays the amount, this is not an admission of guilt but generally protects the licensee from court action from ASIC in relation to the matter.
Failure to comply could also constitute, or indicate, breaches of provisions under section 912A of the Act. These include the ‘efficiently, honestly and fairly’ provision, the requirement to comply with the financial services laws, and the need to have adequate risk management systems. Such breaches could lead to civil penalties but also administrative action (such as a licence cancellation under section 915C).
Note also that a failure to comply with section 912DAB is a deemed significant breach.
Legal protections for defamation and breach of confidence
Thankfully, there are some legal protections for licensees complying with this obligation.
Your licensee will have qualified privilege in relation to the report provided to ASIC (thanks to section 1100A of the Act) and in relation to the copy of the report provided to the other licensee (thanks to section 912DAB itself). This provides some protection for your licensee in the event that defamation proceedings are issued.
However, the protection will not extend to circumstances where the report to ASIC was made for malicious purposes. (See section 89 of the Act.) The Explanatory Memorandum states:
A licensee who lodges a false report with ASIC under this section with an improper motive, for example to undermine a competitor, will not have the benefit of qualified privilege in an action for defamation.
Where qualified privilege applies, your licensee is also not liable for any action based on breach of confidence in relation to that conduct.
A breach of confidence occurs (and can give rise to the possibility of another party taking action against you) where you fail to keep confidential information… (you guessed it) confidential.
Why the obligation exists
The obligation was introduced via the Hayne Act, which implemented a number of recommendations from the Hayne Royal Commission. The final report of the Hayne royal commission did not contain a specific recommendation to introduce a provision requiring one licensee to dob in another.
However, the EM asserts that the section 912DAB provision “supports the new requirement to be imposed on licensees to take steps to remediate an affected client when they detect misconduct – either arising from their own behaviour or that of a representative under their licence”. The EM is presumably referring to section 912EB of the Act, which requires a licensee to investigate and remediate clients where certain reportable situations have occurred and the licensee or its representative provide or have provided personal advice to a retail client in relation to a relevant financial product.
The implication is that section 912DAB increases the likelihood that a licensee will be made aware of it or its representative having engaged in misconduct in relation to personal advice to retail clients. Once a licensee is aware of the misconduct, it must then go on to investigate and, if necessary, remediate clients pursuant to section 912EB. In other words, section 912DAB sets up section 912EB for success.
How the requirement is working across industry
It would be great to see some data on how many reports are made under section 912DAB each year. When it comes to normal reportable situations reported under section 912DAA (where a licensee dobs itself in), ASIC is obliged to publish data, pursuant to section 912DAD of the Act. We then have the opportunity to observe statistics and trends, through publications such as ASIC Report 800: Insights from the reportable situations regime: July 2023 to June 2024.
However, no data publication requirement applies to ASIC in respect of reports made under section 912DAB and, in the absence of such a requirement, ASIC does not publish such data.
What now
Now that you know that section 912DAB exists and that it applies to all licensees, be alert to some simple questions when you come across the conduct of another licensee:
- Could the conduct suggest that a reportable situation has arisen in relation to the other licensee?
- If so, is there an individual involved in the conduct who provides personal advice to retail clients in relation to relevant financial products (financial products other than basic banking products, general insurance products, or consumer credit insurance products), whether or not the individual is actually qualified and registered to do this?
If the answer to both questions is yes, consider whether you should be making a report to ASIC under section 912DAB.
If you have trouble remembering section references, think of dabbing. If you can’t picture how this looks, Google it – the dance meaning of the word, not the other kind – but that’s a story for another day. This should help you remember section 912DAB, the section that forces you to be a dibber-dobber.
Samantha Hills is a partner at Holley Nethercote.
