The Federal Court has ordered Statewide Superannuation Pty Ltd to pay civil penalties totalling $4 million for providing members with misleading information about their (actually lapsed) insurance, charging them premiums for this lapsed insurance and failing to report the issue to ASIC. This conduct was not deliberate but stemmed from inadequate management and risk control processes, including a failure to adequately manage systems changes.
The facts are these.
- From 2017 to 2020, Statewide Super sent over 14,000 annual statements to at least 7,000 fund members representing that they held insurance within their superannuation in circumstances where their insurance cover had lapsed.
- Statewide Super also overcharged insurance premiums of at least $2.5m to some fund members at a time when the cover had ceased.
- This conduct stemmed from inadequate management and risk control processes, including a failure to adequately manage systems changes.
- Statewide also failed to report these issues to ASIC within 10 days of becoming aware of them, as required by law.
The Court
- held that Statewide Super breached s 1041H of the Corporations Act 2001 and ss 12DA and 12DB of the ASIC Act in connection with the misleading or deceptive representations about insurance cover to members who received the annual statements. In making these representations, the Court said Statewide breached its general obligations as an AFS licence holder under s 912A(1)(c) of the Corporations Act to act efficiently, honestly and fairly and to comply with financial services laws.
- The Court also ordered Statewide to undertake a remediation program and publish an adverse publicity notice on its website and mobile app.
(ASIC v Statewide Superannuation Pty Ltd [2021] FCA 1650, Federal Court, Besanko J, 22 December 2021.) [LTN 10, 18/1/22]
Source: ASIC media release 22-001MR, 17 January 2022
Catchwords
CORPORATIONS — application for declarations of contraventions of Corporations Act 2001 (Cth) and Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act), pecuniary penalty orders and ancillary orders including adverse publicity order and order for review and remediation program —
- where defendant registrable superannuation entity licensee with respect to superannuation fund —
- where defendant maintained group life and income protection insurance policies with third-party provider under which members of fund eligible to be insured —
- where defendant admits contraventions of s 12DB(1)(g) and (i) of ASIC Act by issuing annual statements to members in November and December 2018 and in November and December 2019 containing false or misleading representations concerning members’ insurance cover —
- where defendant admits contravention of s 912D(1B) and (3) of Corporations Act by failing to lodge written report with plaintiff before 6 August 2019 —
- where defendant accepts appropriate to make declarations and ancillary orders —
- where parties differ as to appropriate pecuniary penalties —
- consideration of relevant matters in determining pecuniary penalties under s 1317G(6) of Corporations Act and s 12GBB(5) of ASIC Act —
- where common ground that contraventions not deliberate or motivated by desire to generate profit —
- whether appropriate to characterise conduct contravening s 12DB(1)(g) and (i) of ASIC Act as single course of conduct or as two courses of conduct —
- whether relevant to take into account as part of consideration of specific and general deterrence defendant’s proposed merger with larger superannuation fund —
- orders for pecuniary penalties totalling $4 million
Facts relating to life cover and trustee fees
The following is an extract from the judgement.
8 During the relevant period, Statewide maintained group life and income protection insurance policies with MetLife Insurance Limited (MetLife) under which members of the Fund were eligible to be insured pursuant to policy terms from time to time. The status of a member’s insurance cover was determined by the terms of the applicable Statewide insurance policy. Statewide and MetLife are unrelated entities. Statewide provided the Statewide insurance policies as a service to members. Statewide received a fee of 6.3278% of death only insurance premiums, 6.3278% of death and total and permanent disablement insurance premiums and 13.7255% of income protection insurance premiums from its members in connection with the provision of insurance which theSuperannuation Industry (Supervision) Act 1993 (Cth) (the SIS Act) requires to be charged on a cost recovery basis. Statewide does not make a profit by providing insurance as a service to its members.
[Tax Month – January 2022 – Previous 2021] 27.1.22