Super fund fined for inaccurate communications

The Federal Court has fined a South Australian-based superannuation fund $4 million for telling members they were insured when they were not and failing to report the breach to ASIC within the required time frame.

Justice Anthony Besanko found Statewide Superannuation Pty Ltd issued statements to members on at least 9,011 occasions for the year ended 30 June 2018 and on at least 4,013 occasions for the year ending 30 June 2019 that stated a member held insurance cover when they did not.

On at least 6,779 occasions for FY2018 and 7,779 occasions for FY2019, Statewide told members insurance premiums had been deducted when there was no insurance, Statewide was not entitled to deduct the premiums and the members were not required to pay them. The premiums were paid to insurer MetLife.

On about 14,612 occasions, the super fund sent warning letters to members telling them insurance cover may cease and what they needed to do to maintain it, when there was no insurance.
 

Premiums deducted

Justice Besanko said Statewide failed to adequately and properly test insurance data migrated to, and insurance coding within, its administration platform Acurity and had deducted about $2.7 million in premiums from members who had no cover.

It failed to inform members who had been overcharged and did not prevent further overcharging.

Statewide was fined $3.5 million for ASIC Act breaches and $500,000 for Corporations Act breaches and order to publish, at its own expense, a written adverse publicity notice. The fund must also identify, inform and compensate all affected members.

ASIC had sought $9 million for the ASIC Act breaches and $1 million for the Corporations Act offences.

Justice Besanko said the adverse publicity order was appropriate to “further the important aim of deterrence, both general and specific”. It also informed fund members of their rights to compensation for loss or damage resulting from the contravening conduct and offered protection to them.
 

Remediation program

The order for a review and remediation program was appropriate to compensate all past and present members who suffered loss and damage.

He set the fines at $3.5 million and $500,000 because he found Statewide did not deliberately incorrectly deduct premiums or make the false or misleading representations about members’ insurance status and its conduct was not motivated by profit.

Its failure to make a timely report to ASIC was not deliberate.

Justice Besanko said Statewide agreed it did not adequately and properly test member insurance data when it was migrated to a new Acurity administration system.

He said Statewide had claimed on its own insurance policy and the insurer had agreed to extend indemnity for any civil liability arising from the court action, including penalties imposed, up to the policy’s sub-limit of $5 million.

That meant any excess would need to be funded from Statewide’s “member-owned” fund reserves or by imposing a fee on members.
 

Breach reporting ‘integral’

In a statement, ASIC Deputy Chair Sarah Court said Statewide members had risked finding themselves without insurance when they needed it because of the fund’s misleading communications.

“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,” Ms Court said.

She said Statewide breached its obligations as an Australian financial services licence holder to act efficiently, honestly and fairly and to comply with financial services laws.

Ms Court said the Federal Court ordered that Statewide:

• undertake a remediation program to identify the members who were overcharged and remediate them in full
• reach agreement with ASIC about engaging an independent expert to review and report on the implementation and effectiveness of the remediation program, and
• publish an adverse publicity notice on its website and mobile app.

Justice Besanko handed down his reasons for judgement on 17 January 2022, in which he said the contraventions were serious and stemmed from inadequate management and risk control processes, including a failure to adequately manage systems changes.

ASIC said it was 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.

At 30 June 2020, Statewide had about 160,000 member accounts and managed fund assets of $9.9 billion. It is now merging with a larger fund, HostPlus.

Australian Securities and Investments Commission v Statewide Superannuation Pty Ltd [2021] FCA 1650 judgement 22/12/21

Star Entertainment Group Ltd v Chubb Insurance Australia Ltd [2022] FCAFC 16 (21 February 2022)