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FCA imposes penalty on trustee for misleading conduct towards fund members

  • Newsletter Article
  • Published 13.04.2022
Australian Securities and Investments Commission v Statewide Superannuation Pty Ltd (FCA 2021)

Key Takeaways

The FCA ordered Statewide Superannuation Pty Ltd (Statewide) to pay $4 million in penalties for providing misleading communications to members regarding their group life insurance cover, charging premiums for lapsed cover, and failing to report these breaches to ASIC within the statutory timeframe.

Statewide’s conduct resulted from system administration errors and was not deliberate.

Brief Facts

The events in question occurred between May 2017 and June 2020. During this period, the group insurance policies held by Statewide on behalf of its members provided that cover for a member would cease on the earliest of various events, including on the date there was insufficient funds in the member’s account to cover premium payments or when the member’s account balance fell below a certain level.

Statewide started using a new administration system in May 2017, which recorded member data, including insurance status. It also auto-generated correspondence to members and charged premiums and administration fees.

During the relevant period, the insurance cover of many fund members ceased due to the operation of the cover ceasing provisions with respect to nil or low account balances. The administration system however did not record this accurately, instead generating correspondence to members indicating that they had insurance cover when in fact they did not and in some cases, deducting premiums from member accounts for cover that had already lapsed.

The issue impacted several thousand Statewide members and was self-reported by Statewide to ASIC, although outside of the timeframe of 10 business days specified in the Corporations Act breach reporting regime as it then was.


ASIC’s case before the FCA was that Statewide, in sending the misleading communications to members and mistakenly deducting premiums for lapsed cover, had made false and misleading representations to members, or representations which were likely to mislead or deceive. The specific issues of concern to ASIC were as follows:

  • misrepresenting to impacted members that they had insurance cover when they did not;
  • misrepresenting members’ obligations to pay insurance premiums; and
  • misrepresenting a right to deduct premiums from member accounts.

In ASIC’s view, this situation was troubling because it created a real risk that Fund members may have found themselves without insurance when they needed it.1 

ASIC further alleged that once Statewide became aware of the breach, it did not report it to ASIC within 10 business days as required by the Corporations Act.

In handing down its decision, the Court explicitly noted that Statewide’s conduct in incorrectly deducting insurance premiums and representing to members that they had cover when they did not, was not deliberate nor was it motivated by profit. Further, the Court found that Statewide’s failure to report the breach to ASIC in a timely fashion was not deliberate, and that at all times Statewide cooperated with ASIC’s investigation and with the Court process.

Be that as it may, Besanko J ultimately held that:

‘The contraventions of s12DB(1)(g) and (i) of the ASIC Act are serious. They affected a large number of members of the Fund and remediation for those members is an ongoing process. The cause of the contravening conduct was an inadequate implementation of the change to the Acurity administration system and then the failure to address adequately and in a timely fashion the problems and errors resulting from that implementation….’

In so finding, the Court ordered that Statewide pay a pecuniary penalty to the Commonwealth amounting to $4 million. This penalty was apportioned as follows:

  • $3.5 million on account of the misleading correspondence to members; and
  • $500,000 on account of the failure to report the breach to ASIC within the time prescribed by the Corporations Act.


The deduction of premiums and the issue of when cover starts and stops for members in group insurance can be complex due to the sheer volume of insured members and the difficulties faced by trustees in keeping up with individual members’ circumstances vis a vis cover.

However, this case demonstrates that ASIC is prepared to use enforcement action and seek penalties against superannuation trustees concerning their management of group life insurance, notwithstanding the commencement of appropriate remediation. Accordingly, it is critical that trustees continue to closely monitor their group insurance arrangements to ensure accurate reporting to their members regarding their insurance coverage and the proper deduction of premiums in line with such cover.

The decision also highlights the importance of early breach reporting where required, for which there is likely to be enhanced focus under the new breach reporting regime.

1 ASIC Media Release ‘22-001MR Statewide Superannuation to pay $4 million penalty for misleading correspondence to members’ dated 18 January 2022.