Warning to financial services licensees: Federal Court imposes $10.3M penalty for compliance and reporting failures

A recent Federal Court decision imposing a $10.3M penalty on Mercer Superannuation (Australia) Limited highlights the significant consequences of failing to maintain adequate compliance systems and meet reporting obligations.

In issue

On 26 June 2026, the Federal Court ordered Mercer Superannuation (Australia) Limited (MSAL) to pay $10.3M in penalties and $1.2M in costs, for its failure to comply with and contraventions of the Reportable Situations Regime of the Corporations Act 2001 (Cth) (Act).

This decision serves as a clear warning and reminder to financial services licensees that they must not only have adequate and reasonable systems in place to comply with the statutory Reportable Situations Regime, but also take reasonable steps to ensure that reports submitted to regulators under the statutory regime, including the Australian Securities and Investments Commission (ASIC), are accurate and not materially false or misleading.

The background

The proceedings were commenced by ASIC against MSAL.

ASIC alleged that MSAL’s contraventions involved:

1. MSAL’s systemic failure to implement adequate system(s) to identify and report ‘reportable investigations’ (being investigation(s) that continue for more than 30 days) per sections 912(A) and 912A(5A) of the Act (System Breach). While MSAL did have a system in place for the purpose of identifying and tracking investigations, it was alleged that its system lacked features and/or operational function to identify the commencement of the investigation and its relevant duration. Therefore, MSAL’s system did not have the ability to discern or identify when, or at what point in time, the investigations became ‘reportable investigations’.
2. MSAL’s failure to report at least eight of those ‘reportable investigations’ to ASIC within the required timeframe (Eight Incidents). ASIC alleged that those Eight Incidents shared a common deficiency, that MSAL either did not identify that a reportable investigation had arisen, or did so only after the 30-day period for lodging a report to ASIC had expired. ASIC alleged this was contravention of section 912DAA(7) of the Act.
3. MSAL’s failure to take all reasonable steps to ensure the reports submitted to ASIC were not materially false or misleading (Misstatements to ASIC). ASIC alleged that MSAL lodged five reports with ASIC that were materially false or misleading, owing to factors/reasons such as:
   1. MSAL made false declarations in the report, specifically that it did not know of any impacts a ‘reportable situation’ within the meaning of section 912D of the Act had on any clients when it was, in fact, aware of those impacts, and
   2. MSAL understated the impact of another ‘reportable situation’ by stating in its report that approximately fifty clients were affected, when its database recorded 231 affected clients.

Although the misstatements were not MSAL’s deliberate attempt to mislead ASIC, it was alleged that they nonetheless indicated MSAL’s failure to give proper consideration to the records available on its system or database. ASIC therefore alleged that this was a contravention of section 1308(5) of the Act.

MSAL admitted the abovementioned contraventions.

The decision at trial

On 26 June 2026, Justice Button accepted ASIC’s allegations that MSAL’s conduct represented contravention of the above provisions and imposed upon MSAL a significant penalty of $10.3M.

Her Honour found that:

1. in relation to the System Breach:
   1. section 912A(1)(a) requires a financial services licensee to do all things necessary to ensure the provisions of financial services are done in an efficient, honest and fair manner (with a particular focus on the systems and procedures of licensees), imposing not a perfect but reasonable standard of performance
   2. this provision would be contravened if it could be demonstrated that the financial services licensee’s performance fell short of a reasonable standard of performance, and
   3. applying this to MSAL, by failing to have an adequate system in place (for the purposes of proper compliance with the Reportable Situations Regime), MSAL failed to do all things necessary to ensure the financial services were provided efficiently, honestly and fairly, thereby contravening section 912A(1)(a).
2. in relation to the Eight Incidents:
   1. the contraventions regarding the Eight Incidents arose from MSAL’s inadequate system, which could not be relied upon to accurately and properly ascertain when an investigation had commenced. The inability to ensure timely reporting to ASIC (in relation to those investigation(s)) further prevented MSAL from having a proper oversight of the relevant investigations, and, owing to the lengthy duration in which the failures persisted, it was held that 'ASIC’s supervisory role was seriously compromised', and
   2. given the number of contraventions, the statutory penalty to be imposed was high, pointing to 'the seriousness of the conduct and need to impose a meaningful penalty' and serving as a 'sufficient “sting” to serve the purposes of general and specific deterrence'.
3. in relation to Misstatements to ASIC:
   1. the standard imposed by section 1308(5) is objective as it does not consider MSAL’s intention to mislead, but focuses rather on whether MSAL took all reasonable steps to ensure accuracy, and
   2. in the circumstances where there was certain information known to MSAL concerning the number of members affected (and implicitly, where MSAL ought to have known the correct information that should have been reported instead), MSAL provided to ASIC materially false or misleading reports.

Her Honour concluded that the award of a significant penalty 'reinforces the vital importance of financial services licensees ensuring that the systems they deploy in the provision of those services are designed and operated in a way that connects with integers of the statutory regime under which financial services licensees operate (here, in particular, the Reportable Situations Regime)'.

Implications for you

This decision serves as a warning for all financial services licensees to take a careful and vigilant approach to ensuring that they are meeting their obligations under the Reportable Situations Regime.

In particular, financial services licensees must ensure that:

• a proper and adequate system is in place to identify and track any relevant investigations being conducted, enabling them to identify when those investigations become ‘reportable investigations’
• they comply with the timeframe by which reports (of reportable investigations) are to be submitted to ASIC. This may be substantially facilitated if the systems abovementioned are implemented and regularly monitored, and
• they must not be negligent or careless when reviewing the materials and/or information in their possession for the purposes of submitting/lodging reports to ASIC. They must ensure that any reviews are done carefully and properly to ensure any information or reports being lodged to ASIC are not materially false or misleading.

Australian Securities and Investments Commission v Mercer Superannuation (Australia) Limited [2026] FCA 832 (26 June 2026)