Proposals to clamp down on financial misconduct by publishing individual licensees’ breaches could backfire and cause unfair reputational damage, the Insurance Council of Australia (ICA) warns.

A Treasury discussion paper on self-reporting suggests the Australian Securities and Investments Commission (ASIC) could improve scrutiny by each year publishing breach totals by licensee, rather than the broader information currently provided.

ICA says the move would punish companies with a strong reporting culture and disadvantage larger licensees that operate multiple businesses.

“It may potentially discourage the culture of openness, honesty and transparency ASIC seeks to develop with licensees,” it says in its response to the paper.

“Reporting will not take into consideration market share or concentration, meaning data is liable to be misinterpreted by anyone outside of the financial services industry, potentially resulting in reputational damage.”

If licensee-level reporting is adopted, it should apply to extreme cases only, ICA says.

And a proposal that licensees should “expressly include significant breaches or other significant misconduct by an employee or representative” needs to be clarified so it applies only to major issues and is fair to those affected.

“Not applying the significance test could result in breach reporting being triggered by minor contraventions, such as isolated instances of failure to follow procedures,” ICA says.

The discussion paper tackles ambiguity around the trigger for self-reporting by suggesting it could apply to anything “a reasonable person would regard as significant”.

But ICA says that is more likely to increase uncertainty and would vary across scenarios, while the submission also warns of repercussions from increased reporting due to new industry funding of ASIC.

“Lowering the reporting threshold too far will substantially increase the volume of reporting,” ICA says. “This would not only have an impact on the compliance burden for reporting entities, but also obscure the more significant reports that warrant regulatory focus.”

The ASIC Enforcement Review Taskforce will make recommendations to the Government by the end of September.