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15-101MR ASIC to give guidance on review and remediation in the financial advice industry
ASIC will develop a regulatory guide on review and remediation programs conducted by Australian financial services licensees that provide financial advice.
Over the last few years ASIC has negotiated a number of major review and remediation programs by financial advice firms. These programs have been large scale exercises to review personal financial advice provided to retail clients and to compensate those clients where loss has been suffered as a result of non-compliant advice, fraud or other breaches of the law.
A number of other licensees have also identified instances of deficient advice and have initiated smaller, more targeted review and remediation programs in response.
'Licensees that provide personal advice to retail clients should have robust review and remediation programs in place to protect their clients,' said ASIC's Deputy Chair, Peter Kell.
'We want to ensure that if a financial advice licensee needs to provide remediation, they do so in a way that is fair, honest and efficient. Consumers will have greater trust if they can be confident that any remediation program is consistent and transparent.'
The new regulatory guide will build on ASIC’s recent experience overseeing review and remediation programs, as well as existing ASIC guidance on dispute resolution in Regulatory Guide 165 Licensing: Internal and external dispute resolution. (See also Regulatory Guide 139 Approval and oversight of external dispute resolution schemes).
In developing the regulatory guidance ASIC will consult with stakeholders including consumer groups, external dispute resolution (ombudsman) schemes, compliance advisers and industry participants.
ASIC's experience shows that where an advice licensee engages in a review and remediation program they need to consider a number of issues such as:
- Getting the scope right - Licensees must ensure that their review and remediation program is scoped to cover the right advisers, the right clients and the right timeframe. Large multi-licensee institutions must also consider whether the scope of the program should extend to cover other licensees within the institutional group. Licensees must be able to clearly articulate and record how they have determined the scope of the review and remediation program. Whenever a licensee becomes aware of misconduct by an adviser they need to consider whether the conduct is isolated or whether there is a broader issue that affects more clients of the adviser or other advisers.
- Getting the communication right - Effective, timely and targeted communication is key to ensuring clients understand and participate in the review and remediation program. Licensees should proactively contact potentially affected clients, and consider the best way to do this in light of their client base and appropriate methods of communication. Licensees should ensure that their communication clearly sets out what clients need to do in order to participate in the review and remediation program. This process should be made as simple as possible. In some circumstances, the licensee might need to review the advice provided before contacting clients so that they can give the clients sufficient, meaningful information about the advice. Communication is an on-going part of any review and remediation program; appropriate communication at the end of the process is important.
- Getting the process right - The process of review and remediation needs to be comprehensive, timely, fair, and transparent. There needs to be clearly defined principles to guide the process and an appropriate governance structure (including appropriate senior involvement). The process should be well-documented. Calculations of loss should use the same principles as the ASIC approved external dispute resolution (EDR) scheme of which the licensee is a member. There needs to be proper record keeping of the work that is done and the conclusions reached. In most cases there should be independent oversight of the process to ensure that it and its outcomes are comprehensive, timely, fair, and transparent.
- Providing for external review - Clients must have free access to processes to review the licensee's assessment of their advice. This will generally be through normal EDR review but licensees may be required to waive any time limit, monetary or other limits that might constrain the EDR scheme's jurisdiction. Licensees should engage with the EDR scheme when establishing the review and remediation program to agree upfront the relevant documentation, timelines and other arrangements to facilitate streamlined consideration, review and decision by the EDR scheme when necessary. Clients should receive clear communication about their EDR options. In many cases it will be appropriate to offer assistance to clients who wish to seek their own independent professional advice to assist their response to a review and remediation program.