ASIC is calling on Australian financial services and credit licensees (licensees) to ensure they remediate affected customers quickly and fairly, in line with ASIC’s guidance in Regulatory Guide 277 Consumer Remediation (RG 277).
This follows ASIC’s recent review of the remediation policies and procedures of some large financial institutions to assess their implementation of RG 277. The review identified gaps where some licensees’ policies and procedures were inconsistent with RG 277 and could lead to poor outcomes for customers. ASIC has written to the licensees included in the review outlining key findings and concerns.
Over the last seven years, ASIC has overseen more than $7 billion of remediation to an estimated 8.42 million Australian consumers for failures identified across the financial services industry.
‘RG 277 provides licensees the guidance they need to get remediation right,’ ASIC Deputy Chair Karen Chester said. ‘Licensees need to be proactive, timely and fair in their approach to consumer remediation.
‘Effective remediation starts with robust, consumer-centred policies and procedures, which give licensees and their staff the confidence and ability to fully investigate the issue, triangulate the data available, discover the true root cause and scope of the problem, and respond effectively.
‘Getting remediation wrong is very costly – costly to consumers who bear the burden of a financial firm’s mistakes, but also very costly for firms who have to re-do remediations and repair reputational damage.
‘Going forward, while ASIC will generally not oversee remediation programs, we will consider regulatory action where licensees fail to deliver fair and timely remediation to affected consumers,’ Ms Chester added.
ASIC expects all licensees to align their remediation practices with the guidance set out in RG 277. Licensees should consider the key findings from the review and make any necessary changes to their policies, procedures and practices.
- Remediation review periods – RG 277 reinforces that the remediation review period should begin when the licensee reasonably suspects the misconduct or failure first occurred and caused loss to a consumer. However, we saw some policies that could inappropriately narrow the scope of remediation review periods such as the inclusion of unnecessary approval processes in order for review periods to exceed a certain number of years.
- Use of ‘beneficial assumptions’ – RG 277 allows licensees to use assumptions beneficial to customers in relevant circumstances to address knowledge gaps and increase the timeliness of remediations. ASIC’s review indicated that licensees did not always consider beneficial assumptions as a mechanism to enable efficient remediations.
- Foregone returns or interest – According to RG 277, rates for calculating foregone returns or interest must return the customer as closely as possible to the position they would have been in had the misconduct not occurred. We observed that some licensees had pre-determined rates for specific products or scenarios. It was not always clear that these were subject to adequate review and controls to ensure that they were appropriate in the circumstances.
- Reasonable endeavours – Under RG 277, licensees are expected to make reasonable endeavours to contact and pay affected consumers, with reasonableness to be determined on a case-by-case basis. The review found examples of prescriptive approaches, such as a predefined number of contact attempts, which may be insufficient in certain circumstances. Licensees adopting such approaches should take care to ensure adequate flexibility and good consumer outcomes.
- Low value payment threshold – RG 277 allows for payments to be made to a not-for-profit if the licensee does not have current payment information for any former customers owed less than $5. ASIC’s review found evidence of policies that could result in some cohorts of customers for whom the licensee has payment information, not receiving payments under $5.
- Oversight and controls – RG 277 highlights that to ensure fair and timely remediation, licensees should have governance frameworks with appropriate oversight and accountability. The review found a general lack of focus on fairness in governance frameworks.
ASIC published Regulatory Guide 277 Consumer Remediation in September 2022 (see 22-260MR). RG 277 sets out guidance for Australian financial services and credit licensees on how to conduct consumer remediation initiated on or after 27 September 2022. It replaced and broadened the scope of Regulatory Guide 256 Client review and remediation conducted by advice licensees which continues to apply to remediations that began before the release of RG 277.
At the same time, ASIC also re-issued Making it Right: How to run a consumer-centred remediation, which is a best practice guide that helps licensees with the day to day design and execution of consumer-centred remediations.
The findings of this review are also relevant given the recent passing of the Financial Accountability Regime (FAR) Bill 2023. Under the FAR regime, accountable entities will need to nominate an accountable person responsible for oversight of remediation programs.