A year after indicating it would take a hands-off approach to monitoring remediation, the corporate regulator now says the industry needs to do better at delivering compensation programs fairly otherwise it may need to step in.
ASIC released the 94-page RG277: Consumer remediation as well as an 18-page supporting document Making it right: How to run a consumer-centred remediation this time last year, putting the onus on financial services and credit licensees to pursue fair and timely remediations.
The regulator wanted to take a hands-off approach, citing the prioritising of resources to larger scale remediation programmes. But it has now arguably changed its tune.
“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,” ASIC deputy chair Karen Chester said in a media release on Tuesday.
Assured Support managing director Sean Graham tells Professional Planner some licensees may have over-complicated the process by trying to seek absolute certainty instead of following the principles of acting with a “reasonable level of certainty”.
“That latest release will give them a lot of heart because it’s saying… ‘we just want to make sure you’re acting in a manner consistent with the principles we’ve outlined’,” Graham says.
“I don’t think anyone could dispute the underlying principle – it’s not the principle itself, it’s the practical implementation and how it’s operationalised.”
Work in progress
While timeliness was a key issue coming out of the review, ASIC noted several other areas licensees need to improve, including remediation processes, as well as the amount of compensation affected customers are due.
While the regulatory guide dictated the remediation review period should begin when the licensee “reasonably suspects the misconduct or failure first occurred” and caused consumer loss, ASIC believed some of the policies it reviewed could inappropriately narrow the scope of remediation review period by including unnecessary approval processes in order for review periods to exceed a certain number of years.
The review found that licensees didn’t consider beneficial assumptions – where licensees are given flexible to make assumptions beneficial to consumers to address knowledge gaps – to improve to the timeliness of remediations.
When it came to foregone returns or interest, ASIC found some licenses had pre-determined rates for specific products or scenarios where it was not always clear these were subject to review and fit for varying circumstances.
The review found some licensees did not take reasonable steps to contact affected consumers, whether it was due to a prescriptive approach or a pre-defined number of contact attempts.
Graham says the outcome of the review isn’t surprising because licensees have struggled to understand when a remediation program should commence.
“Is it a one-off incident, is it two or three? What level of sample do we need to kick off that approach?” Graham says.
“That’s the challenge for a lot of licensees… they might engage an external party to do a review, they identify a best interest duty failure in one file out of four. Does the obligation kick in now? Do I then have to go and look at another 10 or 20 files. That’s where a lot of licensees need a bit more context around how do we do it.”
Graham adds good, responsible licensees will do this properly, but says firms that aren’t starting from a position of acting in client’s best interests would be captured by the change. “That’s the challenge here,” he says.
Big costs, big burdens
RG 277 replaced RG 256 – which ASIC published in 2016 – to address remediation for poor quality advice and fees for no service misconduct.
The previous RG will continue to apply to legacy remediation in that six-year time period that covers much of the misconduct uncovered by the Hayne royal commission.
Over the last seven years, ASIC said it has overseen more than $7 billion of remediation to an estimated 8.42 million Australian consumers for failures identified across the financial services industry.
Chester said getting remediation wrong is costly to consumers who bear the burden of a financial firm’s mistakes, and firms who have to re-do remediations and repair reputational damage.
“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,” Chester said.
