ASIC consults on new remediation guidance

It will apply to:

• Australian Financial Services (AFS) licensees;
• Australian Credit Licensees (ACL); and 
• trustees of regulated superannuation funds (but not self-managed superannuation funds), approved deposit funds or pooled superannuation trusts (RSEs) and retirement savings account (RSA) providers (superannuation trustees).

According to ASIC, while the initial guidance (published in 2016) was focused on advice licensees providing personal advice, “many of the principles in [the] guidance are applicable to all licensees because they have a general obligation to do all things necessary to act efficiently, honestly and fairly when providing financial services, which includes taking responsibility for when things fail or go wrong”.

ASIC explained: “Since 2016, we have monitored or overseen many remediations that have covered matters other than financial advice. We consider that product neutral remediation guidance is now necessary to help all licensees apply clear and consistent standards.”

What the consultation entails

The first round of consultation, which is open until 26 February 2021, aims to: 

• clarify and seek feedback on when a remediation should be initiated; 
• understand if and when assumptions can be relied on in a remediation; 
• understand barriers and opportunities in effectively returning money to affected consumers; and 
• identify any gaps in the current RG 256 and deliver the guidance necessary to empower all licensees to remediate consumers efficiently, honestly and fairly. 

Among the key changes included in the consultation is the removal of the seven-year time period limit for remediation, instead recommending that the relevant review period for a remediation should start on the date a licensee reasonably suspects a failure first caused loss to a consumer.  

“We think this responsibility should extend in principle to each consumer who has suffered loss and that the remediation period should not be anchored to a seven-year time frame,” ASIC said.

It also recommends that licensees should apply “beneficial assumptions” if they need to make up for absent records, especially if absent records may be considered a breach of their record-keeping obligations. 

ASIC has included real-life case studies based on remediations in which ASIC has been directly involved, and seeks to answer questions that firms frequently ask ASIC around remediation.

For example, it provides the following home loan example to showcase how this could work in practice: “Firm Z discovered that there were discrepancies in the charging of certain late payment fees for home loan products. Due to a systems error, the late fees had been charged by the IT system two days earlier than what was described in the relevant product terms. Instead of reviewing individual accounts to determine whether the late fee was justified, Firm Z decided to make a beneficial assumption and refund all late fees that were charged early plus any incorrectly charged interest.”

“Consumers should not be disadvantaged if a licensee fails to keep proper records in line with its record-keeping obligations, or if an authorised representative of the licensee has failed to comply with its obligations to provide records on request. Poor or incomplete records is rarely a justification for a failure to remediate consumers or to limit the scope of a remediation,” ASIC states.

New guidance aims to benefit consumers and licensees

According to ASIC, the guidance will help benefit consumers and licensees, by creating a standardised approach to remediation and align consumer and industry expectations, while having the added benefits of “promoting trust; reducing the costs of external dispute resolution, or individual or class actions; and not having to ‘re-do’ remediations in the future”. 

While launching the consultation, ASIC’s acting chair, Karen Chester, said that “putting money back in Australian consumers’ hands had never been more important”, noting that approximately $1.68 billion had been returned to consumers in relation to both finalised and ongoing financial system remediations since October 2019.

Further, she revealed that the regulator is currently monitoring over 100 remediations that could see the return of at least another $3.55 billion in total to over 3.6 million consumers upon finalisation.

“Ensuring that the processes for returning this money are efficient and fair is central to consumer confidence and trust in financial products and services and in the firms themselves,” Ms Chester said.

“There are opportunities for firms to not only identify the issues that can lead to remediations earlier, but also to make sure that they have arrangements and systems in place to return money to affected consumer as fast and as fairly as possible,” Ms Chester said. 

“We want firms to get on with the job of doing fair and efficient remediations in line with their legal obligations. 

“The issues we are consulting on reflect the questions that firms frequently ask ASIC. Clarity on these issues will help firms step up and deliver good consumer outcomes”.

As well as seeking feedback from stakeholders, ASIC is also seeking feedback from consumers and consumer representatives who have participated in a remediation.

Submissions will close on 26 February 2021. 

ASIC will then release the draft guidance, informed by the consultation feedback received, for a second phase of consultation.

[Related: Broker breaches guidance expected in ‘early 2021’]