ASIC wants AFS licensees to improve customer remediation procedures
“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.”
The Australian Securities and Investments Commission has issued a call to Australian financial services and credit licensees, urging them to ensure the rapid and equitable remediation of affected customers.
This directive aligns with ASIC’s recent review of the remediation policies and procedures of several major financial institutions, with a focus on evaluating their compliance with Regulatory Guide 277 Consumer Remediation (RG 277).
$7+ billion in remediation over past 7 seven years
The review identified inconsistencies in some licensees’ policies and procedures, which could potentially result in adverse outcomes for customers. ASIC has communicated its key findings and concerns to the licensees involved in the review.
Over the past seven years, ASIC has overseen remediation efforts totaling more than $7 billion, benefiting approximately 8.42 million Australian consumers. These remediations have been carried out in response to identified failures within the financial services industry.
ASIC expects all licensees to align their remediation practices with the guidance set out in RG 277.
“Getting remediation wrong is very costly”
ASIC Deputy Chair Karen Chester said: “RG 277 provides licensees the guidance they need to get remediation right. 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.”
ASIC expects all licensees to align their remediation practices with the guidance outlined in RG 277. Licensees should take into account the key findings from the review and make any necessary adjustments to their policies, procedures, and practices to ensure compliance.
Key Findings
The review of remediation policies and procedures revealed several key findings that warrant attention and improvement:
Remediation Review Periods: RG 277 emphasizes that the review period should commence when the licensee reasonably suspects misconduct or failure that caused loss to a consumer. Some policies, however, inappropriately limited review periods, potentially hindering fair remediation.
Use of Beneficial Assumptions: The guidance allows licensees to use beneficial assumptions in relevant circumstances to address knowledge gaps and expedite remediations. However, ASIC found that licensees did not consistently consider beneficial assumptions as a means to enhance efficiency.
Foregone Returns or Interest: RG 277 requires rates for calculating foregone returns or interest to return customers as closely as possible to their original position. Some licensees had predetermined rates for specific products or scenarios, and their appropriateness in different situations was not always clear.
Reasonable Endeavors: Licensees are expected to make reasonable efforts to contact and compensate affected consumers, with reasonableness determined case by case. ASIC identified instances of prescriptive approaches, such as a predefined number of contact attempts, which may prove insufficient in certain situations.
Low-Value Payment Threshold: RG 277 permits payments to not-for-profit entities if the licensee lacks current payment information for former customers owed less than $5. Some policies may result in cohorts of customers with payment information not receiving amounts under $5.
Oversight and Controls: The review identified a lack of emphasis on fairness within governance frameworks, highlighting the need for better governance oversight in this context.
The findings from the review serve as a valuable resource for licensees aiming to enhance their remediation practices. Compliance with these guidelines will contribute to a more transparent and consumer-focused financial services industry in Australia, bolstering consumer confidence and trust.
