ASIC urges licensees to strengthen remediation procedures

The Australian Securities and Investments Commission (ASIC) said that licensees should ensure they remediate affected customers “quickly and fairly”, in line with RG 277 on consumer remediation.

ASIC recently conducted a review of some large financial institutions and whether their remediation policies were in line with RG 277, with the review identifying gaps and inconsistencies, which ASIC said could lead to poor outcomes for customers.

The regulator added that over the last seven years, it has overseen more than $7 billion in remediation payments to around 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. Licensees need to be proactive, timely and fair in their approach to consumer remediation,” said ASIC deputy chair Karen Chester.

“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.”

Among the issues identified, the review found that some licensees were inappropriately narrowing the scope of remediation review periods, which could cause “review periods to exceed a certain number of years”, while licensees were also not always considering beneficial assumptions as a mechanism to enable efficient remediations.

It also found that some licensees had pre-determined rates for calculating foregone returns or interest for specific products or scenarios rather than calculating it accurately for each instance of misconduct. Moreover, some licensees were said to be utilising prescriptive approaches that could be “insufficient in certain circumstances” when attempting to contact and pay affected customers.

ASIC added that licensees should have governance frameworks with appropriate oversight and accountability, however the review found a general lack of focus on fairness in governance frameworks.

“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 redo remediations and repair reputational damage,” Ms Chester said.

“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.”