Posted December 1, 2021
Posted By Meghann Cannon
ASIC consultation on new consumer remediation guidance
Prepared by Jodi Ainsworth
ASIC is back for the round two of its two-stage consultation on consumer remediation.
On 17 November 2021, ASIC released a further Consultation Paper on consumer remediation, which includes a new draft regulatory guide. ASIC’s preparation of this draft guidance was informed in part by comments received in part one of its consultation, with the new guidance to ultimately replace the existing RG 256 Client review and remediations conduct by advice licensees.
What do I need to know?
As an AFS and/or credit licensee, you have a legal requirement to do all things necessary to ensure that you provide the services covered by your license efficiently, honestly and fairly. As part of this, ASIC expects that licensees will take responsibility for remediating clients in a proactive and effective manner, where those clients have suffered loss as a result of the licensee’s “misconduct or other failures”.
The new draft guidance clarifies and elaborates on ASIC’s expectations for AFS, credit licensees and also retirement savings account providers in relation to remediation. This includes guidance on when to initiate a remediation, the remediation review period, the use of beneficial assumptions, determining appropriate remedies, making remediation payments, the low value compensation threshold, using settlement deeds, and engaging with external agencies. Included are 25 examples to help illustrate these expectations.
ASIC has also set out the interaction between remediation obligations and other legal obligations on licensees, including breach reporting, internal dispute resolution, record keeping, and design and distribution obligations. In relation to breach reporting, ASIC notes that many remediations will arise from reportable situations and therefore should be reported to ASIC through the breach reporting regime. Otherwise, remediations do not need reported to ASIC.
Overarching the guidance are 9 principles which ASIC is proposing should be considered by licensees when remediating clients. These are:
- Return all affected consumers as closely as possible to the position they would have otherwise been in had the misconduct or other failure not occurred;
- Understand the nature, extent and impact of the misconduct or other failure;
- Give consumers the benefit of any doubt, and minimise the risk of under-compensation;
- Ensure key decisions are justified and documented;
- Apply reasonable endeavours when making remediation payments;
- Be timely without sacrificing quality consumer outcomes;
- Make the process easy for consumers by minimising complexity and, where possible, limiting their involvement in the process;
- Do not profit from the misconduct or other failure;
- Ensure the remediation has adequate resourcing, governance and accountability.
When will the new guidance commence?
This second round of consultation closes on 11 February 2022, so if you have any comments on the proposed guidance be sure to submit them to ASIC by this date. Following this, the new regulatory guide will be released (on a date yet to be announced) and will apply to all remediations initiated from that date.
For remediations initiated prior to the release date of the new guidance, RG 256 will continue to apply.
ASIC has stated that there will be no transition period for the new guidance as it will not introduce any new legal requirements, but rather provide clarity on existing obligations.
How Kit Legal will help you
For our DCP clients, we will analyse the new regulatory guide and make any required changes to your policies, procedures, checklists and tasks to ensure that they are consistent with ASIC’s guidance.
Given that the new guidance is pitched at providing clarity, rather than creating new legal obligations, we are not anticipating substantial changes to your compliance framework.
In the meantime, you can find more information on the ASIC website, including the draft guidance and how to submit any comments you may have: https://asic.gov.au/about-asic/news-centre/find-a-media-release/2021-releases/21-307mr-asic-consults-on-consumer-remediation-draft-guidance/.