ASIC remediation guidance: know your rights

ASIC has recently published guidance on consumer remediation for AFS licensees including super trustees and credit licensees. This remediation framework is underpinned by the general obligations on these licensees and trustees to do all things necessary to ensure that the financial services or credit activities covered by the licence are provided efficiently, honestly and fairly.

For consumers, it is about knowing what your rights are in the financial services context and what ASIC expects to be done in cases where things go wrong. According to the guide, a remediation must be initiated if a licensee has engaged in misconduct or other failure when providing financial services or credit activities, and the misconduct or other failure has caused, or may have caused, a consumer loss. This includes conduct by current or former representatives, third-party service or product providers, consultants, or other significant entities. Further, the guide notes that remediation must be initiated “promptly” when the licensee becomes aware of the misconduct or failure, rather than waiting for the consumer to make a complaint or until proceedings are issued.

There are 9 principles for conducting a remediation which should be adhered to: return 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 including identifying all affected consumers and undertaking a root cause analysis; give consumers the benefit of the doubt, and minimise the risk of under-compensation; ensure that key decisions are justified and documented; apply reasonable endeavours when making remediation payments including prioritising payment methods that require no consumer action (eg EFTs).

Although for customers who are owned $5 or less (after interest), licensees may instead make a residual remediation payment (ie a payment to a charity or not-for-profit organisation registered with ACNC) without applying reasonable endeavours; be timely without sacrificing quality consumer outcomes; this means for larger or more complex remediations with longer timeframes, a tiered remediation approach should be taken by prioritising consumers that can be paid easily or those experiencing hardship; make the process easy and free for consumers by minimising complexity and, where possible, limiting their involvement in the process.

This means the best practice model is to automatically include affected consumers rather than having an opt-in arrangement. In addition, consumers should not be excluded from remediation or disadvantaged merely because they fail to respond to correspondence or cannot provide evidence of their loss; do not profit from the misconduct or other failure, which requires licensees to lodge outstanding payments in a relevant unclaimed money regime should affected consumers be uncontactable, or make a residual remediation payment to a charity or not-for-profit organisation; ensure the remediation has adequate resourcing, governance and accountability.

This may involve engaging an independent expert to provide assurance about the governance and operation of the remediation process. ASIC expects all remediations will be initiated and conducted according to the guide and principles contained within. In instances where it determines that a licensee has not initiated a remediation when it should have, or that a licensee is not conducting its remediation consistent with the guide, ASIC may get involved and consider using the various regulatory actions and tools available to it.

Speak to one of our accountants today if you have any questions or need assistance with ASIC remediation.