This article was co-authored with Trilby Donald.
ASIC will soon publicly consult on its plans to update Regulatory Guide 256 on client review and remediation programs. ASIC has indicated that the revised guidance will apply beyond financial advice and to a broader range of Australian financial services businesses such as insurers, superannuation funds and fund managers.
The consultation paper for the revised guidance is yet to be released but we expect some of the matters that ASIC may seek to consult on will include:
- the interaction of other government departments and agencies such as the ATO and APRA (which will be increasingly relevant once additional financial services businesses are caught by the revised guidance);
- how compensation is to be calculated and paid (e.g. whether compensation relating to superannuation products must be paid directly to a client or whether it needs to be paid into their superannuation account);
- mandatory reporting requirements to provide greater transparency on matters such as the costs incurred versus compensation paid to customers;
- how insurance should be accounted for in remediation for superannuation products; and
- privacy and logistical concerns when accessing and reviewing client files (e.g. where an adviser has left a practice or a third party is involved).
When the consultation paper for RG 256 (CP 247) was released in 2015, several stakeholders identified issues of concern in the proposed guidance. These included:
- the broad definition of ‘systemic’ issue. The existence of a systemic issue triggers a remediation program;
- the prescriptive timeframes given for the resolution of remediation matters;
- the interaction of remediation program requirements with internal and external dispute resolution systems;
- the design and application of process and calculation methodologies and how to account for non-financial loss;
- lack of records;
- inconsistency with statute of limitations;
- the extent of sampling; and
- the ‘opt-in’ approach.
The revised guidance should revisit and address earlier stakeholder submissions and learnings from the many review and remediation programs that have been conducted since RG 256 came into effect in 2016.
Organisations that will be captured by the expanded guidance should consider any existing or upcoming remediation programs and align them, at the very least, with the current RG 256.
An important consideration for financial services businesses captured by the expanded guidance is the interaction between the revised remediation guide and the recently released Regulatory Guide 271 on internal dispute resolution (or IDR). The aim of RG 271 is to raise IDR standards across the financial sector. Relevantly, when it comes into effect next year the guide will introduce reduced timeframes for responding to standard complaints, from 45 days to 30 days after receiving the complaint. Different timeframes will apply for certain exceptions including superannuation trustee complaints, except for complaints about death benefit distributions. Getting these timeframes right will be particularly important in the remediation context – where a client is part of a remediation and has also made a complaint through the IDR process, the IDR obligations (including the timeframes) will apply to that client and this significantly reduces the response time.
Additionally, systemic issues are often identified through trends in IDR complaints. The remediation process is initiated on the identification of a systemic issue that may have caused loss or detriment to clients. It is important for organisations to understand the interplay between IDR and remediation to ensure compliance with regulatory obligations.
The customer experience is a central feature of remediation programs and IDR processes. How organisations treat their customers says a lot about that organisation’s culture. It is therefore important to get the processes right for both.