ASIC has released a consultation paper on proposed updates to Regulatory Guide 256: Client review and remediation conducted by advice licensees. Consultation Paper 335 Consumer Remediation: Update to RG 256 (CP 335) includes clarification of RG 256’s application to all financial services licensees, credit licensees, and superannuation trustees.
ASIC’s proposals for compensation programs for wrongly charged fees and other licence breaches include:
- a remediation must be initiated when a licensee has engaged in a misconduct, error or compliance failure that has caused one or more consumers to have suffered potential or actual loss, detriment or disadvantage (loss) as a result;
- licensees should also turn their mind to whether a remediation is warranted when a failure causing loss has breached certain standards, expectations and/or values;
- as a starting point, the relevant period for a remediation should begin on the date a licensee reasonably suspects the failure first caused loss to a consumer;
- licensees should only use assumptions in a remediation if they are beneficial assumptions for the consumer;
- licensees should apply beneficial assumptions if they need to make up for absent records, especially if absent records may be considered a breach of their recordkeeping obligations;
- licensees should apply best endeavours to find and automatically pay consumers, and that cheques should generally be issued as a last resort;
- calculating foregone returns or interest by setting out a three-step framework;
- even if the amount is low, the starting position should be to return all consumers as closely as possible to the position they would have otherwise been in regardless of value;
- it is up to licensees to decide how they will treat their unresponsive or lost consumers, and if applying a compensation threshold, what low value is fair and appropriate in line with their obligations;
- if a licensee cannot, despite best endeavours, find consumers to pay them compensation (including when cheques remain uncashed) the residual funds should be sent to a relevant state or federal unclaimed money regime if available or, as a last resort, the money should be paid as a residual remediation payment to a charity or not-for-profit organisation registered with the Australian Charities and Not-for Profits Commission.
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Author: David Jacobson
Principal, Bright Corporate Law
About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.