As part of its plan for harm reduction, ASIC’s priority has been to reduce consumer harm and provide compensation to consumers for loss caused by misconduct. Since 2016, at least $5.6 billion has been paid back to consumers due to failures in the Australian financial system.
Until late September 2022, credit and financial services licensees had little guidance on how to plan and deliver consumer remediation programs. ASIC has now published a regulatory guide on consumer remediation, Regulatory Guide 277 along with a best practice guide to Making it right: How to run a consumer-centred remediation. ASIC’s Regulatory Guide 256 will continue to apply to existing remediation programs that are in place for personal advice failures for retail clients.
ASIC’s new guidance provides nine principles for conducting an effective remediation program plus some examples to help licensees determine which approach is most suitable for the circumstances.
We have highlighted below a couple of the areas where we have seen challenges in applying the principles to recent client remediation plans.
Calculating interest on compensation payments
At a minimum, consumers need to be returned to the position they would have been in, had it not been for the licensee’s failure or misconduct. This means that licensees will need to apply interest to their calculation of any compensation payable to affected customers.
For some financial products, this might involve estimating how the consumer could have spent, saved, paid down debt or invested, the money in another way. ASIC has indicated that the RBA cash rate plus 6% can be applied if it is beneficial to consumers and the licensee is otherwise unable to calculate the actual foregone returns or interest.
For example, if a consumer overpaid premium for a general insurance product that cost $100 by 10% due to the licensee’s misleading statement, $10 plus interest would be due to the consumer as compensation. It may be appropriate for the licensee to apply the cash rate plus 6% to calculate the interest as it is not possible to ascertain how the money may have been used and therefore no other more relevant interest rate to apply.
Contacting consumers
Communication plays a significant role in the success of a remediation program. Licensees need to plan the content and delivery of their communication to ensure that reasonable efforts are made to compensate the consumer.
Although there is no prescriptive content or timing requirements in RG 277, establishing clear timeframes to ensure that the remediation program is conducted in an orderly and efficient manner is critical. The communication plan should be structured so it affords consumer every opportunity to access the remediation payments and to communicate with the licensee. The plan should set out which customers will receive communications from the licensee, and how frequently. The plan should also describe what information each of the messages will contain and which channels will be used to reach affected customers.
To make reasonable endeavours to contact consumers, licensees should use more than one channel of communication to contact consumers, focusing first on the key preferred channel for the customer. A mix of email, telephone calls, app notifications or SMS may be suitable. It is worth noting that licensees are not required to receive a response from consumers after making reasonable attempts to contact them, but their remediation plan must demonstrate that they have made those attempts.
Licensees that do not have direct relationships with consumers may need to rely on agents and intermediaries, such as brokers, to successfully execute their communication plan. We recommend including a provision within your agreements with intermediaries that requires them to cooperate and assist with these activities under a remediation program, if they become necessary.
Dealing with unclaimed money
Licensees are not able to keep unclaimed remediation payments, even after making reasonable albeit unsuccessful attempts to contact the consumer. Instead, licensees must either lodge the money with an unclaimed money regime or donate the money to a charity or not-for-profit that is registered with the Australian Charities and Not-for-profit Commission.
Licensees must assess whether relevant state, territory and/or Commonwealth unclaimed money regimes apply to their remediation payments as well as whether minimum thresholds apply.
Alternatively, licensees can donate the remediation payment to a charity or registered not-for-profit organisation within 12 months of the remediation being finalised. If a consumer seeks compensation after the amount has been donated, they are still entitled to be paid that compensation.
Licensees should consider what action they will take if they are unable to make all of their remediation payments.
Advice and detailed consideration
Even a straightforward remediation plan will require detailed consideration and potentially complex calculations. It is better to take more time working on the remediation plan and calculating the compensation to ensure that what is offered to affected customers is fair and reasonable, and customer centric.
A customer remediation plan will often run in parallel with a licensee’s breach notification to ASIC and notifications to professional indemnity insurers, so consideration of other measures to improve compliance and risk management processes is also important.
The team at Hamilton Locke can advise on how to create a compliant and effective remediation plan that delivers outcomes aligned with ASIC’s new guidance and licence obligations.
For more information, please contact Charmian Holmes, Rachel Hart or Annabelle Parmegiani.
