Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
ASIC warns licensees to improve ‘inappropriately narrow’ remediation practices
The corporate regulator has chastised licensees for having poor programs put in place to remediate customers, warning that it will pursue further action if their efforts to recompense clients for wrongdoing don’t meet the standards set in its regulatory guidance.
ASIC this week circulated a tersely worded message calling on licensees to ensure they remediate customers “quickly and fairly”, and in line with both its regulatory guide on consumer remediation (RG277) and its best practice guide ‘Making it right: How to run a consumer-centred remediation’.
The regulator republished its remediation guidance last year amid the repayment of over $7 billion to an estimated 8.42 million Australian consumers, much of that stemming from wrongdoing by institutional advice providers uncovered at the 2018 Hayne Royal Commission.
It’s concern for remediation practice is heightened by the recent passing of the Financial Accountability Regime (FAR) Bill 2023, which mandates that accountable entities need to nominate an “accountable person” to provide oversight of client remediation programs.
In its latest review of remediation practices, ASIC took umbrage at the way entities were shortening the actual remediation review period by including “unnecessary approval processes”, which could “inappropriately narrow the scope of remediation review periods”.
The regulator identified a reluctance in licensees to use ‘beneficial assumptions’ when remediating, which are designed to help address knowledge gaps on the client side and aid speedy processing. It also said licensees weren’t making enough effort, in some cases, to contact clients, as some had “prescriptive approaches, such as predetermined a number of contact attempts”, which may be insufficient.
ASIC also expressed concern that licensees were using outdated methods to calculate the remediation amounts due to clients.
“According to RG 277, rates for calculating foregone returns or interest must return the customer as closely as possible to the position they would have been in had the misconduct not occurred,” ASIC stated. “We observed that some licensees had pre-determined rates for specific products or scenarios. It was not always clear that these were subject to adequate review and controls to ensure that they were appropriate in the circumstances.”
According to ASIC chair Karen Chester (pictured), licensees need to get their systems and processes for remediation up to speed, while making sure they maintain an adequate level of flexibility to ensure the best client outcomes.
“Effective remediation starts with robust, consumer-centred policies and procedures, which give licensees and their staff the confidence and ability to fully investigate the issue, triangulate the data available, discover the true root cause and scope of the problem, and respond effectively,” Chester stated.
“Getting remediation wrong is very costly – costly to consumers who bear the burden of a financial firm’s mistakes, but also very costly for firms who have to re-do remediations and repair reputational damage.”
“Going forward, while ASIC will generally not oversee remediation programs, we will consider regulatory action where licensees fail to deliver fair and timely remediation to affected consumer.”
