RG 277 Implementation
On 27 September 2022, the Australian Securities and Investments Commission (ASIC) released new updated and expanded remediation guidance - Regulatory Guide 277 Consumer Remediation (RG 277) - for Australian financial services and credit licensees setting out its expectations around how they should conduct consumer remediation initiated on/after 27 September 2022. ASIC also issued an updated version of Making it right: How to run a consumer centred remediation, which ASIC has described as 'a best practice field guide' intended to assist licensees with the design and execution of consumer-centred remediations.
ASIC recently conducted a review into how some large financial institutions have implemented the guidance.
The review identified several 'gaps' where some licensees' approaches were found to be inconsistent with RG 277.
Six key findings
Specifically, ASIC flags the following six issues.
1. Remediation review periods 'inappropriately narrow' in some instances
- Issue: ASIC observed that in some instances,
'we saw some policies that could inappropriately narrow the scope of remediation review periods such as the inclusion of unnecessary approval processes in order for review periods to exceed a certain number of years'.
- ASIC's expectation: In line with RG 277, ASIC expects that the remediation review period to begin when the licensee reasonably suspects the misconduct or failure first occurred and caused loss to a consumer.
2. ‘Beneficial assumptions’ not considered
- Issue: ASIC observed that 'licensees did not always consider beneficial assumptions as a mechanism to enable efficient remediations'.
- ASIC's expectation: ASIC reminds licensees that 'RG 277 allows licensees to use assumptions beneficial to customers in relevant circumstances to address knowledge gaps and increase the timeliness of remediations'.
3. Use of 'foregone returns or interest'
- Issue: ASIC observed that 'some licensees had pre-determined rates for specific products or scenarios' and that 'it was not always clear that these were subject to adequate review and controls to ensure that they were appropriate in the circumstances'.
- ASIC's expectation: ASIC's expectation, in line with RG 277 is that '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'.
4. 'Reasonable endeavours' – (some) licensees adopting a 'prescriptive' approach
- Issue: ASIC observed instances of 'prescriptive approaches, such as a predefined number of contact attempts, which may be insufficient in certain circumstances'.
- ASIC's expectation: ASIC reminds licensees that 'under RG 277, licensees are expected to make reasonable endeavours to contact and pay affected consumers, with reasonableness to be determined on a case-by-case basis'. ASIC cautions that licensees 'should take care to ensure adequate flexibility and good consumer outcomes'.
5. Low value payments (payments under $5) not being made to customers
- Issue: ASIC’s review found 'evidence of policies that could result in some cohorts of customers for whom the licensee has payment information, not receiving payments under $5'.
- ASIC's expectation: ASIC reminds licensees that under RG 277 payments may be made to a not-for-profit if the licensee does not have current payment information for any former customers owed less than $5.
6. Oversight and controls
- Issue: The review found 'a general lack of focus on fairness in governance frameworks'.
- ASIC's expectation: ASIC considers that in order to 'ensure fair and timely remediation, licensees should have governance frameworks with appropriate oversight and accountability'.
ASIC has written to the licensees included in the review outlining its key findings and concerns.
Broader call to action
In light of these findings, ASIC has called on all Australian Financial Services and Credit Licensees to 'ensure they remediate affected customers quickly and fairly' in line with the guidance in RG 277.
ASIC expects all licensees to consider the key findings from the review and make any necessary changes to their policies, procedures and practices.
ASIC Deputy Chair Karen Chester commented that 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 consumers'.
Relevance for FAR Implementation
ASIC also observes that the findings have relevance from a Financial Accountability Regime (FAR) implantation perspective. ASIC states:
'The findings of this review are also relevant given the recent passing of the Financial Accountability Regime (FAR) Bill 2023. Under the FAR regime, accountable entities will need to nominate an accountable person responsible for oversight of remediation programs'.
[Source: ASIC media release 25/09/2023]