Australia: Review and Remediation – Key messages from ASIC's recent Regulatory Guide 256: Part 1

Imagine you're a director of an AFS advice licensee (and if you are one, then you won't need to imagine). The manager of your compliance team has just sent you a report which identifies a pattern of identical client complaints about undisclosed adviser fees. You've received 14 complaints about this issue over the last quarter, with the affected clients having dealt with three different advisers.

The clients who have complained consistently allege that they were offered 'free financial advice'. On taking up that offer, each of the clients were advised to roll their super balance over into a particular product. They subsequently noticed that there were actually fees charged for the advice they received, paid for out of their super.

Your compliance team, together with your dispute resolution team, have been considering how best to resolve these complaints. They aren't sure whether a refund of the advice fees in cash would restore each client to the position they would have been in had the fees not been deducted from their super balance.

There's also a question mark over the appropriateness of the recommendations that the advisers made in each case, as each of the 14 clients was given the same advice. As such, you've offered these clients a review of the advice given.

Having interviewed the advisers involved, your compliance team thinks that the issue has likely affected a number of clients other than those who have complained. What should you do next?

A good first step would be to consult ASIC's recently released Regulatory Guide 256 (RG 256), 'Client review and remediation conducted by advice licensees.'

RG 256 follows on from ASIC's Consultation Paper 247, and sets out its guidance on review and remediation programs conducted by AFS licensees whose clients have suffered loss or disadvantage as a result of misconduct or another type of compliance failure. The guidance reflects a significant amount of work that ASIC has done over recent years in supervising review and remediation programs.

RG 256 deals primarily with remediation programs conducted by licensees who provide personal advice to retail clients. However, ASIC says that the principles set out in the guide may be capable of more general application.

ASIC expects that AFS licensees will initiate a review and remediation program when:

  1. the licensee has identified a systemic issue (i.e. an issue affecting multiple clients); and
  2. clients affected by the issue have suffered loss or detriment as a result.

What are the key benchmarks for a review and remediation program?

ASIC's guidance allows some flexibility around how a review and remediation program should look. It can be tailored to the size of the licensee and the scope of the issue (which means review and remediation programs are not just for large-scale breaches).

While there is a measure of flexibility, the program should meet a number of important benchmarks. These are:

  • adequate resourcing to ensure that the program is conducted in an efficient and timely way (a benchmark which may prompt AFS licensees to consider whether their existing resources are sufficient to address any systemic issue that may arise);
  • the use of clearly defined principles to guide the program, together with an appropriate governance structure, including oversight by someone of appropriate seniority;
  • a consumer-focussed approach ensuring that the process is straightforward, flexible and easy to understand for affected consumers (see the guidance for some practical tips);
  • conducting the program free of charge to consumers;
  • providing access to EDR if affected consumers are not satisfied with a decision reached through the program; and
  • keeping the 'efficiently, honestly and fairly' obligations front of mind in the overall operation of the program, including by operating transparently and avoiding conflicts of interest.

Efficiently, honestly and fairly - and proactively

Unsurprisingly, the connection between effective review and remediation programs and a licensee's obligation to ensure that their financial services are provided efficiently, honestly and fairly, is a recurring theme of ASIC's guidance. RG 256 says part of complying with these obligations means taking responsibility if things go wrong. This includes remediating clients who have suffered loss, so that they are put back into the position that they would have been in if not for the misconduct or compliance failure.

ASIC also makes clear its expectation that licensees will take a proactive approach to review and remediation, and will not wait for affected consumers to complain. The systemic issue itself could be identified in a number of ways, including through complaints. However, once the issue has come to the licensee's attention, the licensee must seek out the affected consumers, whether they have complained or not.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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