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

Scoping the program – and testing the scope

Identifying all affected consumers will be one part of setting the scope of the program. ASIC's guidance discusses some scoping methods, including the key step of considering the root cause of the issue identified. The guidance also points out the importance of revising the initial scope of the program if needed. This may occur because the investigation of systemic compliance breaches has a way of bringing other issues to light (whether related or unrelated to the original concerns).

ASIC also recommends actively testing the scope of the program. This is a wise suggestion and a vital step in order for licensees to have confidence that they have addressed the relevant issue in full. ASIC doesn't elaborate on what methodology should be used to test the scope, but this could generally be done by sampling outside the identified parameters of the relevant issue. For example, a systemic issue may have been caused by an IT systems error that has led to the over-charging of one particular fee over a particular period of time. You could test the parameters of this issue by checking that other fee types have been correctly applied, and also by examining the calculation of the relevant fee outside the period of time during which you think the problem occurred.

Leverage your EDR membership

RG 256 assigns EDR schemes a key role in the review and remediation process, and suggests that licensees consider engaging with their scheme when designing a program. In following this guidance, licensees can get the best value from their scheme membership, particularly as FOS and CIO each have systemic issue investigation teams and may be able to provide valuable insights as to what does (or does not) work well addressing a widespread breach.

This type of engagement would also help licensees deal more efficiently with multiple complaints that may be received by the EDR scheme in relation to the relevant issue, whether or not those complaints represent an escalation of a decision made under the program.

ASIC also recommends that remediation and review programs, including the calculation of compensation, be conducted in a manner consistent with the principles of the licensee's EDR scheme. This may sound like an exercise likely to increase the level of compensation paid under the program, given that EDR schemes take into account not only legal principles, but also industry codes and good industry practice. However, following these principles (both in the design of the program and in dealing with each affected consumer) can increase the likelihood of arriving at appropriate consumer outcomes the first time around. Following the same principles also offers an opportunity to strengthen customer relations, build trust (with consumers, with your EDR scheme, and with ASIC), and potentially repair or avoid reputational damage.

Plan to get it right

A valuable outcome of ASIC's guidance is that it will help licensees to focus on the design phase of a review and remediation program. While licensees who have identified a systemic issue will no doubt want to get on with the business of fixing it, the investment at the planning stage is worth it to get things right.

The planning phase of the program is the time to put in place tools like checklists that can be used by reviewers to ensure consistency of approach (the importance of which is mentioned in RG 256). While not specifically explored in ASIC's guidance, it's also a good time to give some thought to any further information you may need to request from consumers (or other parties such as product issuers), or other steps that need to be included, and which are driven by the particular type of issue that has been identified.

For example, if the systemic issue relates to the failure of advisers to ask for appropriate information about consumers' financial situations, you may find it difficult to make a proper assessment about the appropriate remedy for each client without first obtaining that information. A failure to think through the review and remediation process from start to finish – before you begin – is likely to result in the need to spend further time and resources later on.

And finally – take a step back

Your approach to a review and remediation program has implications that go beyond solving a particular issue that has been identified at one point in time. The way you set up the process, and the way you interact with affected clients, can be a good indicator of your organisational culture. You probably already know that corporate culture (which includes the question of whether you put the customer at the centre of what you do) is an area of key focus for ASIC.

Actively look for wider learning opportunities throughout the review and remediation process. Do you have enough resources dedicated to the regular review of compliance tools like advice templates? Do your staff receive enough training? Is there something in your culture that needs to change? Looking for wider themes such as these will not guarantee that you never have to conduct another review and remediation program, but it may help you to derive some value from the process.

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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