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ASIC proposing to extend guidance on remediation to all AFS licensees

December 2020

ASIC recently announced plans to extend its guidance on consumer remediation to all AFS licensees.

Background

Currently, Regulatory Guide 256 Client review and remediation conducted by advice licensees contains guidance on remediation conducted by AFS licensees which is specifically targeted at retail financial advisers. While ASIC has always considered its guidance is relevant to all licensees, it is now making this abundantly clear. ASIC considers compliance with the obligation to ensure financial services are provided efficiently, honestly and fairly requires all licensees to take responsibility for the consequences of their actions if things go wrong and clients suffer loss or detriment. Consequently, it is considered all licensees should have in place review and remediation processes designed to identify misconduct or compliance failures that may have caused loss or detriment, and to remediate affected clients where appropriate.

Consultation paper

ASIC has published a consultation paper and is seeking feedback by 26 February 2021. As part of its guidance review, ASIC is proposing a 'two-tiered approach' to initiating a remediation—

  1. Tier 1—a remediation must be initiated when a licensee has engaged in a misconduct, error or compliance failure that has caused one or more consumers to suffer potential or actual loss, detriment, or disadvantage as a result, and
  2. Tier 2—given the broad nature of the obligations on them, licensees should also turn their mind to whether remediation is warranted when a failure causing loss has breached certain standards, expectations and/or values.

Once initiated, ASIC considers a remediation can be scaled according to the size or scope of the failure. For example, if the failure only affects a small number of consumers, the process to rectify the loss may be simple and not require a full 'program' to be initiated.

What should you do next?

While the proposals contained in the consultation paper are preliminary and may change, all AFS licensees should consider the potential impacts the revised guidance may have on their remediation processes where loss or detriment is caused as a result of misconduct or other compliance failures.

We will keep you up to date with further developments. Contact us if you need to understand more about these proposed changes or if you have other questions about financial services regulation.