AFS Licensees should have procedures for reviewing and remediating clients in respect of any misconduct or compliance failure of the AFS Licensee in addition to their internal dispute resolution policies
All AFS Licensees (regardless of their size) have an obligation to ensure that their financial services are provided efficiently, honestly and fairly. To ensure compliance with this obligation, AFS Licensees must take responsibility for any loss or detriment suffered by their clients as a result of any misconduct or non-compliance by the AFS Licensee. This can be achieved by the AFS Licensee initiating a ‘review and remediation’ process that reviews the misconduct or compliance failure of the AFS Licensee in relation to services provided to clients and remediates those clients who have suffered loss or detriment as a result of those services (“R & R Programs”). The aim of an R & R Program is to place the client in the same position as if the misconduct or compliance failure had not occurred.
ASIC has finalised its guidance on R & R Programs implemented by AFS Licensees in Regulatory Guide 256 (“RG 256”). The guidance is primarily aimed at AFS Licensees that provide personal advice to retail clients. However, where applicable, the guidance in RG 256 should also be followed by AFS Licensees that provide financial services outside of this.
RG 256 highlights the following points:
- When to establish an R & R Program: generally, an R & R Program should be established as soon as a ‘systemic issue’ has been identified that may have caused loss or detriment to the AFS Licensee’s retail clients.
A ‘systemic issue’ is an issue causing actual or potential monetary or non-monetary loss or detriment to a number of clients as a result of misconduct or other compliance failures. Examples of ‘systemic issues’ include breaching the ‘best interests’ duty or failing to provide key disclosure documents such as Statements of Advice to clients.
- What clients should participate in an R & R Program: the scope of an R & R Program will depend on the nature of the misconduct or compliance failure, the types of clients affected by the misconduct or compliance failure and the timelines surrounding the misconduct or compliance failure. AFS Licensees should be satisfied to a reasonable level of certainty that the scope chosen properly captures all potentially affected clients. The scope should also be flexible enough to allow for revisions if more information becomes available about further misconduct or compliance failures.
- Design of R & R Program: all R & R Programs should be comprehensive, timely, fair and transparent, adopt a consumer-focused approach, be free of charge to clients and have commitment from senior management. Adequate resources (depending on the size of the review) should be allocated, which may include appointing appropriately qualified advice reviewers or implementing appropriate IT resources to oversee the process. The principles of the R & R Program should be consistent with the principles of external dispute resolution schemes (“EDR Schemes”), and a senior person should oversee the entire R & R Program.
- Communication to Clients: AFS Licensees should communicate with clients at all stages during the R & R Program. Communication should be simple, short and clear, and should be made in writing via an appropriate method in light of the client’s financial literacy, language skills and age. ‘Initial’ communications should describe the R & R Program and its implications for the client, and ‘final’ communications should clearly state what decision was reached in regards to the client and the reasons for that decision.
- External Review of Decisions: clients should receive the information and documents that were used to form a decision following the review of the client’s advice. If a client is not satisfied with a decision made pursuant to an R & R Program, the client must have access to the AFS Licensee’s EDR Scheme. AFS Licensees should communicate and engage with their EDR Schemes in advance of setting up their R & R Programs to ensure a streamlined decision-making process for their clients.
An AFS Licensee’s R & R Program is distinct from its internal dispute resolution procedures (“IDR”). IDR involves the review of complaints made by a retail client, while R & R Programs involve the AFS Licensee independently reviewing systematic issues that have been identified other than by way of a complaint from the affected clients.
If you would like advice about how to set up an R & R Program, please contact us. In the meantime, you should ensure that you constantly monitor your AFSL Breach Register to ensure that any ‘systemic issues’ are identified as they arise.