ASIC cracks the whip on $3bn unpaid remediation

Addressing the House standing committee on economics yesterday, the regulator’s deputy chair, Karen Chester, said ASIC would soon update its Regulatory Guide 256 into client review and remediation, obligating institutions to speed up their so far slow progress on refunding customers.

“RG 256 sets out the principles [for remediation], but it doesn't go to timeliness – we will address that in the new guide,” Ms Chester said. 

“We think there are opportunities for financial services firms to do better on remuneration, not just on timeliness but also erring on the side of generosity to ensure they are getting money out to customers more quickly.”

Ms Chester said there were currently 89 active remediation activities in progress across major financial services licensees, with a total of $828 million having been returned to customers so far.

However, she added an estimated $2.99 billion was still to be refunded as a result of poor advice or fees for no service over the next 18 months.

“We remain frustrated with the pace of remediation programs,” Ms Chester said. 

“We are seeing green shoots in terms of the culture within some large institutions, but we will be consulting on this document around what our expectations are for remediation programs going forward, focusing on things like transparency and how many cents in the dollar is going through to the consumer versus paying consultants. 

“That guide will empower those entities to satisfy community standards on those programs going forward.”

When further questioned by committee deputy chair Andrew Leigh, Ms Chester conceded some institutions were spending large amounts on external compliance consultants, but that these were often necessary due to the poor levels of data available around historical misconduct.

“The one clear take-out is the longer it takes to identify problems early on means that remediation becomes a long legacy to be paid,” she said. 

“There is a substantive consultant spend with the large programs, but it’s largely a function of old systems and old conduct and needing to leverage consultancy support to do that. At the end of the day, where systems are poor there’s two options for the board to consider – do we err on the side of generosity and get these payments out quickly, or do we have a large consultancy spend and take more time to make sure we’re compensating the exact amount.”