ASIC has released a consultation paper on its proposed updates to RG256, which are aimed at improving efficiency in the consumer remediation process and reducing incidents of compensation being “blown out” by ongoing systems failures.
Of particular relevance is the proposed guidance on so-called “beneficial assumptions” that can be used during remediation, something that does not exist in RG256 in its current form. This, ASIC said, has led to frequent queries from licensees as to how (and what) assumptions can be made.
The regulator noted that using “properly designed, tested and monitored” assumptions in remediation can “produce good consumer outcomes and save licensees a considerable amount of time and resources.” In order for an assumption to meet this criteria, ASIC said the assumption must:
- aim to return affected consumers as closely as possible to the position they would have otherwise been in
- be evidence-based and well-documented
- be monitored to ensure the assumption continues to “achieve the goal of returning consumers as closely as possible to the position they would have otherwise been in throughout the remediation.”
Providing examples, ASIC said assumptions might concern scoping (determining which consumers should be included in the remediation) or refund value (calculating the amount of actual or potential loss). Scoping assumptions, ASIC added, should preference “inclusivity rather than exclusivity” – that is, licensees should aim to include more, rather than less, clients in a remediation.
Similarly, assumptions about the value of refunds should “err on the side of overcompensation,” although ASIC qualified this by saying that licensees aren’t obliged to overcompensate. Rather, should they make assumptions about refund values, those assumptions should “equate to actual loss or err towards overcompensation rather than risk returning less than what consumers are owed.”
Based on the consultation paper, there’s far less wiggle room available in circumstances where documentation or records relevant to the remediation can’t be found. In these circumstances, especially where a licensee “fails to keep proper records in line with its record-keeping obligations,” ASIC expects licensees to “make beneficial assumptions in that consumer’s favour if there is evidence to suggest the consumer has been, or may have been, affected by the failure.”
Commenting on the proposed guidance, ASIC acting chair Karen Chester said: “Putting money back in Australian consumers’ hands has never been more important. Ensuring that the processes for returning this money are efficient and fair is central to consumer confidence and trust in financial products and services and in the firms themselves.”
The release of the consultation paper occurs ahead of another big ASIC project: the review of the Life Insurance Framework. A recent report by Key Person Risk Management’s Brett Wright has argued that, contrary to popular sentiment, consumers generally prefer the process of applying, renewing and claiming under a commission/brokerage model. He says this is because “life insurance is complex, confusing and people don’t wake up in the morning thinking about why they need to buy it.”
The benefits of working with a financial adviser to find the right coverage (and the peace-of-mind that entails) are discussed extensively in the latest season of Secrets of the Money Masters. These episodes feature Nina, a professional photographer with a “lumpy” income stream whom AIA Australia’s Pina Sciarrone suggests would strongly benefit from income protection.
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