ASIC commences consultation on proposed updates to RG 256 Consumer Remediation

2. The review period for a remediation 

ASIC proposes that the relevant period for a remediation should begin on the date a licensee reasonably suspects the failure first caused loss to a consumer. This is in contrast with the current RG 256 which prescribes a minimum of seven years for a review period, except in some circumstances. 

Licensees will need to consider;

• The criteria that should be used to determine an appropriate lookback period for each remediation and where required, individual consumer cohorts. A one size fits all approach is unlikely to be suitable.
• How decisions around lookback periods will be made and recorded.
• Their approach in circumstances where accurate data may not be available to substantiate consumer harm beyond 7 years including; decommissioned / legacy systems, third / related party document retention etc.

3. Using beneficial assumptions 

ASIC proposes that assumptions used to make remediation more efficient or to enable compensation to be calculated in the absence of records, should only be employed if they benefit / favour each individual consumer. ASIC also proposes that such assumptions will need to be:

• evidence based and well documented, 
• aim to return all affected consumers as closely as possible to the position they would have been in; and
• monitored to ensure that the assumption continues to deliver to these requirements.

Licensees will need to consider;

• If they will need to undertake a review process to assess all current assumptions in their remediation methodologies. 
• Whether remediation programs which rely on grouping cohorts of consumers according to certain characteristics are appropriate anymore. The process of confirming whether an assumption will benefit a particular consumer may require a granular review approach. 
• If assumptions based on sampling and averaging require review. 
• If scoping practices that utilise beneficial assumptions currently preference inclusivity rather than exclusivity.
• If the requirement for beneficial refund assumptions to err on the side of overcompensation will require a reform of calculation methodologies. 

4. Calculating forgone returns or interest

ASIC proposes providing further guidance to the calculation of forgone earning or interest including proposing a three step framework for determining the best approach in the circumstances. Additionally, ASIC is proposing that licensees will need to determine and justify what constitutes a fair and reasonable interest rate in circumstances where it is not possible or practicable to either calculate actual foregone earnings or to use a beneficial assumption based approach. 

Licensees will need to consider: 

• Whether their current approach (if it is not based on actual forgone earnings or interest) meets the tests outlined in the proposed three step framework. 
• The impact of ASIC's proposed guidance in the circumstances where they are applying a proxy interest rate in place of a evidenced based calculation, including what constitutes a fair and reasonable interest rate and on what basis that rate should compound.   

5. Finding and automatically paying consumers – and abandonment of low value threshold

ASIC proposes that licensees should apply best endeavours to find and automatically pay consumers, with cheques used as a payment method of last resort. ASIC further proposes that the low value threshold guidance in RG 256 be replaced with the principle that all consumers are returned to the position they would have otherwise been in regardless of the value and that it is up to licensees to determine and justify any decision to utilise a low value threshold for particular cohorts of clients. 

Licensees will need to consider:

• What would constitute best endeavours in locating contact details for inactive consumers.
• Ensuring appropriate privacy controls are in place when collecting this information from third parties.
• Where the licensee does not have current bank account details, what mechanisms are available to gather this information and what would be required in terms of consumer action.
• How payments can be made inside the super system where fees were deducted from a superannuation fund that is unrelated to the licensee and the member has subsequently left that fund.  
• If low value thresholds are currently being applied, are they justifiable in the circumstances and would there be a requirement to review the approach for previously reviewed cohorts of consumers. 

6. Remediation money that cannot be returned to consumers

ASIC is proposing further guidance on the treatment of compensation where the money cannot be returned to the consumer, despite best efforts. This includes when monies should be paid to the relevant unclaimed money regimes and the circumstances under which it may be appropriate to make a payment to charity.

Licensees will need to consider;

• Their current process for disgorgement of compensation monies where the consumer cannot be located.
• Where the existing unclaimed money regimes can be used and where there are barriers (such as minimum thresholds).
• The cost and timeliness implications of returning amounts of less than $20 where the consumer cannot be easily located, including the requirement for client involvement in the return of low amounts (see section 5).

7. Settlement Deeds

ASIC proposes to clarify guidance in the use of settlement deeds and the use of implied consent.

Licensees will need to consider;

• If the circumstances under which they are currently seeking release are limited to the conduct being remediated.
• Whether the consumer has the ability to determine if an offer is adequate and fair when agreeing to a release.
• If they are relying on implied consent. 
• In what circumstances do they believe that settlement deeds are required in order to protect the licensee interests.