ASIC formalises requirements for client review and remediation

After years of review and remediation activities at many advice licensees and months of industry consultation following the release of Consultation Paper 247 (CP 247) in December 2015 (including with this firm), ASIC has released its Regulatory Guide 256: Client review and remediation conducted by advice licensees (RG 256).

It demonstrates ASIC's commitment to customer advocacy and focus on timely and appropriate breach-reporting in large financial institutions.

What do you need to know?

RG 256 sets out the following key considerations for advice licensees who provide personal advice to retail clients:

  • when to initiate the process of review and remediation (which generally aim to place affected clients in the position they would have been in had misconduct or other compliance failure by an advice licensee not occurred);
  • how to determine the scope of review and remediation; 
  • how to design and implement a comprehensive and effective process for review and remediation;
  • elements of effective communication with clients; and
  • steps for ensuring access to external review.

The nature of each of the above elements will be influenced by factors such as the size of the licensee, the numbers of advisers or clients involved and the scale of the issue being remediated

A review and remediation program should be established to review personal advice where a systemic issue in relation to advice has been identified. CP 247 defined a systemic issue to include one that may have implications for more than one client, with this narrow scope causing concern amongst advice licensees.

In RG 256.21, ASIC has broadened the definition of systemic issue to refer to "an issue causing actual or potential loss or detriment to a number of clients as a result of misconduct or other compliance failure by an advice licensee or its current or former representatives. The impact may be a monetary loss or non-monetary detriment".

What's changed and what does this mean for advice licensees?

Despite extensive industry consultation, RG 256 is more prescriptive than CP 247. Set out below are some important messages from RG 256 that advice licensees contemplating review and remediation should consider:

  • Breach reporting: ASIC has already indicated in its recently released Corporate Plan that it will focus on breach-reporting in large banks as one of its surveillance projects for 2016-2017. This is evident in RG 256, which makes several references to instances where advice licensees will need to consider issuing a breach report to ASIC, including:

    • where a systemic issue has triggered the initiation of a review and remediation process (generally this will constitute a significant breach for reporting purposes);

    • where a client has made a complaint and that complaint is within the scope of the review and remediation but the advice licensee is unable to comply with its IDR obligation to provide that client with a response to the complaint within 45 days; and

    • where an advice licensee does not have adequate resources to conduct the review and remediation process in accordance with its obligations under s912A(1)(d) of the Corporations Act (which requires licensees to have adequate resources to provide financial services covered by the AFS). ASIC indicates in RG 256 that it will look more closely at advice licensees who incur unnecessary delays in remediating clients, as this may indicate that the licensee has inadequate resources to conduct the review and remediation or is not prioritising the remediation or acting efficiently, honestly and fairly.

  • Early engagement with PI insurer: RG 256 recommends that advice licensees engage with their PI insurer as early as possible and throughout the review and remediation process, including discussing whether they would like to review any proposed communications with clients. Advice licensees should also consult their PI insurer before waiving any limitation period. This is to minimise the risk of advice licensees prejudicing the rights of their PI insurer and as a consequence, voiding or reducing their cover.

  • Compensation arrangements: a departure from CP 247, RG 256 contains guidelines about the payment of interest on compensation amounts, including that the RBA's cash rate + 6%, reflecting the Federal Court's interest rate, is an appropriate rate of interest where it is not possible or practical to determine the actual investment returns that a client would have received. This rate well exceeds a client's likely return on a product. Given that the purpose of Federal Court interest is to incentivise payment and penalise delay, with this initiative ASIC seems to be taking a similar approach to drive compliance with its many efficiency directives in RG 256. RG 256 also recommends that advice licensees make a community service payment to an appropriate organisation (generally non-profit) where the amount of compensation payable to a client is below $20 and the client cannot be compensated without significant effort on the licensee's part.

  • Customer focus: RG 256 suggests that advice licensees involve a consumer advocate in the process of peer-reviewing advice to ensure that a consumer-focussed approach is adopted in the way that advice is being reviewed. It also makes recommendations to ensure that customer communication is effective, timely and targeted, informed by behavioural insights (an ongoing focus for ASIC).

  • Genuinely independent expert: ASIC emphasises that, whilst independent oversight can offer appropriate assurance about the governance, design and operation of a review and remediation program, it is important to ensure that the external expert engaged is and remains genuinely independent. A new development from CP 247, RG 256 flags the following examples (amongst others) as indications of potential risks to an expert's ability to exercise objective and impartial judgment:

    • whether the fees and remuneration from the advice licensee's business in the two years before the proposed appointment are material to the expert's revenue in Australia; and

    • whether the expert has participated in strategic planning for the advice licensee's business.

Henry Davis York's Regulatory Risk + Strategy team has extensive experience advising major financial institutions in relation to review and remediation programs. Please contact our team to discuss how RG 256 may impact your business.

Scott Atkins

I'm unapologetically determined and fearless. I pursue excellence. Always.

Scott Atkins Partner

Scott is the Chair of our Board and an internationally renowned insolvency and restructuring lawyer. He is an inaugural Fellow and a member of the Board of INSOL International. Scott is also Vice President of the Australian Restructuring Insolvency and Turnaround Association (ARITA).

Scott is a trusted adviser to Australia's leading banks and insolvency and restructuring practitioners and has acted on some of the industry's most complex and sensitive banking and insolvency advisory and dispute resolution matters.

Prior to joining HDY, Scott practiced for 7 years as in-house counsel with Commonwealth Bank Group. He is now our Client Relationship Partner for the CBA Group. He is also the co-leader of our cross-border insolvency practice and our regulatory enforcement practice. Scott is recognised by his peers for his leading expertise in cross-border insolvency, acting on both inbound engagements in Australia and advising Australian clients on outbound engagements in the USA, UK, Cayman Islands, Hong Kong and The Netherlands, among other jurisdictions.

Scott was the Australian delegate on the Advisory Committee on Comparative Law established by the American Bankruptcy Institute as part of its Commission to Study the Reform of Chapter 11 of the US Bankruptcy Code. This resulted in a landmark report for the reform of Chapter 11.

He is a published author on insolvency and cross-border insolvency. Most recently, Scott was one of the Australian contributors to the 2015 publication 'International Contributions to the reform of Chapter 11 U.S. bankruptcy code' which is volume 2 of the European and International Insolvency Law Studies series. He also authored the Australian chapter of Avoidance of Antecedent Transactions and Cross-Border Insolvency (INSOL International). Among other publications, he is the co-author, together with Professor Rosalind Mason, of the Australian chapter of Look Chan Ho's leading text: Cross-Border Insolvency: Cases and Materials (Kluwer International).

Scott is a visiting lecturer on cross-border insolvency at the University of Sydney in its undergraduate and postgraduate law programs lead by Professor John Stumbles.

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John Martin Partner

John is a leading lawyer in both financial sector dispute resolution (complex and regulatory) and corporate insolvency and restructuring, with a particular specialty in cross-border insolvencies. He is recognised by his clients, peers and legal directories as a leader in his field.

Domestically, John advises on large and complex insolvencies and assists in finding solutions for financial institutions with regulatory and other complex issues. His clients include several of Australia's major banks, as well as insolvency practitioners appointed to insolvent entities.

Internationally, John has advised in connection with insolvencies in England, Fiji, Bermuda, Cambodia, Cayman Islands, Brunei, and Norfolk Island. His cross-border experience includes acting for the liquidators of an insolvent bank, and various liquidators of insurance and reinsurance companies.

John is a recognised authority on insolvency issues, with articles published in media outlets such as The Australian Financial Review and the Insolvency Law Journal. He has presented at numerous domestic conferences as well as internationally in the US, England, South Africa, Singapore, Canada, New Zealand, and the Netherlands.

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Anna Simmons

I deeply understand my client's business so I can offer insight and innovative solutions to achieve outcomes that count.

Anna Simmons Senior Associate

Anna is a restructuring and insolvency lawyer specialising in insolvency advice, dispute resolution and financial regulation.

Anna's clients include banks and insolvency practitioners. She advises these clients on dispute resolution, regulatory compliance, enforcement strategies, receiverships, and liquidations.

Anna has extensive experience in advising on various aspects of debt recovery, insolvency and bankruptcy, creditors' remedies, general banking litigation, fraud disputes, misleading and deceptive conduct claims (including valuer negligence) and other forms of dispute resolution. She has worked on a large-scale remediation program, with a focus on regulator engagement.

Anna also presents and writes on insolvency, litigation and recovery matters.

As part of HDY's Pro Bono program, Anna volunteers at Redfern Legal Centre and MOSAIC, a specialist legal service that provides free legal advice to asylum seekers, refugees and newly arrived migrants. Anna is a member of HDYPride, the firm's LGBTIQ support network.

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Claudine Salameh Partner

Claudine has over 15 years' experience dealing with legal issues in the financial services sector.

She is a banking and insolvency litigator and regulatory expert. She acts for the major Australian financial institutions in matters involving customer disputes and litigation, fraud, regulatory and compliance issues, regulatory investigations, inquiries and enforcement matters, security enforcement and insolvency litigation. She also acts for insolvency practitioners in formal receiverships, voluntary administrations and liquidations.

Claudine is well known for her ability to manage risks posed by litigation and regulatory inquiries and investigations. She is particularly attuned to reputational and business risks. She is highly strategic and creative and is recognised by her clients for being able to achieve the perfect balance between legal arguments and commercial and practical outcomes.

Claudine has been instrumental in working with clients to provide insights into the field of behavioural economics, which over the past few years, has been of interest to policy makers and regulators as a tool to engage in 'choice architecture'. On a practical level, Claudine has worked closely with clients to design approaches to customer engagement that make use of behavioural insights.   

Claudine is an expert in the conduct of review and remediation programs and provided assistance to the regulator, by way of submissions and her involvement in an industry working group, on ASIC's regulatory guide on review and remediation programs.

Claudine is very familiar with ASIC's powers to obtain documents and information from financial institutions and is called upon by financial institutions to provide assistance in these matters. She has a style that is conducive to having a fruitful dialogue with both the regulator and the various stakeholders within a financial institution.

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Rebecca Laban

Delivering outstanding client service is my goal. I transform ideas into outcomes that count.

Rebecca Laban Senior Associate

Rebecca advises major financial institutions and insolvency practitioners on banking and insolvency litigation, fraud, debt recovery, security enforcement and financial regulation.

Rebecca is a banking and insolvency litigation and regulatory expert.

Rebecca's clients include banks and insolvency practitioners. Acting in both the State and Federal Courts, Rebecca has advised on, and is regularly involved in, security enforcement litigation, matters involving the Financial Ombudsman Service, fraud related matters, valuer’s negligence claims, receiverships, liquidations and general banking and insolvency related litigation. Rebecca is also involved in advising financial institutions in relation to their compliance with regulatory obligations.

Rebecca’s recent experience includes undertaking litigation on behalf of liquidators following the collapse of a well-known listed entity and its subsidiaries in relation to major voidable and uncommercial transaction claims commenced in the Supreme Court. Rebecca has also acted for an Australian bank in relation to a contested and multi-party enforcement proceeding in the Supreme Court traversing issues pertaining to fraud.

Rebecca has completed a 9 month secondment in house at an Australian bank.

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Victoria Taylor Senior Associate

Victoria specialises in complex corporate insolvency and banking dispute resolution for a range of clients including Australia's major banks and other leading financial institutions.

Victoria acts for the major banks as well as insolvency practitioners, distressed companies, creditors and professional trustees in relation to all aspects of corporate insolvency, general banking litigation and financial regulation.

Since joining HDY, Victoria has advised on high profile banking litigation and complex cross border recoveries.

She previously worked in London, where she spent a number of years specialising in commercial and insolvency related litigation and restructuring.

Victoria was recently an Australian contributor for the published text: International Contributions to the Reform of Chapter 11 U.S. Bankruptcy Code (Eleven Publishing).

Victoria is currently working as Senior Counsel on a large-scale remediation program for one of Australia's leading banks.

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Helen Taylor

I am absolutely committed to achieving the best outcome for our clients.

Helen Taylor Special Counsel

Helen has more than 13 years' experience advising clients on a broad range of banking, insolvency and regulatory matters.

She has developed market-leading expertise in regulatory risk and strategy and has extensive experience supporting the financial services sector with the design and implementation of large-scale, complex remediation programs. Most recently, Helen played a pivotal role in the execution and strategic direction of a financial planning remediation program mandated by ASIC, with primary responsibility for overseeing compliance with the regulatory framework.

Helen has acted for financial institutions and government bodies in matters involving customers disputes, regulatory investigations and compliance, inquires and responses to compulsory information requests.

She has also acted on a diverse range of matters in the corporate restructuring, insolvency litigation and security enforcement context. She regularly advises clients on their exposures to distressed companies, debt recovery, workouts, administrations and liquidations and has significant experience acting on cross-border insolvency engagements.

Helen's recent experience includes advising the liquidators of the Octaviar group of companies on all aspects of the liquidation including complex proceedings commenced against a major non-bank lender in Queensland and the USA.

Upon being admitted as an Australian legal practitioner (expected to be in November 2017), Helen Taylor will become a member of the partnership of Henry Davis York.  Helen is currently a Special Counsel admitted to practice in England and Wales.

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