ASIC’s guide for bad actors

Pay up or face penalty

COMPANIES that fail to follow the corporate regulator’s guide to running a remediation program may face significant financial penalties.

The guide, unveiled on Tuesday, is the latest effort by the Australian Securities and Investments Commission (ASIC) to pressure businesses to improve remediation programs, amid regulator concerns that many companies were stalling.

It marks an effort by ASIC to step away from closely monitoring remediation schemes from companies, which the regulator revealed had topped $5.6bn in repayments to customers over the past six years.

ASIC is monitoring 36 remediation programs across superannuation, advice, credit, and banking and insurance.

ASIC warned that $1.6bn was still to be paid to almost 2.7 million customers across remediation programs and that it was still monitoring.

ASIC deputy chair Karen Chester said while large parts of these funds were from recently uncovered pricing scandals in the insurance sector, many older issues were unresolved and unpaid.

Ms Chester said ASIC was concerned that many companies had failed to prioritise remediation at a board level, or properly resource operations.

“To date, ASIC has needed to oversee large-scale remediations to ensure affected consumers were treated fairly and received the compensation they were entitled to,” Ms Chester said. “When a firm gets it wrong, and some inevitably will, they need to identify the problem, fix it and put the consumer back into the position they ought to have been in. This is not just a legislative obligation; they wouldn’t be passing the pub test if they failed to do this.”

Ms Chester said ASIC’s guide was the first from a financial regulator and offered industry a path forward for how to best run remediation programs.

“There are serious penalties involved here if they don’t do it,” she said.

ASIC’s remediation interventions have come in waves. About $3.6bn has been paid to compensate 1.4 million customers for no-service misconduct or non-compliant advice.

A further $1.3bn has been paid for selling junk insurance, insurers failing to pass on promised price discounts, or poor sales practices.

Ms Chester said ASIC had consulted with a number of companies over the past two years and had identified a number of issues – most notable of which was underinvestment in systems.

“This underinvestment has led to a trifecta of failures. First and foremost, in delivering on promises to consumers, second in identifying the failures and third in being able to remediate consumer loss in a timely way,” she said.

“Licensees must also do better at identifying and remediating problems earlier to avoid the costly lag and drag of remediation.”