Many roads lead to Rome: Paths to redress and remediation

In Australia, financial firms have been required to submit IDR data to the Australian Securities and Investments Commission (ASIC) every six months since early 2023. Initially rolled out among 11 large financial entities, this requirement now encompasses the entire industry. ASIC recently released its first public report on the IDR data it receives, and intends to make that data granular (ie, specific to the financial firms) from next year, after a consultation process on its approach to ‘contextualising and presenting the data’. This has significant potential to inform and influence decision-making of regulators, consumer action groups and class action law firms.

External dispute resolution – A complementary framework

Where complaints cannot be resolved satisfactorily through IDR processes, consumers may turn to external dispute resolution (EDR) schemes administered by independent bodies, such as the Financial Dispute Resolution Scheme (FDRS) in Hong Kong, the Financial Ombudsman Service (FOS) in the UK, and the Australian Financial Complaints Authority (AFCA).

These schemes often have flexibility in their decision-making that is not enjoyed by the courts. For example, AFCA is expressly empowered to consider what is ‘fair in all the circumstances’, and recently completed a project to ensure its ‘fairness jurisdiction’ is clearly communicated to financial firms, complainants and other stakeholders.

In the UK, a review of the rules governing how the FOS operates, including its role in dealing with mass redress events, was announced by the Chancellor in November 2024, with next steps due to be published in the first half of 2025. 

Tackling digital scams and authorised push payment fraud

The focus on consumer remediation extends into the realm of digital scams and authorised push payment (APP) frauds. In Philipp v Barclays Bank UK plc [2023] UKSC 25, the UK Supreme Court stated that the question of whether victims of APP frauds should bear the loss themselves, or whether banks involved in the transactions should reimburse victims, is a matter of social policy for consideration by regulators and government. This issue is being addressed differently across jurisdictions.

In the UK, the Payment Systems Regulator (PSR) has adopted a world-first reimbursement scheme from 7 October 2024, which puts the onus on payment service providers to refund customers who have been defrauded.

Singapore has implemented a new shared responsibility framework for phishing scams, which acknowledges the shared responsibility among victims, financial institutions, and telecommunication companies, and seeks to provide clarity on the duties for each party involved.

In contrast, the current focus of the Hong Kong regulators is on information sharing between industry players to seek to prevent scams, rather than requiring consumer reimbursement. However, local Hong Kong media reported in September 2024 that the Hong Kong Monetary Authority had indicated it would commence consultation on a 'responsibility framework' for scams, with the possibility that Hong Kong may align more with the UK. 

Australia is going down a different route with its ‘scams prevention framework’, which will require regulated sectors (initially banking, telecommunications and certain digital platforms) to take measures to prevent, combat and respond to scams. This law will include provisions on IDR and EDR and will introduce a “single door” approach for EDR – with complaints against not only financial firms but also telcos and digital platforms going to AFCA.

Regulatory responses

In the UK, we anticipate that pressure from consumer groups, as well as Parliament, will continue to influence and shape the FCA's approach to redress in the coming year. In this context, we await the judgment from the All Party Parliamentary Group on Fair Business Banking's judicial review of the FCA, which in December 2024 sought to challenge the FCA's decision to exclude certain customers who were deemed to be sophisticated from the interest rate hedging product voluntary redress scheme established in 2012.

Following a rise in customer complaints relating to motor finance commissions, in January 2024, the FCA paused the usual eight-week deadline for motor finance firms to provide final responses to customer complaints. The intention was to "prevent disorderly, inconsistent and inefficient outcomes for consumers and knock-on effects on firms and the market" and allow the FCA to determine the best way forward. Following a surprising Court of Appeal decision on the same subject in October 2024, this pause will remain in place until December 2025. This, with the pending Supreme Court decision following the scheduled appeal hearing in April 2025 (which the FCA has called to be taken swiftly), may delay the FCA's efforts to prevent disorderly claims. However, we expect the FCA will seek to clarify the regulatory position, both going forwards and to deal with any redress that may be due to customers in an orderly way, rather than through piecemeal individual claims and complaints.

More generally, we expect to see the FCA continuing to focus on consumer remediation in the year ahead, not only as has been hinted at in the motor finance sector, but also through its enforcement activities in returning monies to consumers, rather than imposing fines on companies, which would otherwise deprive customers of those funds (such as with H2O AM LLP and Link Fund Solutions), and reducing fines where firms have acted to "do the right thing".

In Australia, we expect to see a continuing theme of regulatory scrutiny prompting financial institutions to undergo significant consumer redress schemes. The retirement fund industry has recently seen significant redress schemes after ASIC turned its attention to customer service in processing death benefit claims. In early 2025 ASIC will release a report on its detailed review of retirement fund trustees’ practices in this area – and check in with trustees as to how their claims handling processes have improved. In this context ASIC sent an ‘open letter’ to the CEOs of all retirement fund trustees in November 2024, noting (among other things) the responsibility of the trustees’ boards and senior executives.

In the US, the Consumer Financial Protection Bureau (CFPB) faces an uncertain future under President Trump. Banks and other financial institutions subjected to CFPB investigations and enforcement actions have long asserted that the bureau frequently oversteps its authority when taking aggressive positions against financial firms alleged to have engaged in customer abuses. The US Supreme Court last year rejected a challenge to the CFPB’s funding structure, but its director may be fired at will by the president and early signs are that the new administration will, at a minimum, put a more business-friendly director in place.