I'm not sure what the conditions are, but the airlines are required to do that by law under certain circumstances. Maybe someone more knowledgable could chime in?
It can be tricky to get the airline to comply when they deny responsibility. So there are intermediary agencies that do the claim paperwork (and take the legal actions if necessary), taking a small percentage of the reward only if successful.
With the help of an intermediary, I successfully invoked Regulation 261/2004 against KLM after a flight was cancelled due to mechanical failure. The correct reward was ultimately transferred approximately one year after the original flight.
This Consumerist article [2] is out of date (2007), but it covers every airline's contract and I believe it remains mostly correct.
[1] https://en.wikipedia.org/wiki/Rule_240 [2] https://consumerist.com/2007/04/06/dont-fly-without-a-copy-o...