The Interim Report on the Review of the financial system external dispute resolution framework was released yesterday (6 December).
The Report includes 11 draft recommendations:
A financial, credit and investment disputes Ombudsman
- There should be a single industry ombudsman scheme for financial, credit and investment disputes (other than superannuation disputes) to replace FOS and CIO.
- The new industry ombudsman scheme for financial, credit and investment disputes should provide consumers with monetary limits and compensation caps that are higher than the current arrangements, and that are subject to regular indexation.
- The new industry ombudsman scheme for financial, credit and investment disputes should provide small business with monetary limits and compensation caps that are higher than the current arrangements, and that are subject to regular indexation.
A separate Superannuation Ombudsman
- The SCT should transition into an industry ombudsman scheme for superannuation disputes.
- The superannuation industry should develop a superannuation code of practice to cover matters such as the industry’s key commitments and obligations to consumers on standards of practice across all services provided
- Both new schemes should be required to meet standards developed and set by ASIC. At a minimum, ASIC’s regulatory guidance should require the schemes to meet various criteria detailed in the Interim Report.
- ASIC’s oversight powers in relation to industry ombudsman schemes should be enhanced by providing ASIC with more specific powers to allow it to compel performance where the schemes do not comply with EDR benchmarks.
- The new industry ombudsman schemes should consider the use of panels for resolving complex disputes. Users should be provided with enhanced information regarding under what circumstances the schemes will use a panel to resolve a dispute.
- Financial firms should be required to publish information and report to ASIC on their IDR activity and the outcomes consumers receive in relation to IDR complaints. ASIC should have the power to determine the content and format of IDR reporting.
- Schemes should register and track the progress of complaints referred back to IDR.
- Debt management firms should be required to be a member of an industry ombudsman scheme. One mechanism to ensure access to EDR is a requirement for debt management firms to be licensed
The Interim Report also stated that is sees considerable merit in introducing an industry-funded compensation scheme of last resort. The Australian Bankers’ Association and FOS are working with key stakeholders to identify any issues that would impede implementation of such a scheme. The Panel will consider the outcomes of this work in its Final Report.
Why shouldn’t the SCT continue as a tribunal?
The Interim Report referred to the release by the Standing Committee on Economics of its Review of the Four Major Banks: First Report, which recommended that a tribunal replace FOS, CIO and the SCT. The Interim Report identifies what it sees as the advantages that ombudsman schemes have over tribunals when dealing with disputes relating to financial products and services.
According to the Interim Report, the SCT is more restricted in its ability to adapt and reform itself to address issues and future challenges than industry ombudsman schemes because it requires involvement by government and legislative change. In contrast, schemes can amend their operations, processes, funding and jurisdictions, through changes to their Terms of Reference. The Interim Report states that this flexibility allows for more effective future proofing than with the tribunal structures, which are reliant on government action (through legislation) for change.
One example in the Interim Report is the current appointments process for Tribunal members, which can be lengthy making it more difficult for SCT to manage its operations and to quickly respond to emerging issues.
A different standard to be applied
The Interim Report found that the SCT is hampered by restrictive legislation which contains a narrow definition of fair and reasonable in comparison to industry ombudsman schemes. Terms of Reference for industry schemes (such as FOS) permit broader considerations to inform decision making – ‘fairness in all the circumstances’ and the flexibility to take into account more than the legislation (eg a future superannuation industry code of conduct).
In practical terms this would mean that superannuation disputes would no longer be measured against whether the operation of the decision of the trustee or insurer was fair and reasonable in the circumstances. That test would be replaced by a decision whether it was fair in all the circumstances.
That change would be likely to increase the number of decisions against trustees and insurers.
Loss of right of appeal
The Interim Report considers that parties to superannuation disputes would lose their current right to appeal decisions they do not agree with (ie to the Federal Court on questions of law (section 46 of SRC Act) and/or seek judicial review under section 5 of the Administrative Decisions (Judicial Review) Act 1977 and section 39B of the Judiciary Act 1903).
The current appeal rights would be replaced with a very limited right of review – being an action for breach of contract (eg if the new superannuation ombudsman scheme failed to follow the procedures set out in its Terms of Reference or acted unreasonably). Complainants would retain their right to undertake private action.
The proposed right of review is so limited that no FOS determination has ever been successfully overturned by a court.
Other interesting items in the Interim Report
The following are some comments and views of interest in the Interim Report:
- The new superannuation ombudsman scheme would be given flexibility to extend time limits for disability and death benefits complaints in exceptional circumstances.
- The new industry ombudsman scheme for superannuation disputes should be encouraged to work closely with the new scheme for financial, credit and investment disputes, to share knowledge and resources (such as back-office functions) and realise efficiencies where possible.
- Once the two new schemes are fully operational and have garnered consumer and industry support, consideration should be given to further integrating the schemes to create a single ombudsman scheme for all financial system disputes.
The Panel is calling for further submissions on the broad approach, the draft recommendations, implementation and transitional issues in the Interim Report, with submissions due by 27 January 2017.