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:
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.
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.
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.
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.
The following are some comments and views of interest in the Interim Report:
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.
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