Key Points
Reforms to financial services industry: Focus on simplifying financial services regulation. Most of the proposals developed through the consultation process will be implemented through my Bill, ‘A Simpler Regulatory System Bill’, scheduled to be introduced into Parliament this year.
Convergence of EDR schemes: I want an EDR system for the financial sector that is streamlined, efficient, practical and consumer-friendly. I appeal to the Chairs and representatives of the Boards to continue to work together to make the most of the synergies that can be garnered among individual EDR schemes for the benefit of consumers and businesses alike.
Role and achievements of Financial Industry Complaints Service: I would like to commend FICS on its work in reducing the number of complaints consumers make about financial service providers. In considering the monetary limits on what claims it may hear, FICS must have regard to the interests of consumers, as well as the interests of its members.
It gives me great pleasure to be here today to officially open the fourth annual conference of the Financial Industry Complaints Service — otherwise known as FICS.
Further to Peter’s speech I, too, would like to welcome you all to this conference, and take this opportunity to thank Peter [Daly, Chair, FICS] for his kind introduction.
I’d also like to congratulate Peter for his contribution as Chairperson over these years to FICS and the Insurance Ombudsman Service. I wish him all the best into the future.
There has been much public debate about the Australian value system in recent times, and what it means to be Australian. And while there are diverse opinions on the subject, discussions tend to focus on the same core beliefs.
Our core beliefs include notions of justice and fairness — or as we Australians say — “a fair go”. These concepts are a deeply held part of our belief system, helping us to describe who we are, and what we stand for.
Another typically Australian characteristic is that we are ambitious when it comes to our financial affairs. Australians want to maximise their wealth for themselves… their children… and their children’s children. This is borne out by research which indicates that Australians have the highest rate of share ownership in the world.
The Government is committed to helping Australians to take charge of their finances and maximise their wealth. One of the ways we do this is by creating a strong regulatory environment. We want to see all Australians get “a fair go” in their efforts to leverage their savings and enhance their wellbeing.
You will be aware that in the 2006 Budget, the Government introduced the most radical overhaul of our superannuation system in two decades.
The new superannuation initiative was labelled: Simpler Super: A Plan to Simplify and Streamline Superannuation.
The key words — “simpler”, “simplify” and “streamline” — say it all.
The Simplified Superannuation legislation was passed in Parliament last week, just 9 months after the 2006 Budget announcement, and the new system will come into effect from the 1st of July this year. In addition to sweeping away a tide of complexity, it will provide Australians with far more flexibility as to how and when they can draw down their superannuation.
Not only that, but because the plan also increases every Australian’s incentive to work and save, Australians will have more money to contribute to their super funds.
As I will discuss later, and in a matter more directly relevant to my portfolio areas, the Government is committed to reforming corporate and financial services regulation to reduce complexity and enhance efficiency in these areas. We also want to ensure that, when consumers are working towards achieving their financial goals, they are supported by the best possible regulatory regime.
Given the importance of the notion of “a fair go” to Australians’ way of life, and the pursuit of their aspirations, it’s not surprising that this concept is also a cornerstone of our financial services regime.
And External Dispute Resolution – or EDR - schemes play a vital role in the Australian financial services regime.
They provide consumers with a quick and inexpensive way to resolve complaints. In this way, they reduce the risk of expensive and lengthy court proceedings that can cost consumers dearly and come between them and their financial goals.
They allow consumers to have complaints that would not normally be brought before a court due to the cost of legal proceedings, aired and resolved.
EDR schemes encourage industry to improve standards and conduct.
They promote market confidence by encouraging prompt, fair and consistent dealing for consumers. And they provide consumers with a fast and low-cost way of resolving concerns so that they can continue to maximise their wealth and improve their futures.
In other words, they give Australian consumers “a fair go”, contributing to a just and fair society.
Reforms to financial services industry
As the person responsible for both consumer affairs at the national level, and our Financial Services Regulation regime, I have a keen interest in ensuring that people get “a fair go”.
That’s why the reforms I am introducing to Financial Services Regulation are designed to benefit both consumers and industry.
They will make the financial services framework more workable, and better suited to real-world conditions. And they will address the regulatory barriers that can make it difficult for people to access useful financial advice.
This morning, I would like to briefly outline my work in this area.
Last year, I set out my ideas for simplifying and improving aspects of corporate and financial services regulation in my Corporate and Financial Services Regulation Review Consultation Paper.
The release of this paper coincided with the release of the Government’s response to the Report of the Taskforce on Reducing Regulatory Burdens on Business, otherwise known as the Banks’ Report.
Continuing the dialogue that the Australian Government has had with the community, the paper canvassed comments from consumer and industry representatives on 56 topics. These covered ways to simplify and improve aspects of financial services regulation, as well as regulation in relation to aspects of company reporting obligations… auditor independence… corporate governance… fundraising… takeovers… collective investments… and dealing with regulators.
After a six-week consultation period, which ended in May 2006, over 80 submissions were received from industry organisations, consumer representatives, academics and individual practitioners. The comments were broad and raised a number of further issues which deserve closer examination.
Comments on the consultation paper were used to refine a set of 35 proposals to simplify and improve aspects of financial services regulation. I subsequently released the Corporate and Financial Services Regulation Review Proposals Paper for public consultation in November last year.
The response to the proposals paper, and the interest it generated, went beyond expectations. Clearly, there is significant appetite for refinement to the way the law operates in these areas.
Over 100 submissions were received from industry and consumer representatives on the paper. This is the largest response to any series of reforms that I have released in my period as Parliamentary Secretary.
The response was substantially positive, with many people commenting on how much they appreciate the Government’s work to improve the effectiveness of the regulatory regime, and our consultative approach.
I have found the submissions and comments from stakeholders to be invaluable and again, I thank all those who provided submissions.
These submissions will help the Government to achieve its ultimate goal of simple, efficient and effective regulation for corporate and financial services.
Most of the proposals developed through this process will be implemented through a Bill to be titled, “A Simpler Regulatory System Bill”, which is scheduled to be introduced into Parliament this year. Some of the more straightforward proposals will be handled through amendments to the Corporations Regulations.
Aspects of the proposals relating to the provision of financial advice have generated wide-ranging debate and warrant further consultation. In particular, there has been considerable debate regarding aspects of financial advice regulation, and Treasury is consulting closely with stakeholders on other options for addressing the issues.
At the same time, the remaining initiatives are being progressed to the legislative stage as a matter of high priority.
Convergence of EDR schemes
Ladies and gentlemen, I previously mentioned my commitment to simplify and streamline our regulatory system.
I want to bring that vision to our EDR system.
I want an EDR system for the financial sector that is streamlined, efficient, practical — and above all —consumer-friendly.
If you heard me speak at the International Financial Ombudsmen’s Conference in Sanctuary Cove last year, you may recall that I stated my strong commitment to working with the various EDR schemes in the financial sector with the ultimate aim of convergence.
By “convergence”, I mean exploring the synergies between the various EDR bodies to make them as streamlined as possible. And to simplify their processes as much as possible.
I see convergence as the crucial factor in ensuring that Australia’s EDR schemes operate with maximum efficiency to meet their objectives of serving the needs of consumers.
My discussions with the heads of the various EDR schemes has bolstered my confidence that they support convergence. In fact, some have stated quite candidly that we now have too many schemes.
So I have taken steps to facilitate further discussions. I’ll talk about this in more detail shortly.
By convergence, I don’t necessarily mean merging EDR schemes into a single body. But in some cases this may be the best alternative to maximise efficiency and lower costs.
Rather, I recognise that differences in the nature of particular industry practices and complaints may present barriers to full convergence in its true sense.
But while I recognise that convergence between the schemes may, in some cases, be a difficult task, this should not present any barriers to further discussions about leveraging the capabilities of these schemes.
Of course, any move to streamline processes and reduce costs will involve some give and take by the respective schemes. But this isn’t to say that convergence can’t take place.
Already, the collaborative work that a number of EDR schemes have undertaken illustrates that they are on the path to achieving this goal in some respects.
A prime example of one type of collaboration between the schemes is the Financial Ombudsman Service. This is a joint call centre set up by four EDR services — FICS… the Insurance Ombudsman Service… the Banking and Financial Services Ombudsman… and the Credit Union Dispute Resolution Centre.
In 2005, the call centre was expanded to include Insurance Brokers Disputes Limited, as well as the Superannuation Complaints Tribunal. The Credit Ombudsman Service also utilises the Service.
The Financial Ombudsman Service means that all bar one of the eight industry‑based EDR services can now be contacted on the one number from anywhere in Australia for the cost of a local call.
And consumers — or for that matter, industry members who are unsure about where they can get information about dispute resolution — can be quickly referred to the service best suited to handle their complaint.
In other words, the opportunities for them to have their dispute resolved in the fastest and most cost effective manner are maximised.
Not only does the Financial Ombudsman Service provide a better service for consumers, but by routing their incoming calls through one switchboard, the individual EDR services are minimising their costs.
I understand that the Service continues to evolve as a separate concept, and that a number of the individual EDR schemes now promote the Financial Ombudsman Service. I congratulate them for this initiative. Also, I recognise that full administrative support has now been proposed within the Service for particular EDR schemes.
These changes are in addition to developments on the IT front that have been taking place at the Service. These include the appointment of a specialist position responsible for further development of the systems, among other duties.
In short, the Financial Ombudsman Service has been a major success in assisting consumers.
I was pleased to learn that other collaborative initiatives between the various schemes are in the pipeline. These include common outreach, education, training and promotion services, as well as the full gamut of administrative services.
As a first step towards ongoing consideration and actions on convergence, I have asked Peter Daly — Chair of both FICS and the Insurance Ombudsman Service — and Colin Neave, the Banking and Financial Services Ombudsman, to coordinate discussions between the EDR schemes.
I understand that there have already been some discussions on this issue.
In addition to the services represented by Peter and Colin, other parties involved in these discussions — with whom I’m sure you’re all familiar — are:
- the Credit Ombudsman Service
- the Credit Union Dispute Resolution Centre
- the Financial Cooperative Dispute Resolution Scheme; and
- Insurance Brokers Disputes Limited
The Superannuation Complaints Tribunal is also taking part in the discussions.
Given the importance of EDR services to consumers and businesses alike, I am keen to be involved in the discussions, and have indicated my interest.
Peter and Colin have undertaken to prepare a report on the discussions that take place. I look forward to receiving that report in a few months. Once the report has been made available, there will be a meeting between the respective schemes on further moves towards convergence.
I would like to take this opportunity to appeal to the Chairs and representatives of the Boards — both consumer and industry — to continue to give this matter serious consideration. I would urge them to work together to ensure the maximum benefit for all stakeholders — and most importantly, for the many purchasers of financial products who are entitled to maximum protection and “a fair go”!
FICS
I’d now like to focus more closely on the role and work of FICS…
As most of you here today would already know, FICS provides free advice and assistance to consumers to help them resolve complaints relating to members of the financial services industry. The subject matter of disputes brought before FICS is amongst some of the broadest that may be raised with an EDR scheme. They include complaints about life insurers, fund managers, stockbrokers and general financial advice.
In a perfect world, consumers would be able to realise their aspirations and maximise their wellbeing without recourse to an EDR scheme. In such a world, internal complaints-handling arrangements would resolve any concerns individuals have in their dealings with the financial industry, without the need to refer these concerns to an external body.
But in an ideal world, the financial services industry would not attract any complaints in the first place!
However, I believe that one of the reasons why EDR bodies are so important is because complaints come from the very consumers who are trying to build their wealth and maximise their wellbeing.
As I have mentioned before, agencies such as FICS play an important role in ensuring that individuals get a fair go in the sense of providing fast, efficient and low-cost access to justice.
I notice that Alison alluded to the ideal of fewer complaints in the conference brochure. I would like to commend FICS on that approach, and the work it is doing to reduce the volume of complaints consumers make about financial service providers.
As I mentioned in my speech to the International Ombudsmen’s conference last year, I was pleased to hear that in 2005, the number of new complaints made to FICS dropped by around 17 per cent from just over 1,400 in 2004 to 1,163. I look forward to learning the statistics on the number of complaints to FICS for the 2006 calendar year.
The drop in complaints, in the 2005 calendar year at least, was attributed to several factors, including improved internal dispute resolution by FICS members and a reduction in financial market volatility.
While the fall in complaints is a promising trend, I recognise that FICS will face several challenges in the near future. In particular, 2007 will be the first year in which complaints will be subject to the new FICS Rules, which came into effect on the 1st of January this year.
These new Rules contain new definitions and elaborate on the FICS’ jurisdiction and powers with respect to particular complaints.
Two examples of the changes that I would note are a new Rule clarifying the powers of FICS to award compensation and an increase in the maximum costs that may be awarded by the FICS Panel or Adjudicator from $2,000 to $2,500.
I note that FICS’ consideration of the monetary limits on what claims it will hear was deferred as part of the Review of its Rules pending a separate consultation in 2007. I acknowledge that this will be a significant issue for the scheme in the future. I also recognise that an earlier attempt to decide on jurisdictional limits as part of a review of FICS’ operations was deferred.
I would emphasise that the process of determining jurisdictional limits should canvass all possible issues associated with the change. On this point, I would note the possible implications for any decision concerning limits created by caps on indemnity insurance imposed by the market and restrictions on professional liability.
Earlier, I mentioned how extensive stakeholder consultation helps the Government to develop policy which has widespread support, and which we know will work on the ground.
I would encourage FICS to adopt a similar approach in deciding on the best monetary limit. It is important that all interested stakeholders are engaged and consulted to ensure that the limit chosen is supported by the greatest number of stakeholders.
Raising the compensation cap too high would have the flow-on effect of raising premiums. This move could also result in some insurers not covering EDR determinations over the current limits.
Ultimately, FICS must reach an outcome that balances the interests of members, insurers and consumers.
I also acknowledge FICS’ initiative to consider re-branding itself with a new name which incorporates the term “ombudsman”. Any move to promote better name recognition among members and consumers will only enhance its level of service, in my view.
Before concluding, I would like to mention the release, in April last year, of AS ISO 10002 Complaints Handling, which covers internal complaints handling systems. I notice there will be a conference session on this topic this afternoon.
I commend FICS on preparing guidance on this Standard to help its members, and its commitment to conduct workshops on internal complaints-handling throughout 2007.
I would note that, as part of regulatory amendments that are to be released for public consultation shortly, the Government will update the reference to the former internal complaints handling standard in the Corporations Regulations to reflect the new standard. Details concerning this change will be available shortly.
The initiatives undertaken by FICS demonstrate that it is committed to helping its members improve their practices and to better understand their internal complaints-handling processes. And in doing so, to provide the best possible service to consumers.
Or to put it another way, give them “a fair go”.
Once again, I’d like to thank Peter and the FICS Board for inviting me to speak with you all. I hope you have an enjoyable time at the conference and wish FICS a productive and successful remainder of 2007.
Thank you.