KEY POINTS |
A fair go : Australian ADRs embody the quintessential Australian ideals of justice, of pursuing and protecting the common good by treating all people fairly. |
Financial Services Reforms: designed to benefit both consumers and industry. |
Simpler Regulatory System: designed to tackle the regulatory burden of financial services regulation and, ultimately, create the most efficient and effective regulatory system in the world. |
Financial Literacy Foundation: designed to help all Australians increase their financial knowledge. Equipping consumers and investors with essential skills is fundamental to their confident participation in the market. |
ADR schemes in Australia: key characteristic of the Australian alternative dispute resolution system is that every financial service provider — as a condition of providing financial services — is legally required to have its own internal process for handling complaints, as well as membership of an external dispute resolution scheme. |
Possible merging of ADR schemes: ADR schemes have already demonstrated that they can collaborate to provide better client service. I want to publicly state my strong commitment to working with the various ADR schemes in the financial sector to ultimately converge. |
29 August 2006
Good morning. It gives me great pleasure to be here today to officially open the International Financial Ombudsmen’s Conference, “ADR ‘06 in Oz”.
For their very kind invitation, I would like to thank the conference hosts — Peter Daly, Chair of both the Financial Industry Complaints Service, and the Insurance Ombudsman Service … Michael Lavarch, Chair of the Banking and Financial Services Ombudsman scheme … Alison Maynard, Chief Executive of the Financial Industry Complaints Service … Sam Parrino, Ombudsman, Insurance Ombudsman Service Limited … and Colin Neave, the Banking and Financial Services Ombudsman.
I also want to thank our overseas guests for joining us here in Australia . I hope you enjoy your visit. I also hope you can manage to find time to enjoy some of the wonderful experiences that our country has to offer.
The notions of justice, of pursuing and protecting the common good by treating all people fairly — or as we say in Australia, “giving everyone a fair go” — are deeply embedded in the Australian psyche.
These values are a fundamental and deeply cherished part of the Australian character. I believe these values are also reflected in our alternative dispute resolution schemes.
As the person responsible for both consumer affairs at the national level, and our Financial Services Regulation regime — which I’ll talk about in a minute — I have a keen interest in ensuring that as a Government we have a “balanced approach” and that people get a “fair go”.
Before talking in detail about the Australian approach to alternative dispute resolution, I would like to give, in particular, our overseas guests, a brief background on our Financial Services Regulation regime.
I do this in the hope that it provides the context for how our system has developed here in Australia and the important role ADR’s play in the system.
FSR Regime
In Australia , financial services regulation is primarily a Federal responsibility.
Following its election in 1996, one of the Howard Government’s first initiatives was to conduct an extensive review of our financial services system.
The inquiry produced a range of recommendations that were designed to achieve a financial system that is efficient … competitive … and fair.
The inquiry’s recommendations formed the basis of the Financial Services Reform Act, which came into full effect in early 2004.
The reforms were nothing short of a sea change. They brought together existing piecemeal regulations and were designed to benefit consumers.
Australians expect, and accept, responsibility for managing their own money. But they also expect rules that will allow them to participate in the market with confidence.
I believe the reforms have largely achieved those objectives.
The Financial Services Reform Act introduced a harmonised licensing, disclosure and conduct regime for financial service providers.
The regime provides consistent standards across the broad spectrum of financial products from shares … to insurance … to managed investments … to superannuation.
Both the financial services sector and the broader community welcomed the reforms. They were happy about the way the reforms raised the bar for industry.
In fact, when the regime came into effect, Gail Kelly , the Chief Executive of the St George Bank, — one of the leading financial institutions in Australia — said, and I quote: “Standards of professionalism and competence have been improved.”
That very strong level of support has continued to this day. But we didn’t stop there.
One of my first initiatives when I was appointed to the Treasury portfolio nearly two years ago was to examine and further refine the operation of the Financial Services Regulations to ensure they continued to meet their objectives.
Improved regulation goes beyond simplifying and streamlining regulation for industry. It also means adapting regulation to produce better outcomes for consumers.That’s why my work addressed the regulatory barriers and distortions that can make it hard for people to access useful financial advice.
That was also the rationale behind the Australian Government’s continued commitment to reduce the regulatory burden, on both consumers and industry.
Late last year, the Government established a taskforce to recommend ways to cut red tape, across all sectors and activities.
Guided by the views of industry, small business, consumers and government, the taskforce made 178 recommendations on ways to reduce red tape.
The Government has just released its final response to the taskforce report, Rethinking Regulation. And we agreed, in full or in part, to 158 of the recommendations.
Importantly, the Government recognised that one of the most important things it could do was to introduce procedures to prevent unnecessary regulations from being made in the first place. And we are going to do that.
As well, we will screen and review all regulation in Australia every five years to see whether it is still necessary, and, if so, how it might be streamlined.
Within my own portfolio, the Office of Regulation Review will be re-structured and become the Office of Best Practice Regulation.
We realise that, in many areas, reforming regulation and reducing red tape are best achieved when governments work together cooperatively. As a result all three levels of government — federal, state and local — have given a commitment to work together to reduce the regulatory burden on business and improve regulation making processes.
Simpler Regulatory System
For my part, I am committed to creating a simpler regulatory system in the corporate and financial services sectors.
When I say a simpler regulatory system I mean a system that achieves continued protection for consumers … reduces compliance costs … provides a greater ability for companies to attract capital … and, importantly, a system that enhances the accountability of regulators.
Back in April this year, I released a consultation paper that sought comments on a wide range of issues regarding corporate and financial services regulations.
For example, the consultation paper covered issues like further refinements to Financial Services Regulations … company reporting obligations … auditor independence … corporate governance … fundraising … takeovers … collective investments … and the question of dealing with regulators.
I received an overwhelmingly positive response to the consultation paper. I received submissions from consumer and industry organisations, academics and individual practitioners. Importantly, many submissions applauded the Government for its commitment and determination to tackle the regulatory burden of financial services regulation — and for getting on with the job.
There is much more to do but my ultimate goal is to create the most efficient and effective regulatory system in the world.
A system which can be used as a model within the Asia-Pacific region and throughout the global corporate and financial services sector.
Financial Literacy Foundation
The Simpler Regulatory System I mentioned earlier will benefit both consumers and industry.
However, the work of the Financial Literacy Foundation – another Australian Government initiative – will primarily benefit consumers.
This is an area where I have a deep personal interest and commitment.
I believe strongly that improved financial literacy across the community is absolutely necessary to continued sustainable individual prosperity.
The Government established the Foundation last year to help all Australians to increase their financial knowledge – to help them better understand their options, and the choices they can make in using and managing their money.
We know that equipping consumers and investors with essential skills is as fundamental to their confident participation in the market as it is to have laws in place to protect them if things go wrong.
Last month, the Foundation launched its first national mass media advertising campaign. It’s called Understanding Money.
The campaign is designed to raise awareness of financial literacy and the benefits that flow from it. The campaign aims to kick start a change in attitudes to money issues. And, ultimately, we believe it will serve to equip people with the knowledge they need to ask the right questions and make better financial choices.
The advertising campaign will be supported by the Understanding Money website and a specially produced handbook that show people how to take control of their money and make it work for them.
This is a major undertaking on the part of the Australian Government. We have provided funding of $13 million for the campaign.
Overview of ADR schemes in Australia
Now let’s focus specifically on alternative dispute resolution schemes …
The key characteristics of the Australian alternative dispute resolution system are:
One – every financial service provider — as a condition of providing financial services —must have an approved internal process for handling complaints.
And two – every provider must also be a member of an external dispute resolution scheme.
The Financial Services Reform Act, which I referred to earlier, introduced a uniform requirement for financial service providers. It mandated that they have an internal dispute resolution scheme that meets certain standards before it is approved.
The relevant Australian Government regulator, the Australian Securities and Investments Commission — or ASIC — oversees internal procedures and takes action where they find any procedures that don’t comply with the law.
A complaint is referred to an external dispute resolution scheme only where it cannot be resolved internally.
Ideally, internal complaints-handling arrangements would be able to resolve all complaints without referring them to an external body.
That is in an ideal world, of course. But there is evidence that internal dispute processes are improving, and thus reducing the number of complaints referred to alternative dispute resolution bodies.
In his 2004-05 Annual Report, the Banking and Financial Services Ombudsman, Colin Neave noted that for the third consecutive year running, there has been a decline in the number of telephone enquiries received.
In the 2005 Annual Review of the Financial Industry Complaints Service, the Chief Executive, Alison Maynard , noted that during the year, the number of complaints to FICS fell and the case handling staff, Panels and Adjudicators worked hard to close complaints.
The result was that, by the end of 2005, the number of open complaints at FICS dropped by about one-third, compared with the previous year.
And in his 2005 Annual Review, Peter Hardham , Chair of the Insurance Ombudsman Service, noted the significant drop in the number of disputes that have come to the Service.
Many people, he observed, viewed that as a positive because it demonstrated that the internal dispute resolution system is working.
In addition to overseeing internal dispute resolution schemes, ASIC also has to determine and approve the bodies that may be recognised as external dispute resolution schemes.
To be recognised, the body must be able to demonstrate that it meets the key principles of accessibility … independence … fairness … accountability … efficiency … and effectiveness.
These principles were developed by Government in cooperation with dispute resolution schemes, consumer groups and regulatory authorities.
When consumers know that, if something does go wrong, their complaint will be handled quickly, impartially and fairly, they will be more confident about participating in the financial services sector.
And, as we know, consumer confidence is vital to a well-functioning market.
Brief history of Australian ADR system
Now to a potted history of Australia ’s ADR system in the financial services sector …
I should mention at the outset that Australia has both public ombudsmen who review decisions made by Government departments, as well as private ombudsmen who are funded by industry.
In the financial services sector, the three hosts of this Conference, the Banking and Financial Services Ombudsman, the Insurance Ombudsman Service and the Financial Industry Complaints Service have all been operating since the early 1990s.
That was before there was a requirement for them to be approved by ASIC.
Within Australia , we have another five ADR bodies which deal with specific areas. They are all represented here today.
They are the Superannuation Complaints Tribunal … Insurance Brokers Disputes Limited … the Financial Co-operative Dispute Resolution Scheme … the Credit Dispute Resolution Centre ... and the Credit Ombudsman Service Limited.
These schemes are all funded by industry. Apart from the Superannuation Complaints Tribunal, the total cost of operating these bodies is about $15 million a year.
Financial Ombudsman Service call centre
Now let me look more to the future.
A relatively new notable feature of the Australian external dispute resolution landscape is the increased cooperation between financial services firms.
ADR schemes are working together now, more than ever before, to reduce costs, improve efficiency and provide a higher level of customer service.
This is a very encouraging development in my view and the Government encourages further cooperation between external dispute resolution schemes to improve customer service and reduce costs.
In saying this, of course, we trust that this would not occur at the expense of the specialised expertise needed to efficiently resolve individual disputes.
A prime example of this type of collaboration is the joint call centre set up by the three hosts of this conference, together with the Credit Union Dispute Resolution Centre.
Until June 2002, each of these services used its own switchboard to handle enquiries. But as demand grew, callers were sometimes kept waiting. And some consumers were confused about which service handled which kind of complaint.
The solution — combine the phone reception systems of each service into a joint call centre under the name Financial Ombudsman Service.
This call centre ensures that consumers — or for that matter, industry members who are unsure about where they can get information concerning dispute resolution — can be referred to the service best suited to handle their complaint.
Most organisations faced with a complex routing system would have opted for a technological solution. But the services rejected the answering-machine option. They believe that when consumers phone in, the call should be answered immediately by a person at the other end of the phone — there’s nothing like the sound of a reassuring “human voice".
I commend the Ombudsmen and the Credit Union Dispute Resolution Centre for their initiative in establishing the call centre. And their common sense in electing to have enquiries answered by a live operator. It demonstrates that these agencies put the needs of consumers first.
As callers are now referred quickly to the appropriate agency, each service has reported that the number of calls to their case workers and enquiry teams has decreased dramatically.
The call centre was expanded early last year to include Insurance Brokers Disputes Limited, as well as the Superannuation Complaints Tribunal. The Credit Ombudsman Service also utilises the Service.
The eight alternative dispute resolution services can now be contacted on the one number from anywhere in Australia for the cost of a local call.
In another initiative, the Ombudsmen are also collaborating to provide better information to industry on the demographics of call centre users.
As well, the Banking and Financial Services Ombudsman and the Insurance Ombudsman Service have improved the transparency of their reporting to enable industry participants to compare the number of complaints received, and the outcomes of those complaints.
These measures will, I am sure, help the Ombudsmen to provide more meaningful information to industry, as well as giving better service to consumers.
It is my firm belief that the move towards aligning functions is a very important step and one that I encourage.
I want to publicly state my strong commitment to work with the various ADR schemes in the financial sector and to ultimately, as appropriate, bring about their convergence for the common good.
I acknowledge that this may, in some cases, be a difficult task, but I think the collaborative work that has been done to date illustrates success and stands the ADR schemes in good stead.
After all, the end result would be a more streamlined, more efficient and even more consumer-friendly ADR system.
Benefits of ADRs
Ladies and gentlemen, I don’t need to tell you that alternative dispute resolution schemes play an important role in society.
They provide a speedy, low-cost way to resolve complaints and reduce the risk of the costs and lengthy delays that can arise from court proceedings.
They allow consumers to have complaints that would not be brought before a court for financial reasons, aired and resolved.
Importantly, ADR schemes have the power to make a binding decision if another resolution is not achieved.
They allow industry to improve standards and conduct.
They promote market confidence by encouraging, prompt, fair and consistent dealing for consumers.
ADR schemes are an essential part of the broader consumer safety net.
Without question, they are an important and necessary element of a just and fair society.
Conclusion
I hope my remarks this morning have given you an appropriate overview of the Australian alternative dispute resolution schemes, and the broader financial services regulation framework in which they operate.
I believe that the various elements of our financial services regime work well together to empower consumers and enable them to actively participate in the market.
It helps to give them the knowledge and confidence to make informed decisions.
And it gives them the assurance that, should something go wrong, their complaint will be addressed promptly, impartially and fairly.
In other words, as I referred to at the start of my remarks, our regime gives consumers “a fair go”.
Once again, I’d like to thank the hosts for inviting me to speak with you and I wish all of you a most enjoyable and productive time at the conference. Thank you.