Annual Review 2013-2014 - Financial Ombudsman Service

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Annual Review 2013-2014

About this Review This Annual Review covers the 2013-2014 financial year (1 July 2013 – 30 June 2014). It follows the reporting requirements for external dispute resolution (EDR) schemes set out in ASIC Regulatory Guide 139. The review is available in hard copy and on the FOS website at www.fos.org.au/annualreview. To order print copies, please email [email protected]. All the data in this review was correct at the time of reporting. Minor discrepancies between this and previous annual reviews reflect the outcome of a review of our data and reporting frameworks. Many of the charts and tables in this review use percentages. All the percentages have been rounded to the nearest whole number. Because of this, the sum of the percentages in a chart or table might not add up to 100%. The 2013-2014 Comparative Tables, which show disputes data about members of FOS, are available on our website at www.fos.org.au/comparativetables.

Contents Mission 1

Total disputes received

44

Year at a glance

3

Total disputes closed

47

Message from the Chair of the Board

4

What the disputes were about

50 52

Message from the Chief Ombudsman

6

Accepted disputes

Our 2012-2015 Strategic Plan

7

Disputes 53

Our performance in 2013-2014

8

Credit disputes

54

Our strategic measures

12

General insurance disputes

60

Our people

15

Payment system disputes

65

Organisation chart

18

Deposit-taking disputes

68

Senior Leadership Group

19

Investment disputes

Our stakeholders

20

71

Life insurance disputes

75

Our members

21

Traditional trustee service disputes

78

Stakeholder engagement

23

Financial difficulty disputes

79

Community engagement

25

Legal proceedings disputes

85

Significant event response plan

28

Conciliation conferences

89

Who lodged disputes

29

Systemic issues and serious misconduct

90

Overview of disputes

34

Code compliance and monitoring

95

How we classify disputes

36

Corporate governance

101

Our dispute resolution process

42

Glossary 108

How we count disputes

43

Mission Our mission is to fulfil an important community role by providing an independent dispute resolution service in which people can place their confidence and trust. This involves understanding all sides of a dispute and resolving it fairly and efficiently. We aim to be: Respectful Efficient Trustworthy Forward thinking

Page 01

2013-2014 at a glance Total disputes received (down 2% from previous year)

31,680

Total disputes closed (down 1% from previous year)

33,450

Financial difficulty disputes accepted (down 9% from previous year)

4,705

Systemic issues resolved

54

Number of investigations of alleged breaches of industry codes of practice, with 84 confirmed breaches

232

Number of members (down 5% from previous year)

15,234

Phone calls handled by our contact team (down 5% from previous year)

221,900

Visits to our website (up 7% from previous year)

586,777

Page 02

Message from the Chair of the Board

Message from the Chair of the Board

In last year’s annual review, I spoke about FOS’s first five years and how we had responded to the many challenges we faced. It is clear from the last 12 months that the issues of change, innovation and adaption I identified last year will remain themes for FOS in the years ahead. 2013-2014 was a busy and important year for FOS. We completed our first independent review since FOS was formed, and increased our efforts to eliminate backlogs and improve the timeliness and quality of FOS’s dispute resolution. In addition, the role of external dispute resolution in the Australian financial services sector was subject to several external reviews in 2013-2014. The Senate Committee Inquiry into the performance of ASIC, the Productivity Commission Review into Access to Justice Arrangements and the interim report of the Murray Financial System Inquiry all made important comments on the role of external dispute resolution. Pleasingly, all reviews were strongly supportive of external dispute resolution and the role that FOS plays in providing access to justice and promoting trust and confidence in financial services. For the second year in a row, we have seen dispute Page 4

numbers remain relatively steady as a result of both the external environment and efforts by industry participants to reduce consumer complaints and improve their internal dispute resolution (IDR) processes. While dispute numbers can change quickly and the effort must be sustained, FOS welcomes the work of all industry participants – including increased collaboration with consumer organisations – to reduce consumer complaints and the number of disputes coming to FOS. FOS independent review In July 2013, the Board commissioned an independent review of FOS’s operations. Periodic independent reviews are an ASIC condition of FOS’s approval as an external dispute resolution scheme and an important accountability mechanism. The independent review assessed FOS’s operations against the ASIC Regulatory Guide 139 benchmarks of Accessibility, Independence, Fairness, Accountability, Efficiency and Effectiveness, and also assessed FOS’s jurisdiction and dispute resolution process. The review found that FOS has made significant improvements in its performance in recent years, including to its management, organisational capability and infrastructure.

Message from the Chair of the Board

“2013-2014 was a busy and important year for FOS. We completed our first independent review since FOS was formed, and increased our efforts to eliminate backlogs and improve the timeliness and quality of FOS’s dispute resolution.”

However, the key recommendations from the review focused on the need for FOS to increase the pace of its efforts to eliminate the dispute backlog and reshape its dispute processes to reduce the time taken to resolve new disputes. The FOS Board welcomed the report of the independent reviewers and its findings on what FOS has been doing well and where we need to improve. FOS has moved quickly to address the main findings from the independent review. We want to thank the many financial service providers, consumer organisations and other stakeholders who took the time to be involved in both the independent review and the stakeholder research we conducted in 2012-2013. Fast, efficient and fair In response to the independent review, the FOS Board endorsed significant changes to streamline, simplify and improve the quality of FOS’s dispute processes. The aim is to substantially reduce current backlogs by the end of 2014 and implement the new dispute processes by 30 June 2015. New Board appointment The 2013-2014 year was the final term for long-standing Board member Jenni Mack. Jenni was originally appointed a transition director on incorporation of the company, for a term expiring on 31 May 2009. When the new Board was formed on 1 June 2009 she was appointed a Consumers’ Director, and was reappointed for a further term of two years on 11 May 2012. We thank Jenni for her many contributions as a FOS Board member since 2008. Elissa Freeman has been appointed as a new Consumers’ Director as of 1 June 2014. She has been involved in consumer issues across the financial

services, telecommunications and energy and water industries over a number of years in a variety of roles and organisations. I am pleased to welcome Elissa to the FOS Board. Funding review Last year we reviewed our funding model and introduced a number of changes to index our dispute fees and update membership fees on a phased basis. However, in response to feedback, we deferred a number of other proposals given the changes we are implementing to our dispute resolution processes. We are doing further work on our funding model in light of the changes we are making to our dispute process and will consult with our members with the aim of implementing any further changes to our funding model in July 2015. A note of thanks I would like to thank all of our stakeholders for their involvement with FOS over the past year in helping us improve how we resolve consumer disputes. I particularly want to thank all FOS staff for their continued contribution, commitment and enthusiasm throughout another challenging year. As we move into the final year of FOS’s 2012-2015 Strategic Plan, the Board looks forward to working with all stakeholders to deliver a fast, efficient and fair dispute resolution service accessible to everyone in the community.

Professor the Honourable Michael Lavarch AO Chair of the Board Page 5

Message from the Chief Ombudsman

Message from the Chief Ombudsman

The last financial year was another big year at FOS. We delivered strongly against our 2013-2014 Business Plan and started implementing changes to our processes in response to the recommendations in the independent review of FOS. We moved quickly to address the independent review’s findings, by increasing the pace of our efforts to significantly reduce our dispute backlog by the end of 2014 and embarking on a number of major initiatives to further streamline our dispute process. Our 2014-2015 Plan reflects these priorities, and we are already making good progress on many of these initiatives: » W  e have reduced our dispute queues across all areas and we are on track to significantly reduce our backlog by December 2014. » W  e commenced a pilot Fast Track Process focusing on simpler, low value disputes in the Banking and Finance area. » W  e have implemented a new way of writing our Recommendations and Determinations to make them easier to understand. » W  e have consulted on proposed improvements to our registration and referral process. » W  e also consulted on proposed changes to our Terms of Reference to support the changes we are making.

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» W  e have begun a small-scale pilot on a new approach that will streamline how we handle financial difficulty disputes. In developing these initiatives we have been able to draw on the experience we gained during 2013-2014 through the very successful Project 500, which ran from August 2013 to June 2014. Project 500 was introduced to reduce our Banking and Finance backlog by 500 disputes, and when we completed the project we had reduced the backlog by 536 disputes. Similar processes reduced the dispute backlog in General Insurance and Investments, Life Insurance and Superannuation. FOS’s many achievements over the past year and the changes we are making to improve our processes have been made possible through the commitment and dedication of FOS staff and the support of our stakeholders. I would like to particularly thank all FOS staff for their efforts over the last 12 months and for their continued commitment to making a real difference to the community through the work we do at FOS. I look forward to working with the FOS Board, FOS staff and all our stakeholders in the year ahead as we implement changes to further improve the independent and impartial dispute service we provide to the Australian community. Shane Tregillis Chief Ombudsman

Our 2012-2015 Strategic Plan

Our 2012-2015 Strategic Plan Our Strategic Plan aims to meet the six external dispute resolution (EDR) benchmarks prescribed by the Australian Securities and Investments Commission (ASIC).

Our three-year focus is about delivering an efficient and effective dispute resolution service, successfully managing our public role and stakeholder engagement, and further developing FOS’s capability and infrastructure.

EDR benchmarks

Accessibility

Independence

Fairness

Accountability

Efficiency

Effectiveness

Threeyear focus

Delivering a more efficient and effective dispute resolution service

Enhancing our public role and stakeholder engagement

Ensuring organisational development and sustainability

What we want to be

A customer-centric service

A trusted organisation

A smart, efficient and responsible business

What we need to do

An organisation that continuously monitors and improves its performance.

The authority on financial services dispute resolution and an influential voice on how to prevent disputes.

» Build excellent customer service and quality into all our dispute resolution services.

» Actively engage with and maintain the support of all our stakeholders.

» S  et and meet time and service standards for all our dispute resolution processes.

» Routinely seek stakeholder feedback – and act on it. » Share our knowledge, experience and insights. » Raise community awareness of FOS, especially among vulnerable and under-represented groups.

An organisation with passionate people, effective systems, clear plans and a conscience. » Attract and develop highly skilled and engaged people. » Measure  the costs of disputes and eliminate inefficiencies. » E  stablish programs to reduce FOS’s environmental footprint. » Embed our values into everything we do.

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Our performance in 2013-2014

Our performance in 2013-2014

Delivering a more efficient and effective dispute resolution service

Our 2013–2014 plans

What we achieved

Reduce our dispute backlog and improve the timeliness of dispute resolution.

» Implemented Project 500 in August 2013 with the aim of reducing our Banking and Finance dispute backlog by 500 disputes. We completed the project on 30 June 2014 and reduced our backlog by 536 disputes. Similar processes reduced the dispute backlog in General Insurance (GI) and Investments, Life Insurance and Superannuation (ILIS). As part of these projects, we reduced the number of touch points and introduced specialist expertise earlier in the dispute resolution process. » Introduced a new style of written decision that more effectively communicates the outcomes of disputes to both applicants and financial services providers.

Continue to implement and strengthen our quality framework to enhance consistency, continuously improve the way we manage disputes and ensure we meet stakeholder expectations at all stages of our dispute process.

» C  onducted quarterly quality assurance reviews that monitored the quality of dispute investigations and outcomes and improved the way we manage disputes.

Implement electronic document exchange with financial services providers to improve the dispute workflow process.

» Introduced electronic document exchange with financial services providers in December 2013. From 1 January 2014 to 30 June 2014 we received 6,790 electronic submissions from financial services providers.

Provide financial services providers that have large dispute numbers with enhanced dispute analytics across a wide range of metrics and benchmark reporting.

» P  rovided quarterly benchmarking reports to financial services providers with large dispute numbers.

» Carried out quarterly surveys of applicants to track their satisfaction and highlight opportunities for process improvement.

» Improved the way we collect information and report systemic issues. » C  ase handling staff referred 1,903 cases to the Systemic Issues team. » Identified 62 possible systemic issues and resolved 54 systemic issues.

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Our performance in 2013-2014

Our performance in 2013-2014

Enhancing our public role and stakeholder engagement

Our 2013–2014 plans

What we achieved

Deliver enhanced member engagement.

» Organised training and education about FOS’s dispute resolution process. » Hosted 10 open forums across 5 locations in Australia that brought industry participants together to discuss FOS decisions and insights. » Hosted two webinars for financial services providers on topics relevant to Banking and Finance and Investments, Life Insurance and Superannuation. » Participated in conferences, panel discussions, seminars, training and workshops for industry associations, members and specialist financial services groups. » Enhanced the Secure Services member-only area on our website and improved dispute information reporting for financial services providers. » Held regular one-on-one meetings with our larger members to discuss issues and opportunities for improvement. » Developed tailored information including infographics, frequently asked questions and fact sheets for financial services providers that communicate with us infrequently.

Continue to actively engage with the consumer sector.

» Launched a free online learning module for consumer advocates about FOS's dispute resolution process. The show reel is publicly hosted on YouTube. » Organised FOS forums in the Northern Territory, Western Australia and Victoria. » Produced an Auslan video introducing FOS to the deaf and hard-of-hearing community in Australia. The video was launched nationally online (live stream) in collaboration with VicDeaf.

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Our performance in 2013-2014

Our performance in 2013-2014

Enhancing our public role and stakeholder engagement ....continued Our 2013–2014 plans

What we achieved

Develop and relaunch the FOS website so it is more accessible.

» Relaunched our website to benefit all users, including those with disabilities, older users, people from diverse cultural backgrounds and consumers browsing from a mobile device. We complied with current Web Content Accessibility Guidelines and also redeveloped the website with some pages translated into 10 community languages. » Assigned dedicated pages for members, consumers and community organisations to help users easily find information that is relevant to them.

Continue to increase public and consumer awareness of our service by building partnerships with key organisations, such as community legal centres and financial counsellors, to increase the accessibility of our service for vulnerable and disadvantaged Australians.

» Produced a kit to help Members of Parliament assist their constituents with FOS’s dispute process. Promoted our services on SBS radio in six community languages.

Continue to develop the Code monitoring function.

» In 2013-2014, 617 financial services providers subscribed to the four codes of practice that FOS administers. In this period, the FOS Code Compliance and Monitoring team:

» Published several FOS Approach documents to help all stakeholders understand how we consider disputes about particular issues. » Produced several public submissions outlining FOS’s views on key issues, including a response to the Murray Financial System Inquiry.

» r eviewed 589 annual compliance submissions from financial services providers, and » c  onducted 232 investigations into allegations that a financial services provider had breached one or more code obligations. There were 84 confirmed breaches across the four codes identified as a result of our investigations.

Page 10

Our performance in 2013-2014

Our performance in 2013-2014

Ensuring organisational development and sustainability

Our 2013–2014 plans

What we achieved

Deliver major IT initiatives to improve the way we store, exchange and use information from our stakeholders.

» Implemented an online case management service to improve the use, consistency and effectiveness of dispute information received from financial services providers.

Enhance the expertise of FOS staff.

» Delivered professional development programs for staff to improve dispute resolution expertise.

 onducted more than 270 training sessions that focused »C on key areas of our service including professional communication, specialist knowledge, sustainable relationships, innovation and continuous improvement.



»P  rovided 37 current managers and aspiring leaders with the opportunity to build on their skills and help them manage and lead their teams.

Strengthen our internal governance and resource management processes to support the way we operate our business.

» Developed a suite of management reports to better monitor, manage and improve dispute resolution performance.

Commission an independent review in accordance with the requirements of ASIC RG-139.

» Underwent a major independent review.

» Implemented an outsourced internal audit function.

» Communicated to stakeholders the results of the review and FOS’s response to it. » Developed a strategy to improve our dispute process in response to stakeholder feedback and the independent review recommendations.

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Our strategic measures

Our strategic measures

Strategic focus

Success measures Applicant satisfaction Percentage of applicants who report a satisfactory or better dispute resolution experience at FOS.

Delivering a more efficient and effective dispute resolution service Clearance ratio A retrospective indicator that compares how many disputes we closed with how many we received. For 2013-2014, we wanted to close more than 100% of what we received so we could reduce backlogs. Projected overload An indicator that estimates how many currently open cases will not be closed within our 6, 12 and 24 month standards. Age profile of open disputes Percentage of open disputes that are less than or equal to 365 days old. Time to close disputes 2013-2014 This measures the age profile of closed disputes. It tracks disputes received since 1 July 2012. It excludes disputes that were older than 365 days at the start of the year (1 July 2013). This allows us to measure backlog separately. 2014-2015 This measures the age profile of closed disputes. Finalisation of old disputes Percentage of those disputes received before 1 July (the previous year) that are closed (the backlog at the start of the year). Disputes closed per quarter per dispute FTE This provides a measure of the dispute handling process at FOS. It does not account for changes in product type or dispute complexity.

Enhancing our public role and stakeholder engagement

Stakeholder engagement survey responses 2013-2014 Measure overall satisfaction that FOS is meeting the needs of all financial services providers. 2014-2015 Qualitative assessment of stakeholder satisfaction with level and quality of engagement in the Dispute Process Reform program implementation.

Staff engagement score Survey responses measuring the level of staff engagement and alignment with our values and behaviours. Ensuring organisational development and sustainability

Environment audit rating The National Australian Built Environment Rating System (NABERS) is a nationally managed, performance-based rating system that measures an organisation’s impact on the environment. Corporate Full Time Equivalent (FTE) to total FTE The percentage of support staff (corporate) to staff directly involved in dispute resolution.

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Our strategic measures

2013-2014 targets

Our 2013-2014 performance

Establish baseline in Q1 and improve each subsequent quarter

The baseline has improved since it was established in the first quarter of 2013-2014. In 2013-2014: » 94% of applicants with a registered dispute were satisfied with their dispute resolution experience. » 67% of applicants who have disputes closed were satisfied with their dispute resolution experience. » 48% of applicants with a discontinued dispute were satisfied with their dispute resolution experience.

≥ 100%

Target exceeded. We closed 107% of the disputes we received and have reduced our dispute backlog.

≤0

Target achieved.

≥ 92%

Slightly below target. 91% of all open disputes are less than or equal to 365 days old, due to a number of disputes that have been placed on hold awaiting the outcomes of legal proceedings.

80% ≤ 180 days

Targets exceeded.

95% ≤ 365 days

84% ≤ 180 days 97% ≤ 365 days

100%

Target achieved.

≥ 26

Target exceeded. 26.84 disputes closed on average per FTE.

≥ 6.5 on a scale of 0 (extremely dissatisfied) to 10 (extremely satisfied)

Slightly below target.

≥ 10% increase in the number of FOS staff who report feeling engaged in the workplace

Target not achieved. We have included a number of initiatives in our 2014-2015 Business Plan to enhance the level of staff engagement during a period of significant change at FOS.

≥ 4.5 star rating

Target exceeded. Our rating is now 5 star.

≤ 15%

Slightly below target at 16%.

We achieved an overall satisfaction level of 6.2.

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Our people

Page 14

Our people

Our people

Expertise is at the heart of everything we do at FOS, and we are dedicated to providing staff with the training and support they need to perform their roles to the best of their ability. We also place great importance on investing in our people to ensure our mission and values are reflected in the actions of our staff. FOS has a total workforce of 377 staff (FTE 298.85) compared with 406 staff (FTE 305) in 2012-2013. Staff wellbeing is a priority for FOS. We continue to focus on delivering quality occupational health, safety and psychosocial management support and related services to ensure that all staff enjoy a safe and healthy work environment.

Our workloads are generally governed by the number and complexity of disputes we receive – a factor that is outside our control. To respond to dispute resolution demands, we must have an agile and skilled workforce. Our workforce planning involves working with our dispute teams to forecast potential workforce and skills shortages and addressing these through the redesign of processes, recruitment and enhanced training. Gender equality Our workforce comprises 220 (58%) women and 157 (42%) men across casual, part-time and full-time roles. The table below shows the distribution of female and male staff members across the organisation.

Workforce planning Occupational Category - Gender Breakdown at FOS

F

M

Total

Middle management

22

18

40

Senior professional/technical

178

107

285

1

5

6

Executive level (including Lead Ombudsmen) Ombudsmen (not including sessional staff)

7

3

10

Board

3

6

9

Consumer or industry panel members

9

18

27

220

157

377

*T  hese numbers only include current permanent staff (not casual/sessional staff)

Ombudsmen

Staff recognition

In 2013-2014 our full-time, part-time and sessional Ombudsmen were:

FOS recognises and celebrates the achievements of its staff. In 2013-2014 we continued our service excellence awards to formally acknowledge staff who deliver service excellence to members, consumers and/or colleagues.

Shane Tregillis – Chief Ombudsman John Price – Lead Ombudsman Philip Field – Lead Ombudsman Katharine Adams

Denny Meadows

Michael Arnold

Don O’Halloran

Evelyn Halls

Michael Pearce SC

Alison Maynard

Justi Tonti-Filippini

Christine McCarthy

Marita Wall

Nicole McCutcheon The Board also appointed two Adjudicators for our pilot of the Fast Track process (a new process to help us expedite and resolve certain disputes that do not require lengthy investigation): Charlotte Murphy

In 2013-2014, service excellence awards were presented to: Melinda Cavalieri – Senior Case Manager, Investments, Life Insurance and Superannuation William Fox – Case Manager, Banking and Finance Nela Lazetic – Senior Dispute Officer, General Insurance Denis Nikoloski – Dispute Officer, Investments, Life Insurance and Superannuation Niro Premasiri – File Management Assistant, Specialist Resolution Group Veronica Whelan – Dispute Analyst, General Insurance

Ruth Talalla Page 15

Our people

Recruitment, induction and staff demographics In 2013-2014, we welcomed 53 new employees to FOS. All new staff attended our Launch Pad program, which consists of induction sessions, orientation programs, interpersonal effectiveness sessions and discussion groups. The Launch Pad program ensures that new staff are provided with the necessary tools to achieve competency in their core roles and also includes a buddy program to help them meet colleagues and settle in at FOS.

Years of Service as at 30 June 2014

80

70 66 63

60

59

50

Most staff recruited in 2013-2014 were in the 21-30 and 31-40 year-old age brackets. This trend was consistent with the age distribution of our employees across the organisation.

47

47

40 37

30 26

Age of Staff as at 30 June 2014 20

18

120 11

10

111

100

0

3

100

51

26,960

891

31,680

Member numbers 1 July 2013

30 June 2014

Change (%)

Licensees

4,885

4,842

- 0.8%

Authorised credit representatives

11,153

10,392

- 6.8%

16,038

15,234

- 5%

Total

Our total membership (15,234) at 30 June 2014 was 5% less than 2012-2013. The total number of ACRs (10,392) was down 6.8% from last year. We experienced a less than 1% drop in the number of licensee members, from 4,885 in 2012-2013 to 4,842 in 2013-2014. A number of reasons account for the slight drop in members. One key factor was the high number of ACRs whose memberships were discontinued because under their agreement with their Licensee, they were no longer required to be a member of an external dispute resolution (EDR) scheme.

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Our members

Member engagement 2013-2014 was a busy year for member engagement. We consulted extensively with members, particularly about changes to our dispute resolution process, and also implemented the FOS member engagement strategy. Communications to members included online materials, face-to-face meetings, letters and telephone calls, which provided many opportunities to garner members’ views both formally and informally. We also developed a secure member-only part of the FOS website to provide members with a ‘one stop shop’ for information about all the changes being considered, made or planned as part of the Dispute Process Reform. FOS wanted to ensure member views were considered as we worked on developing a faster, more efficient dispute process through the Dispute Process Reform. We are grateful for the input of many members who made considerable investments of time to share their views with us. Several members, particularly our larger members, were consulted closely on the Fast Track pilot project (a process to expedite and resolve certain disputes that do not require lengthy investigation), the redesign of our dispute process, and the financial difficulty enhancement project. Members also provided valuable feedback as we developed new recommendation and determination templates to help us more effectively communicate the outcomes of disputes to both applicants and financial services providers. These consultations complemented the regular meetings we held with members, the banking and insurance sectors, life insurers, industry bodies and associations, and the high level meetings held between the Chief Ombudsman and senior executives from our bigger members. We also took part in public indemnity events and the Financial Planning Association of Australia Conference. We recognised that we could improve the experience that smaller members and those with a small number of disputes (first time disputes and infrequent disputes) have with the FOS process. To help this group of members, in 2013-2014 we introduced enhanced communications, including tips for managing disputes effectively. We also enhanced our first interactions with new members by using our Welcome Pack as an opportunity to build awareness about FOS and dispute resolution. We developed tailored information for this group of members that included infographics, frequently asked questions and fact sheets.

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FOS hosted or participated in regular member engagement activities to share our knowledge and expertise. Activities included: » H  osting of 10 open forums across 5 locations in Australia that brought industry participants together to discuss FOS decisions and insights. This included the launch of the Banking and Finance and Investments, Life Insurance and Superannuation open forums which were based on the successful General Insurance model. » H  osting webinars for members on topics relevant to the Banking and Finance and Investments, Life Insurance and Superannuation industries. » P  articipating in industry conferences, panel discussions, seminars, training, meetings and workshops for industry associations, members and specialist financial services groups. » P  roviding quarterly benchmarking reports for Banking and Finance and General Insurance members with large dispute numbers. » S  treamlining and enhancing Secure Services. We set up a working group of members with large dispute numbers to help identify improvements to this secure, member-only part of our website.

Stakeholder engagement

Stakeholder engagement

FOS is committed to sharing the knowledge and experience we gain from the thousands of disputes we resolve each year. We hope that by doing this, more disputes will be resolved at an earlier stage directly between the parties involved, so that only the more complex and difficult disputes come to FOS. We work to achieve this goal through enhanced member services and consumer engagement, and a broad range of promotional activities to improve understanding of FOS and the work we do. In 2013-2014, stakeholder engagement focused on informing and consulting stakeholders about the proposed FOS process improvements to enable faster, easier dispute resolution. Policy work In 2013-2014, FOS made submissions to these inquiries, review and consultations: » F  ederal Government’s Financial System Inquiry » A  ustralian Securities and Investments Commission (ASIC) consultation on National Financial Literacy Strategy » S  enate inquiry into the performance of ASIC » P  roductivity Commission inquiry into Access to Justice Arrangements » O  ffice of Australian Information Commissioner consultation on draft guidelines for recognising external dispute resolution schemes under the Privacy Act » T  reasury consultation on proposed Small Business and Family Enterprise Ombudsman » T  reasury consultation on addressing the high cost of home and strata title insurance in North Queensland » N  SW Legislative Assembly Select Committee inquiry into the motor vehicle repair industry.

A question of trust A key submission during 2013-2014 was FOS’s contribution to the Financial System Inquiry (the Murray Inquiry). Our submission emphasised the importance of restoring consumer trust and confidence in the financial system, and it was pleasing that the inquiry picked up this theme in its interim report. We also called for the inquiry to support financial services providers putting the interests of their customers first – at all stages of their business – and giving special attention to measures that assist vulnerable consumers. Media relations FOS works with a wide variety of media across Australia to help raise awareness about our service and to inform debate and coverage about issues that affect dispute resolution. During 2013-2014 we worked closely with SBS Radio to develop a series of advertisements in 11 languages other than English. These advertisements explain how consumers can use interpreters to lodge disputes with FOS, and how FOS helps consumers with special needs such as vision, hearing or speech impairments. Industry-focused media were particularly interested in the independent review of FOS, changes to our dispute resolution process, and our submissions to various inquiries. Ombudsmen and other experts in the organisation shared their knowledge with the broader community via the media, and media engagement continues to be an important tool in our communications effort.

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Stakeholder engagement

FOS Applicant Survey

Website

During 2013-2014 we introduced a quarterly applicant survey as part of FOS’s efforts to improve customer service and increase levels of customer satisfaction. The survey, which is conducted by an independent research company, provides important information on how satisfied consumers are with our service, what FOS is doing well, and areas where we can improve.

FOS launched a redeveloped website in December 2013. The new website aims to increase efficiency and enable users to perform their tasks faster. It features simpler navigation, sections for consumers, members and the community, and easier access to the online dispute form and the ‘lodge a dispute’ button.

The survey covers consumers who have recently telephoned to lodge a dispute, have recently had their dispute resolved, or who have recently discontinued their dispute with FOS. Applicant survey results, together with the quarterly quality reviews we conduct on closed disputes, help us to address areas that aren’t meeting our stakeholders’ expectations. Publications FOS produces a range of publications to help people understand the services we offer and to promote trust in financial services. Most of these publications can be found on the FOS website and several are also produced in print versions. The Circular During 2013-2014 we released issues 14, 15, 16 and 17 of our quarterly online publication The Circular (www.fos.au/circular), as well as a Special Issue dealing with the release of the independent review of FOS and significant updates from the industry. The Circular provides commentary, information and analysis from the organisation as well as news about upcoming events and information on process changes, systemic issues and our approach to specific issues. The FOS Approach The FOS Approach is designed to help members and consumers understand our processes and how we reach decisions. FOS Approach documents may help resolve disputes at an early stage, and perhaps even help avoid disputes having to be referred to FOS. They are published on the FOS website and through the quarterly online publication, The Circular. During 2013-2014 we published FOS Approach documents covering these topics: » A  ssessing special circumstances » D  isputes lodged by guarantors » T  he 2013 Code of Banking Practice » L  oss calculation in financial advice disputes All FOS Approach documents (including those published in other years) are available on our website at www.fos.org.au/approach.

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The website is designed to ensure equal access. Future work will include developing animations in different languages, improving the search engine, and contingency planning for disaster events (crashing or hacking). There were more visits to our website during 2013-2014 than at any other time since the original website was first launched in 2008. We saw an increase in the number of new visits, which were up more than 5% from 2012-2013. 2012-13

2013-14

Change

Sessions

548,260

586,777

+ 7.03%

Unique visitors

389,801

451,158

+ 15.74%

Phone calls Our Registration team received 221,900 phone calls in 2013-2014, which was 5% fewer than last year. Per business day, we received an average of 884 calls, compared with 936 in 2012-2013. The decrease in the number of phone calls we received in 2013-2014 corresponds to the increase in the number of disputes registered through our website, which rose from 69% to 74% of all registered disputes. There were 519 calls to our natural disaster information line in 2013-2014, down 16% from last year and down 43% from 2011-2012. This decrease corresponds with the decrease in natural disasters in 2013-2014 compared with previous years. Consumers may call us to lodge their disputes over the phone, or they may call for general information about our process. If we are not the most appropriate agency to provide help, we try to refer the caller to the agency that is. Total calls by year 2009-10

226,825

2010-11

230,874

2011-12

228,375

2012-13

234,063

2013-14

221,900

Community engagement

Community engagement

Meet Lillian Leigh FOS Consumer Liaison Group member Lillian Leigh must have impeccable timing. The senior solicitor in consumer law accepted a special projects role with Legal Aid NSW just before the Blue Mountains fires broke out last October. The role was designed to help vulnerable people recover from disasters. Lillian and the rest of the Legal Aid NSW team arrived in the Blue Mountains five days after the fires started, and worked seven days a week for eight weeks. Collaborating with the insurance industry, they offered victims early legal advice to prevent them suffering undue anxiety. “We were seeing people who were traumatised and had lost everything,” she said. “A lot of our work was to encourage people to come back to us later if any problems arose.” Lillian said it was a good example of how her organisation must reach out to clients, rather than the other way around. “We find that people generally tend to confide in professionals such as their doctors and community workers about consumer issues; they never say they want legal aid, so we are going out to people for example in remote Aboriginal communities and talking to our partners such as financial counsellors who can refer people to us,” she said. “We did a survey when we were at the Blue Mountains, and of those people who saw us, almost all (91%) were very appreciative of our help.”

She is impressed with how the financial services industry has changed since she took up her role with Legal Aid NSW 10 years ago. “Back then, you couldn’t have the conversations you have now about, for example, financial hardship,” she said. “Now there’s a whole process in place. Law reform has played a part and consumers and financial services providers can have a conversation through FOS that builds understanding on both sides.” She said FOS was doing well in consulting and communicating its process changes to stakeholders. “Inevitably change affects people but I feel like we’ve got the space to talk about how these changes may affect vulnerable consumers,” she said. Lillian said that socially and economically disadvantaged people were highly likely to face credit and debt problems and financial hardship. Loss of income through illness, an accident, unemployment or marriage breakdown were the main catalysts for financial hardship, and legal problems inevitably led to health problems. “It’s important for us to always remember that the smallest outcome can make a big difference to people’s lives,” she said. “The most rewarding part of the job is to be able to achieve outcomes for people in need.” Lillian has been the Legal Aid NSW representative on the FOS Consumer Liaison Group since March 2014.

Page 25

Community engagement

Consumer engagement FOS educates, consults and collaborates with the consumer sector, particularly with organisations that provide free, confidential and community-based financial counselling and legal services.

Consumer engagement – SMS trial follow up Following the successful trial during 2012-2013, we implemented SMS communication for all case workers in February 2014. SMS is an effective tool because of its immediacy, simplicity and ease of use. The initiative was the result of feedback from our staff and consumer representatives who believed that SMS could improve the way we manage disputes – and it does. FOS case workers now regularly use SMS to let applicants know we’ll be calling soon, to let them know we’ve tried to contact them, and to request a call back. Consumer Liaison Group (CLG)

In 2013-2014 the CLG comprised a representative from each of the following organisations: » A  nglicare TAS Financial Counselling » A  nglicare WA Financial Counselling » C  onsumer Action Law Centre » F  inancial Counselling Australia » F  inancial Rights Legal Centre » Indigenous Consumer Assistance Network » L  egal Aid NSW » L  egal Aid QLD » U  niting Communities Consumer Liaison Group (CLG) Hub FOS has put the CLG Hub, or ‘The Hub’, as it has become known, to great use in the past 12 months. The Hub, an online collaboration tool, plays host to news, discussion forums, questions and surveys, and also includes social content such as photographs and videos. Following consultation with the CLG, membership of The Hub will be widened to include a much broader group of consumer representatives, further enhancing FOS’s consumer engagement. Professional development In 2013-2014 FOS supported many educational events and activities for consumer advocates including financial counsellors, community lawyers and financial capability workers. These events included: » F  inancial Counselling Australia – Conference and External Dispute Resolution Forum » Annual conferences/professional development days: ~F  inancial and Consumer Rights Council (Victoria) ~F  inancial Counsellors’ Association of Queensland ~F  inancial Counsellors’ Association of Western Australia ~M  oney Workers Association of the Northern Territory FOS Forums We continued to provide targeted training to the consumer sector during 2013-2014. We adapted our dedicated training program (FOS Forums), making it possible to deliver professional development opportunities to the sector in conjunction with conferences and other events.

(Back row) Philip Field – FOS, Carmel Franklin – Financial Counselling Australia Alexandra Kelly – Financial Rights Legal Centre, Lillian Leigh – Legal Aid NSW, Paul Holmes – Legal Aid Queensland, Shane Tregillis – FOS (Front row) Tim Goss – FOS, Melanie Noble – Indigenous Consumer Assistance Network, Agata Wierzbowski – Consumer Action Law Centre Melanie Hallam – FOS, Unaisi Buli – Indigenous Consumer Assistance Network (outgoing), Christine Raymond – Uniting Communities (Absent) Phillip Powell – Anglicare Tasmania, Sandie Groves – Anglicare WA

Page 26

The forums are workshops which are designed to educate consumer advocates about our dispute resolution process and also to raise awareness of key aspects of financial disputes such as financial difficulty and responsible lending.

Community engagement

Elearning

Consumer engagement – Darwin FOS Forum The Darwin FOS Forum was held in August 2013 in partnership with the Money Workers Association of the Northern Territory. This forum was designed to strengthen relationships with consumer advocates who support Indigenous communities. Two attendees travelled from East Arnhem Land for the forum – a distance of over 1000km.

In May 2014 we completed our e-learning module for consumer representatives, FOS and Dispute Resolution. Consumer representatives service communities that are spread over a large geographical area, and the cost of delivering face-to-face training is prohibitive. After considering these constraints, FOS developed an elearning module in consultation with Financial Counselling Australia, FCRC, FCAN and the CLG. After completing the module, representatives are better informed about FOS’s role, have been introduced to our Terms of Reference, and are able to explain the dispute resolution lifecycle. The module is accredited to provide exemptions for the Diploma of Community Services (Financial Counsellor) and includes interactive case studies and video tips from experienced financial counsellors and FOS staff.

Before attending the forum, 72% of respondents felt they knew FOS ‘not at all, a little, or moderately well’. After the event, ‘well/very well’ knowledge increased from 28% to 83%. “The information was delivered excellently and I found the whole day to be very interactive and informative... it is greatly appreciated. I’ve already referred a few individuals to FOS as a direct result” said one FOS Forum participant.

Page 27

Significant event response plan

Significant event response plan

FOS has a significant event response plan in place to ensure we respond effectively to significant events. There are many factors that might indicate that an event falls into our ‘significant event’ category. Two of the major criteria are that the event is likely to significantly increase our dispute numbers, and/or that it is a particularly high-profile event to which we can respond proactively and provide information. The strategy can be triggered by any type of event – for example, a natural disaster (bushfire, flood, cyclone etc), financial collapse or large financial services provider technology failure. To ensure we respond quickly and proactively and that we are well prepared to deal with any significant event, we enact our plan even if it initially appears to be a relatively low-impact event in terms of how many disputes we expect it to generate. The main objectives of the significant event response plan are to: » c  onsistently identify and assess the likely impact of significant events as quickly and effectively as possible » e  ffectively deal with any disputes arising from a significant event, and manage and control any impact on FOS resources and workloads, and » e  nsure there is timely and appropriate internal and external communication and stakeholder engagement during the course of a significant event.

Page 28

During 2013-2014 we enacted our significant event response plan for these events: July 2013 » G  ippsland Secured Investments October 2013 » N  ew South Wales bushfires » P  erth Hills bushfires April 2014 » S  evere Tropical Cyclone Ita

Who lodged disputes

Who lodged disputes

Our national, free service is available to consumers who have an unresolved dispute with a financial services provider (FSP) provided the FSP is a FOS member. Consumers who lodge disputes include: » individuals

Gender As in previous years, more men than women lodged disputes with us in 2013-2014. Gender of applicant/s

» partnerships of individuals

?

» some small businesses

Unknown 2%

» clubs or incorporated associations Joint applicants 16%

Disputes that we can consider are set out in our Terms of Reference. To learn more about our Terms of Reference please go to www.fos.org.au/tor or www.fos.org.au/factsheets.

Female 31%

Geographic location We handle disputes involving applicants and FSPs from all across Australia. The geographic distribution of applicants in 2013-2014 was comparable to the 2012-2013 distribution, and is broadly representative of the geographic distribution of the Australian population. Geographic distribution of our applicants

Male 50%

1%

Age

1%

8% 11%

19% 20%

6% 7% 30% 32% 2% 2% % of applicants

29% 25%

Overall Australian population 1% 2%

*The applicant’s location was recorded for 96% of disputes *The overall Australian population is a general proportion of Australia’s population per state which has been derived from Australian Bureau of Statistics (2011) data.

Most people (88%) who lodged disputes in 2013-2014 were aged over 30 years. This reflects the general trend for consumers to increase the number of financial services and products they hold as they get older. As in previous years, the largest percentage of disputes lodged in 2013-2014 came from the 40-59 year age group (40%). Other age groups lodging disputes in 2013-2014 were also represented in similar proportions to 2012-2013. People aged 18-24 lodged 1,108 disputes in 2013-2014, which was 3% of all disputes lodged. Most of those disputes were about personal loans, comprehensive motor vehicle insurance and credit cards. Complaints about credit cards were the most common reason the 60 plus age group came to FOS, which was a change from 2012-2013 when the most common reason was an issue with a home loan.

Page 29

Who lodged disputes

Received complaints and disputes by age of applicant Received disputes by type of special assistance

In 2013-2014 we received 808 requests for special assistance, which was a 30% increase from last year. Total Hearing

115

Literacy

108

Mental Health

349

Physical Impairment

145

Sight/Vision

67

Text Telephone

24

Total

808

For more details about special assistance, please see our accessibility guideline on our website at www.fos.org.au/access. Applicant type

Sight/Vision 8%

In 2013-2014, as in previous years, the vast majority (almost 94%) of disputes were lodged by individuals. Just over 6% were lodged by small businesses, and just 0.1% were lodged jointly by an individual with a small business.

Physical Impairment 18%

Translators

Text Telephone 3%

Mental Health 43% Literacy 13% Hearing 14%

Special assistance FOS is committed to being accessible to everyone and to meeting additional needs people using our service may have. Some of the factors that may affect access to our service include: » language barriers, including English not being a person’s first language » p  hysical impairments, including hearing, speech, vision and other physical impairments » m  edical conditions » literacy barriers » m  ental health issues » s ocial and economic barriers. We try to remove barriers that may deter someone from coming to FOS, for example by offering language assistance or alternative ways of communicating.

Page 30

When lodging disputes, applicants are given the opportunity to request the help of a translator. A translator can help the applicant by explaining the details of their dispute to FOS and can translate all correspondence. Not all applicants who indicate they might need a translator end up using one, but if one is required at any stage in the process then FOS will arrange and pay for the service. In 2013-2014, 573 applicants requested the assistance of a translator. This was a 13% increase from 2012-2013. The languages for which we received the most translator requests were Arabic (76), Chinese (other than Cantonese and Mandarin) (69), Cantonese and Mandarin (67) and Vietnamese (31).

Who lodged disputes

Type

Total

Type

Total

Afrikaans

8

Macedonian

5

Albanian

4

Malayalam

2

Amharic

4

Maltese

1

Arabic

76

Mandarin

Armenian

4

Maori

1

Assyrian

8

Nepalese

4

Bengali

4

Norwegian

1

Bosnian

5

Pakistani

2

Burmese

1

Pashto

1

35

Cantonese

32

Persian (Farsi)

21

Chinese

69

Pidgin English

2

Creole

2

Polish

2

Croatian

9

Portugese

4

Czech

2

Punjabi

10

Dari

6

Romanian

3

Deaf-Oral

2

Russian

9

Deaf-Sign

6

Samoan

3

Estonian

2

Serbian

10

Fijian

1

Shangainese

2

Sinhalese (Sri Lankan)

8

Filipino (Tagalog)

10

Finnish

1

Slovene

1

French

5

Somali

1

Fukenese

2

Spanish

14

German

1

Tagalog

5

Greek

22

Taiwanese

1

Gujarati

2

Tamil

7

Hakka

1

Thai

6

Hindi

13

Turkish

16

Hungarian

3

Twi

1

Indonesian (Bahasa)

5

Urdu

7

Italian

15

Vietnamese

31

Japanese

3

Wolof (African dialect)

Karen

1

Total

Khmer

3

Korean

23

Latvian

1

1 573

Page 31

Who lodged disputes

Representatives The dispute resolution service FOS provides is a free and accessible alternative to going to court. Applicants do not need legal or financial advice or representation to come to us. We recognise, however, that some applicants may prefer to have someone lodge their dispute for them at FOS or act on their behalf during the dispute resolution process. The applicant must give written authority for someone else to represent them. In 2013-2014, 5,833 applicants used a representative in their dealings with FOS. The most common type of representative applicants chose was a family member or friend (38%).

Increasing our accessibility We recognise that the needs of Australians using our service can differ. Providing information in different formats and languages and adapting the way we communicate is very important.

We saw a 59% increase in the number of applicants using a dispute resolution agent. We are concerned about the emergence of a ‘claims management industry’ similar to that which has developed on a large scale in the United Kingdom. Claims management companies charge consumers a fee for providing representation, despite such services being free to consumers in Australia through external dispute resolution arrangements. We are looking to address this increase through changes to our Terms of Reference, which will take effect from 1 January 2015. Total Accountant

During 2013-2014 FOS helped address the deaf community’s different communication needs by providing information in Auslan, the first language for many deaf and hard of hearing people in Australia.

Co-Trustee

‘Sarah’s Story’ uses a case study to deliver key information about FOS, the internal dispute resolution process, when FOS gets involved, and how we use negotiation and conciliation to reach a resolution.

Other

The video is available on the FOS website and FOS’s YouTube channel www.youtube.com/user/fosaustralia.

Dispute Resolution Agent Executor

101 8 1,173 39

Family or Friend

2,190

Financial Advisor

246

Financial Counsellor

560

Legal Guardian

14

Member of Parliament

14

Policy Holder

460 3

Power of Attorney

105

Solicitor

961

Trustee affected party Total

6 5,833

Consumer representatives In 2013-2014 consumer representatives across 151 community organisations helped consumers to lodge nearly 700 disputes with FOS. Of those consumers, 56% were experiencing financial difficulty and in urgent need of assistance. This is a 15% reduction in lodgements compared to the previous year. Almost half of the disputes which consumer representatives such as financial counsellors and community lawyers lodged on behalf of applicants in 2013-2014 came from 12 organisations. Legal Aid NSW lodged the highest number of disputes on behalf of their clients.

Page 32

Who lodged disputes

How applicants lodged their disputes Almost three-quarters of applicants (74%) chose to lodge their disputes through our website using the online dispute form in 2013-2014, which was an increase from 69% in 2012-2013, 63% in 2011-2012 and 57% in 2010-11. This increase corresponds to greater general use of the internet. We have responded by making our online dispute form easier to use. Consumers can also lodge their dispute over the phone, by letter, email or fax. How applicants lodged their dispute Total The community organisations that lodged the highest number of disputes with FOS in 2013-2014 were: » L  egal Aid NSW (61)

Email In person

2,550 11

Letter

4,955

» T  he Salvation Army, Moneycare (50)

Phone

511

» E  ACH Social and Community Health (33)

Softfax

357

» M  urwillumbah & Tweed Financial Counselling Service (28)

Unknown Web

23,286

» F  inancial Rights Legal Centre (27)

Total

31,680

10

» D  jerriwarrh Health Services (22) » F  inancial Counselling Hunter Valley Project Inc. (16) » P  rimary Care Connect (16) » U  nitingCare Community (16) » A  nglicare Tasmania (15) » W  esley Mission (15) » A  nglicare Victoria (14) » U  niting Communities (12) FOS values the contribution of consumer representatives such as financial counsellors and community lawyers. Without them, many people would have little or no opportunity for their dispute with an FSP to be considered and resolved.

Page 33

Who lodged disputes

Overview of disputes

Page 34

How we classify disputes We classify disputes according to: the product/s the consumer is complaining about the issue/s involved in the dispute the sales or service channel the consumer used to purchase or get advice about the product in dispute the outcome of the dispute (once it is closed) This section details all the classifications within these categories.

How we classify disputes

An overview of how we classify financial products Credit 50%

Business finance » b  usiness credit cards  usiness loans » b  ommercial bills » c  ire purchases/leases » h » letters of credit » lines of credit/overdraft  on-financial product debt » n Consumer credit » c  onstruction loans  redit cards » c  quity releases » e  ire purchases/leases » h  ome loans » h » interest-free finances » investment property loans » lines of credit/overdraft  on-financial product debt » n  ersonal loans » p » s hort-term finance Guarantees » b  ank guarantees  usiness guarantees » b  onsumer guarantees » c Margin loans General insurance 27%

Domestic insurance » c  onsumer credit  ome building » h  ome contents » h  otor vehicle » m  ersonal and domestic property » p » r esidential strata title » s ickness and accident » t ravel Extended warranty » b  rowngoods  otor vehicles » m  hitegoods » w Professional indemnity insurance » m  edical indemnity  ther professional indemnity » o Small business/farm insurance » c  ommercial property Page 36

 ommercial vehicles » c  omputer and electronic » c breakdown  ontractors all risk » c  re or accidental damage » fi  lass » g » industrial special risk » land transit » livestock » loss of profits/business interruption  achinery breakdowns » m  oney » m  ublic liability » p » t hefts Payment systems 6%

Direct transfer » A  TM  ank drafts » b  heques » c  ounter transactions » c  irect debits » d  FTPOS » E  lectronic banking » e » foreign currency transfers  erchant facilities » m » t elegraph transfers Non-cash » loyalty programs  on-cash systems » n » s tored value cards » t ravellers’ cheques Deposit taking 6%

Current accounts » business transaction accounts » foreign currency accounts » mortgage offset accounts » passbook accounts » personal transaction accounts Savings accounts » bank bills » cash management accounts » first home buyer accounts » online accounts » term deposits Safe custody

Investment 5%

Derivatives/hedging » contracts for difference » foreign exchange » forwards » futures » options » swaps Managed investments » Australian equity funds » cash management accounts » charitable/educational schemes » film schemes » horse schemes » international equity funds » investor directed portfolio services » managed discretionary accounts » managed strata title schemes » mixed asset funds » mortgage schemes » primary production schemes » property funds » timeshare schemes » trustee common funds Real property Securities » bills of exchange » bonds » debentures » exchange traded funds » promissory notes » shares » warrants Superannuation » account based pensions » approved deposit funds » corporate funds » industry funds » pooled trusts » retail funds » retirement savings accounts » self-managed funds

How we classify disputes

Life insurance 5%

Income stream risk » consumer credit insurance » income protection Non-income stream risk » annuities » endowments » funeral plans » scholarship funds » term life » total and permanent disability » trauma » whole of life

Traditional trustee services 20/100

5.2(b) Non-Retail Client

5.2(e) Legal Proceedings Commenced

15

0%

6.2(a) Outside 6 Year Time Limit

142

3%

6.2(b) Outside 2 Year IDR Time Limit

23

0%

4,914

100%

Total

Page 49

What the disputes were about

What the disputes were about Total number of disputes received by product line

insurance disputes we received continued to decline, falling 9% from last year. See page 60 for a detailed analysis of general insurance disputes.

Half the disputes we received in 2013-2014 were about one product line: credit. Common issues within credit disputes included financial difficulty and financial services provider (FSP) decision.

The proportion of life insurance disputes was unchanged from last year (4%) but the number of life insurance disputes continued to increase, up 12% from last year. See page 75 for a detailed analysis of life insurance disputes.

As the table below shows, the proportion of credit disputes received in 2013-2014 is consistent with the past two years. See page 54 for a detailed analysis of credit disputes. General insurance disputes represented 26% of the total disputes we received in 2013-2014, down from 28% in the previous three years. The number of general

Both the proportion and number of investment disputes were consistent with last year. See page 71 for a detailed analysis of investment disputes.

Received disputes by product line and year 2010-11 Credit General insurance

2011-12

2012-13

2013-14

Number

%

Number

%

Number

Number

14,537

46%

18,485

50%

16,358

49%

16,544

50%

8,781

28%

10,423

28%

9,468

28%

8,643

26%

Payment systems

2,422

8%

2,508

7%

2,457

7%

2,348

7%

Deposit taking

2,244

7%

2,174

6%

2,086

6%

2,310

7%

Investments

2,235

7%

1,923

5%

1,462

4%

1,430

4%

Life insurance

1,193

4%

1,139

3%

1,268

4%

1,420

4%

Traditional trustee services

-

-

20

0%

26

0%

29

0%

Products outside our Terms of Reference

464

1%

566

2%

324

1%

500

2%

5

0%

19

0%

88

0%

54

0%

31,881

100%

37,257

100%

33,537

100%

33,278*

100%

Not yet determined Total

*Note that the total of 33,278 in this table does not match the total of 31,680 in the ‘Total disputes received by year’ chart on page 44. The total in this chart is based on counting cases about multiple products and issues as multiple disputes. For further explanation of this distinction, see ‘How we count disputes’ on page 43.

Page 50

What the disputes were about

Accepted disputes by product line ‘Accepted disputes’ are those that have entered the Acceptance stage of our dispute resolution process (see page 42 for an explanation of our process). In 2013-2014, credit disputes accounted for 50% of all accepted disputes (consistent with last year), followed by general insurance (27%, down from 30% in 2012-2013).

Accepted disputes by product line and year 2010-11

2011-12

2012-13

2013-14

Number

%

Number

%

Number

Credit

10,476

48%

13,242

50%

12,408

49%

12,605

50%

General insurance

5,627

26%

7,595

29%

7,581

30%

6,704

27%

Investments

1,886

9%

1,626

6%

1,214

5%

1,174

5%

Payment systems

1,508

7%

1,533

6%

1,654

7%

1,588

6%

Deposit taking

1,307

6%

1,264

5%

1,267

5%

1,469

6%

Life insurance

905

4%

903

3%

1,043

4%

1,163

5%

Traditional trustee services

-

-

7

0%

12

0%

21

0%

Products outside our Terms of Reference

275

1%

298

1%

159

1%

317

1%

1

0%

21,985

100%

25,041*

100%

Not yet determined Total

Number

0% 26,468

100%

25,338

100%

*Note that the total of 25,041 in this table does not match the total of 23,454 accepted disputes given on page 46. That total is based on counting each case, even if the case is about multiple products and issues, as one dispute. The total in this table is based on counting cases about multiple products and issues as multiple disputes. For further explanation of this distinction, see ‘How we count disputes’ on page 43.

Page 51

Accepted disputes

Accepted disputes by sales and service channel Most disputes we accepted in 2013-2014 were represented by the banking sales and service channel (45%). This was the same as last year. Of these disputes, the most common issues were financial difficulty and financial services provider (FSP) decision.

The second largest number of disputes (26%) came from general insurers, down from 29% in 2012-2013. Of these disputes, the most common issues were FSP decision and service.

Page 52

11 18 1 8 1

15 80 2 2 25 495 1 72

47 8 1

4 1

486 19 2 83

16

36

25

24

4

8 9

9 1

1

9

2

43 17 1 1

2 10 8 8

3 5 3 4 1 13 2 1

16 28 632 1,842

7 13 1 2

12 957

25

2

50

30

17 12 5 4 1 281 25 1 1 3 3 4 9 4 3 5 1 4 21 18 1 8 13 1 38 26 2 1 3 1 248 97 30 5,176 8,067 2,153

4 1 2 38 378

19 27

10

3

2

145 6 1

13 5 1

2

5

7

1 1

2 1

30 1 3 1

1

2

7

9

44 1 5 8 3 11 5 29 1 2

57 1 1 15 2 2 5 4

3 2 1

1

1

1

12 27 43 27 485 1,562 2,397 1,765

3 5

Grand Total

1

33 12 9 4 21 102 13 3 15 70 1 54 6

7 513 1,369 67 91 44 7 1 24 72 19 4 6 1 2 8 6 70 25 2 9 3 49 4 1,243 36

Not yet determined

898 243 238

Transactions

1,473 143 25

1 21 7 1

Service

Privacy & Confidentiality

Non ToR

FSP Decision

1 2 19 541 3,647 1,952 100 857 374 1 3 19 3 1 2 16 90 41 4 7 7 4 123 39 1 7 15 16 26 53 66 152 1 14 2 1 10 11 1 142 75 13 4,180

Instructions

2 2 6 4 423 1

1 28 3 1

Financial Difficulty

84 6

2 838 155

Disclosure

Charges

Accountant Administration services provider Bank Credit provider Credit reporting agency Credit representative Credit union Custodial and depository services Debt collector or buyer Derivatives dealer Finance broker Financial advisor / planner Foreign exchange dealer Friendly society General insurance broker General insurer Life insurance broker Life insurer Make a market Managed discretionary account operator MIS operator / fund manager Mortgage aggregator Mortgage broker Mortgage manager Mortgage originator Non-cash payment system provider Pooled superannuation trust Product distributor Product issuer Research house Securities dealer Stockbroker Superannuation fund trustee / advisor Trustee Underwriting agency Warranty provider Not yet determined Grand Total

Advice

Accepted disputes by sales and service channel and issue type

1 31 11,337 2,043 338 8 330 58 237 20 130 1,002 43 23 296 6,519 3 834 46 5 258 1 100 39 2 423 4 35 48 19 86 42 123 7 6 1 543 25,041

Credit disputes

Disputes

Page 53

Credit disputes

Credit disputes

The counting method we use in this section focuses on accepted disputes, and excludes the cases we received and closed in registration.

The number of accepted credit disputes increased 2% in 2013-2014. A total of 12,605 credit disputes, or 50% of all accepted disputes, were related to credit.

As in previous years, the vast majority (89%) of credit disputes concerned consumer credit. The most common issue in credit disputes was financial difficulty (41%). We examine financial difficulty disputes in detail on page 79.

Accepted credit disputes by product category and year 15,000 11,036

2010-11

11,181

2011-12

2012-13

2013-14

12,158

12,000

9,357

9,000

6,000

3,000 1,017 893 583

1,035 90 146 202 226

0 Business finance

Page 54

Consumer credit

Guarantees

68 23

25

14

Margin loans

375

22 128 149

Not yet determined

Credit disputes

Business finance

Accepted business finance disputes by product

We accepted 1,035 business finance disputes in 2013-2014, a 2% increase on last year. Most business finance disputes related to business loans (72%) followed by lines of credit/overdraft (12%), hire purchase/leases (9%) and business credit cards (6%).

Business Credit Card

6%

Business Loans

Financial difficulty (48%) and FSP decision (23%) were the main issues within business finance disputes.

72%

Commercial bills

1%

Hire purchase/lease

Banks were involved in 82% of disputes relating to business finance.

9%

Letter of credit

Accepted business finance disputes by sales & service channel

1%

Line of credit/overdraft

12%

Non FSP debt 0% 0 Not yet determined

10

20

30

40

50

60

70

80

1%

Bank

Accepted business finance disputes by issue type

82%

Credit provider

10%

Credit reporting agency

1%

Credit representative

0%

Not yet determined

0%

Advice

1%

Credit union

1%

Charges

Custodial and depository services

0%

Disclosure

Debt collector or buyer

0%

Financial Difficulty

Finance broker

1%

FSP Decision

8% 5% 48% 23%

Financial advisor / planner

2%

Instructions

General insurer

0%

Non ToR

MIS operator / fund manager

1%

Privacy & Confidentiality

3%

8% 0%

Mortgage broker

0%

Service

2%

Mortgage manager

0%

Transactions

2%

Product distributor

0%

Securities dealer

0%

Trustee

0%

0

0

20

40

60

80

20

40

60

80

100

100

Page 55

Credit disputes

Consumer credit We accepted 11,181 consumer credit disputes in 2013-2014, up 1% from last year. Of these disputes, 39% were about credit cards, 32% about home loans and 18% about personal loans. Other products in this category include hire purchase/ lease and investment property loans. The percentage of consumer credit disputes that were about financial difficulty fell again in 2013-2014, to 40%. In 2012-2013, this figure was 44%, compared with 54% in 2011-2012. Banks were involved in 70% of consumer credit disputes in 2013-2014.

Accepted consumer credit disputes by sales and service channel

Not yet determined

2%

Administration services provider

0%

Bank

70%

Credit provider

17%

Credit reporting agency

2%

Credit representative

0%

Credit union

2%

Custodial and depository services

0%

Debt collector or buyer

2%

Finance broker

1%

Financial advisor / planner

1%

Friendly society

0%

General insurance broker

0%

General insurer

0%

Life insurer

0%

Make a market

0%

MIS operator / fund manager

0%

Mortgage aggregator

0%

Mortgage broker

1%

Mortgage manager

0%

Mortgage originator

0%

Non-cash payment system provider

0%

Product distributor

0%

Product issuer

0%

Research house

0%

Securities dealer

0%

Stockbroker

0%

Trustee

0%

0

Page 56

20

40

60

80

100

Credit disputes

Accepted consumer credit disputes by product

In 2013-2014 there were 226 guarantee disputes, up 12% from last year.

Not yet determined 0%

Of these disputes, almost half (46%) related to business guarantees, 34% to consumer guarantees and 20% to bank guarantees. The consumer or business complained about a decision made by a financial services provider in 34% of cases, and 25% related to financial difficulty.

Construction loans 0% Credit cards

39%

Accepted guarantees disputes by issue type

Equity release 0% 5%

Hire purchase/lease

Advice

2%

32%

Home loans

Charges Interest free finance 0%

Disclosure

Investment property loans

3%

Line of credit /overdraft

2%

FSP Decision

Non FSP debt

2%

Instructions

20

25% 34% 14%

Privacy & Confidentiality

Short term finance 0% 0

11%

Financial Difficulty

18%

Personal loans

4%

40

60

80

100

6%

Service

2%

Transactions

2%

0

20

40

60

80

100

Accepted consumer credit disputes by issue type Accepted guarantees disputes by sale and service channel Advice

1%

Charges

Not yet determined

7%

Disclosure

4%

Bank

Financial difficulty

40%

FSP decision

0%

Privacy & confidentiality

12%

Service

4%

Transactions

5%

0

10%

Credit reporting agency

10%

Non ToR

81%

Credit provider

17%

Instructions

1%

2%

Credit union

0%

Debt collector or buyer

0%

Financial advisor / planner

20

40

60

80

100

Guarantees A guarantee is a sum offered as security against borrowings. For example, a business guarantee is a guarantee offered by a company or an individual as security for the borrowings of a business.

3%

General insurer

0%

Mortgage broker

1%

Securities dealer

0%

Trustee

0%

0

20

40

60

80

100

Page 57

Credit disputes

Margin loans Margin loans are loans that allow an investor to borrow money against the value of listed shares or units in managed funds. There were 14 margin loan disputes in 2013-2014. This was down significantly (44%) from last year.

Accepted margin load disputes by sales and service channel

Bank

Of these margin loan disputes, eight related to an FSP decision. Other issues included charges and privacy and confidentiality. Accepted margin load disputes by issue type

43%

Credit reporting agency

7%

MIS operator / fund manager

7%

Securities dealer

14% 29%

Stockbroker 14%

Charges Disclosure

7%

Financial Difficulty

7%

0

FSP Decision

20

40

60

80

100

57% 14%

Privacy & Confidentiality 0

20

40

60

80

100

Case study Guarantee signing breaches banking code An applicant signed a guarantee for a $627,000 loan from a financial services provider (FSP) in the presence of the debtor, contravening the Code of Banking Practice (the Code), a FOS Ombudsman has determined. The applicant, who was the debtor’s ex-wife, secured the guarantee with a mortgage over her residential property and entered into the guarantee in August 2012. In January 2014, after the debtor failed to make the required repayments and defaulted under the terms and conditions of the loan, the FSP issued a writ against the applicant seeking possession of her property and almost $124,000, together with interest at more than 9% owing under the guarantee and mortgage.

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FOS found that the FSP breached its own policies and procedures by not making a contemporaneous diary note from its representative who witnessed the applicant signing the guarantee documents. In addition, the FSP could not show that it had complied with the mandatory provisions contained in clause 28 of the Code. Clause 28 states that a subscribing bank will ensure that a guarantee is signed in the absence of the debtor where the bank attends the signing of the guarantee. The Ombudsman determined that as the FSP had breached clause 28 of the Code, it should release the applicant from the guarantee and the security she provided, and should also discontinue court proceedings.

Credit disputes

Case study Online application leads to responsible lending dispute An applicant’s online credit card application approved by a financial services provider (FSP) accepted income and expenditure figures provided by the applicant without any form of reliability testing, according to a determination by FOS. The dispute centred on whether the FSP breached its responsible lending obligations under the National Consumer Credit Protection Act when it issued the credit card to the applicant with an $8,000 limit. In October 2012, the applicant completed the application form and said that per month, she earned $2,500 after tax, had income of $1,500 from other sources and $1,951 in expenses including rent. But the Ombudsman found that she did not have any regular income when she applied for the credit card, and the credit card had caused her financial hardship. The determination said that the under the National Consumer Credit Protection Act, an FSP must make reasonable inquiries and take reasonable steps to check the information provided by consumers in their loan application. “As a minimum, the FSP should obtain documents to check the consumer’s ability to repay the loan,” the Ombudsman said. The Ombudsman found that the applicant held a transaction account with the FSP at the time she applied for the credit card. The account did not reflect a regular source of income and this was one of “many discrepancies in her application form which should have raised alarm bells”. In February 2013, the balance of the credit card exceeded the approved limit, and in March 2014 the balance was $8,475 in arrears.

The FSP acknowledged that it had automatically approved the application based solely on the figures provided, but said the application included questions about whether she had experienced difficulty in repaying loans in the previous two years and whether she anticipated any changes in her employment, income and expenses in the following 12 months. She had answered ‘no’ to both these questions. The Ombudsman said the FSP had not shown that its automatic system was sophisticated and had otherwise failed to make reasonable inquiries about whether the applicant could repay the credit card debt without substantial hardship. The Ombudsman said that while it appeared the applicant provided incorrect information about her financial position, it was not appropriate for FOS to reduce any compensation it may award. “In the case of credit contracts regulated by the National Consumer Credit Protection Act, we generally consider that the FSP should compensate the consumer for their entire loss, even if the consumer is partly responsible,” the Ombudsman said. The Ombudsman determined that the FSP should not have provided the applicant with any credit because she did not have demonstrated capacity to make repayments. On that basis, the Ombudsman found that the FSP should not have collected interest or fees on the credit provided. The FSP was required to reduce the balance owing to $5,541, which reflected only the purchases the applicant had made.

Page 59

General insurance disputes

General insurance disputes

General insurance dispute numbers fell by 12% in 2013-2014.

worked hard and actively with the Code Compliance and Monitoring team at FOS and with consumer groups to develop its new Code of Practice.

Stabilisation of dispute numbers had been predicted after the extraordinary level of natural disasters in the past few years. In addition, the industry continued to improve its performance in managing issues through its internal claims handling and dispute resolution processes, and this also had an effect on the number of disputes lodged at FOS.

We accepted 6,704 general insurance disputes in 2013-2014 compared with 7,581 last year. In keeping with previous years, the vast majority (92%) of disputes accepted in 2013-2014 related to domestic insurance. The most common issue across all general insurance disputes was financial services provider (FSP) decision (64%), which in most cases related to an FSP’s decision to decline a claim.

The more ‘normalised’ conditions enabled the industry to better explain issues to consumers and avoid claim delays and escalation of disputes. The industry also

Accepted general insurance by product category and year 8000

6,193 7,065 7,141

2010-11

2011-12

2013-14

2012-13

7000

6000 5,257

5000

4000

3000

2000

1000

341 384 359 299

0 Domestic insurance

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Small business/farm insurance

44 54 54 67

10 11 26 27

Extended warranty

Professional indemnity insurance

17

5 77 76

Not yet determined

General insurance disputes

Small business/farm insurance

Professional indemnity insurance

We accepted 341 small business/farm insurance disputes in 2013-2014 compared with 359 last year. The majority (63%) related to an FSP decision.

We accepted 27 professional indemnity insurance disputes in 2013-2014 compared with 26 last year.

Small business owners and farmers take out insurance policies to cover such things as property and vehicle damage, machinery breakdowns, public liability, thefts and loss of property.

Of these disputes, 21 were due to charges, decisions made by the FSP, and service. Three-quarters of professional indemnity insurance disputes involved a general insurer. Accepted professional indemnity disputes by sales and service channel

In 2013-2014, most small business/farm insurance disputes related to commercial property (51%) and commercial vehicles (25%). Of all the small business/farm insurance disputes, the majority (81%) involved general insurers and 16% involved general insurance brokers.

General insurance broker General insurer

Accepted small business/farm insurance disputes by issue type

Advice

26% 74%

0

20

60

80

100

Accepted professional indemnity disputes by issue type

2% 6%

Charges

Charges Disclosure

30%

2%

FSP Decision

26%

63%

FSP Decision

Instructions Instructions

4%

4%

Non ToR

19%

12%

Non ToR

Service Service

22%

11%

0 Transactions

40

20

40

60

80

100

0%

0

20

40

60

80

Extended warranty

100

Extended warranties are available for motor vehicles, whitegoods and browngoods (for example, TVs, radios and computers). We accepted 67 disputes about extended warranties in 2013-2014 compared with 54 last year.

Accepted small business/farm insurance disputes by sales and service channel

Not yet determined

1%

Bank

0%

Credit provider

0%

Financial advisor / planner

1%

Friendly society

1%

General insurance broker

The majority (54%) involved general insurance brokers and 39% involved general insurers. More than half (55%) were about decisions made by the FSP. Accepted extended warranty disputes by issue type

Charges Disclosure

General insurer Product issuer

9%

16%

1%

81%

55%

FSP Decision 0%

0

20

40

60

80

100

18%

Non ToR

16%

Service 0

20

40

60

80

100

Page 61

General insurance disputes

Accepted domestic insurance disputes by sales and service channel

Accepted extended warranty disputes by sales and service channel

Not yet determined

3%

Administration service provider

3%

General insurance broker

54%

General insurer

39%

Warranty provider

1%

0

20

40

60

80

100

Domestic insurance We accepted 6,193 domestic insurance disputes in 2013-2014, which was 12% less than last year. The type of insurance policy most people complained about was motor vehicle - comprehensive (36%), home building (24%), travel insurance (10%) and home contents (9%). In most disputes (65%) consumers complained about the insurer’s decision. In the domestic insurance category, most disputes (96%) were lodged against an insurance company and 3% involved general insurance brokers. Accepted domestic insurance disputes by issue type

Not yet determined

0%

Advice

0%

0%

Administration services provider

0%

Bank

0%

Credit provider

0%

Credit union

0%

Custodial and depository services

0%

Debt collector or buyer

0%

Finance broker

0%

Financial advisor / planner

0%

Friendly society

0%

General insurance broker

3%

General insurer

96%

Life insurance broker

0%

Life insurer

0%

Product distributor

0%

Product issuer

0%

Underwriting agency

0%

0

Disclosure

1%

Financial Difficulty

0% 65%

4%

Privacy & Confidentiality

0%

Service

20%

Transactions

1%

0

60

80

100

The most common insurance products in disputes involving general insurance brokers were motor vehicle, home building, and personal and domestic property (mobile phones). The main issue was denial of claim.

1%

Non ToR

40

In 2013-2014, there were 256 disputes between general insurance brokers and their customers. This was an increase from last year, when there were 195 disputes (up from 112 in 2011-2012).

FSP Decision Instructions

20

General insurance brokers

8%

Charges

Page 62

Not yet determined

20

40

60

80

100

General insurance disputes

Emerging issue – non-disclosure/misrepresentation during sales processes FOS has found misrepresentation and/or non-disclosure during sales processes are an issue. We have noticed these allegations are more frequently made against intermediaries such as travel agents and car salespeople. These organisations generally do not have the same sophisticated scripting as direct insurance companies. Consumers may be at risk of not being covered if the right questions are not asked (for example, if an intermediary selling motor vehicle insurance does not ask about the consumer’s licence history). This increases the chance of disputes – in particular around the issue of non-disclosure/ misrepresentation. Intermediaries often do not have accurate records to confirm they have notified the consumer of the duty of disclosure or asked the relevant questions. It is important that intermediaries keep accurate records to prove they are following correct processes. Consumers are entitled to be protected against any alleged non-disclosure or misrepresentation.

Case study Investigators used intimidatory conduct The conduct of an investigator in a motor vehicle insurance dispute was intimidatory and totally inappropriate, according to a FOS determination. The dispute, concerning a single car accident in December 2012 and subsequent denial of claim by the financial services provider (FSP), involved a release which the Ombudsman said was signed by the applicant under duress and in breach of the FSP’s duty of utmost good faith. The release, for withdrawal of the applicant’s claim and reimbursement of $2,500 of costs incurred as a result of the investigation, was presented by the investigator after a four and a half hour interview with the applicant. The Ombudsman said there was no provision in the applicant’s policy or in any other process for recovery of the investigator’s costs. The applicant said he was coerced into signing the release. He was told that the interview would not last long and he would soon be able to return to his job as a teacher. However, the investigator disregarded the applicant’s work requirements, and the applicant had to ring his employer twice to arrange further absence. The Ombudsman, who listened to a recording of the interview, said the investigator provided excessive commentary and stopped the recording seven times, covering a total of about 75 minutes. There was no evidence of what occurred during this time. “I do not believe the interview was conducted in an appropriate or fair manner,” the Ombudsman said. “I accept the applicant’s belief that he was intimidated throughout the interview process.” The FSP said the applicant had made a false and misleading statement about who was driving the car at the time of the accident, but the Ombudsman considered this statement was not made to deceive the FSP into payment of the insurance claim. The Ombudsman determined that the FSP was liable to meet the applicant’s claim (subject to any excess that might be applicable), and to expunge from its records – and the records of any organisation with which it communicated – any reference to fraud on behalf of the applicant.

Page 63

General insurance disputes

Case study Blood alcohol level confirms FSP’s right to deny claim A FOS Panel determined that the financial services provider (FSP) was entitled to deny a car insurance claim, despite the applicant saying she didn’t know she was affected by alcohol. While driving home in the early hours of the morning, the applicant lost control of her car and collided with another vehicle coming the other way. Police tests conducted about an hour after the collision showed that she had a blood alcohol reading of 0.101%. The FSP said that it would not pay her claim because, as set out in the policy, it will not pay claims where the driver: » was  under the influence of any drug or intoxicating alcohol, or » h  ad a blood alcohol reading that was in excess of the percentage permitted by law in the State or Territory where the accident occurred. The applicant lodged a dispute with FOS because she considered that a policy exception applied to the circumstances of her collision. The exception said that a claim would not be refused if there was no reason for the insured to suspect that the driver

Page 64

was affected by alcohol. The applicant explained that although she had consumed an unknown quantity of alcohol between 6 and 12 hours before the collision, she had slept for about 5 or 6 hours in her car before driving home and that although she woke up feeling tired, she did not feel impaired or otherwise affected by alcohol. A FOS Panel considered the dispute and determined that the policy exception was intended to apply in circumstances where the insured and the driver were different people. They also noted that even if the exception did apply where the insured and the driver were the same person, given the blood alcohol level recorded an hour after the collision, it would be highly unlikely that the applicant would have felt no effect from the alcohol. This was supported by medical evidence showing that the applicant’s blood alcohol level at the time of the collision was likely to have been between 0.113% and 0.125%, which would have increased her risk of a collision to up to 20 times that of a sober driver.

Payment system disputes

Payment system disputes

In 2013-2014 we accepted 1,588 payment system disputes, a 4% decrease from last year. The majority (61%) were about direct transfer systems and the remaining disputes were about non-cash systems. Accepted direct transfer disputes by issue type

Accepted payment systems disputes 2000 2010-11

2011-12

2013-14

2012-13

Advice

1%

Charges 1500

1,130

Disclosure

1,031 1,005

6%

Financial Difficulty

965

3% 0%

FSP Decision 1000

11%

Instructions 613 508 502 499

500

19%

Non ToR

0%

Privacy & Confidentiality

1%

Service

8%

Transactions 0

0

Direct transfer

Non-cash

0

51%

16 10

Not yet determined

0

20

40

60

80

100

Direct transfer We accepted 965 direct transfer disputes in 2013-2014, down 15% from last year. Of these disputes, 37% were about electronic banking and 15% about merchant facilities. Mistaken internet payment (148) was the most common issue with electronic banking disputes. Banks are the main supplier of direct transfer payment systems and were involved in 85% of direct transfer disputes.

Page 65

Payment system disputes

Accepted non-cash disputes by issue type

Accepted direct transfer disputes by sales and service channel

Not yet determined

Advice

1%

Bank

85%

Credit provider Credit reporting agency

Finance broker

0%

Financial advisor / planner

1%

Foreign exchange dealer

3% 48%

Instructions

3% 0%

5%

FSP Decision

0%

Custodial and depository services

Charges Disclosure

2%

Credit union

0%

7%

Non ToR

0%

Privacy & Confidentiality

1% 12%

Service

24%

Transactions

2%

0

General insurance broker

0%

General insurer

0%

Life insurer

0%

Make a market

0%

MIS operator / fund manager

0%

Bank

Mortgage broker

0%

Credit provider

Mortgage manager

0%

Credit union

Non-cash payment system provider

80

100

24% 2% 4%

Custodial and depository services

0%

Debt collector or buyer

0%

Product issuer

1%

Financial advisor / planner

0%

Research house

0%

Foreign exchange dealer

0%

Make a market

0%

MIS operator / fund manager

0%

20

40

60

80

100

Non-cash Disputes in this category involve non-cash facilities, which are often internet-based. The category includes loyalty programs, stored value cards and travellers’ cheques. We accepted 613 non-cash payment system disputes in 2013-2014, an increase of 21% from last year. Almost half (48%) of these disputes involved an FSP’s decision. Of the non-cash disputes, 83% were about non-cash systems and 13% were about stored value cards.

Page 66

60

0%

Not yet determined

0%

0

40

Accepted non-cash disputes by sales and service channel

3%

Product distributor

20

Non-cash payment system provider

63%

Product distributor

0% 5%

Product issuer 0

20

40

60

80

100

Payment system disputes

Case study Internet account at the centre of elder abuse case An applicant who was an elderly customer of a financial services provider (FSP) was targeted by a long-standing acquaintance who withdrew $175,000 from the applicant’s account. The applicant told FOS that his acquaintance was able to set up an internet banking account for the applicant by calling the FSP and using the applicant’s telephone banking password which the applicant had used in the presence of the acquaintance. The acquaintance had also used the applicant’s security code to change the address for the applicant’s account statements. The acquaintance had, over a period of time, acquired a vast knowledge of the applicant’s financial situation. Having established internet

banking, he withdrew $5,000 a day from the applicant’s account for just over one month. The applicant had never used the internet and complained to the FSP after he discovered that funds were missing from his account. The FSP disputed the applicant’s claim on the basis that, under the ePayments code, he was liable for the unauthorised payments because he had disclosed his password. However, FOS found that liability for the unauthorised payments lay with the FSP on the basis that customers are not liable for such losses if the customer did not agree to the access method by which the transactions were made. The FSP accepted FOS’s recommendation.

Page 67

Deposit-taking disputes

Deposit-taking disputes

In 2013-2014 we accepted 1,469 deposittaking disputes. This was 16% more than last year. Deposit-taking disputes comprise two main product categories: current accounts and savings accounts. Current accounts include business transaction, foreign currency, mortgage offset, passbook and personal transaction accounts. Savings accounts include bank bills (which are short-term money market investments), term deposits, cash management, first home buyer, and online accounts. Accepted deposit-taking disputes by product category and year 1200 1,113

2010-11

2011-12

2012-13

919

1000

878 948

800

600 336 330 367

400 337

200

7 19 16 11

0 Current accounts

Page 68

Savings accounts

Safe custody

15

0

2

9

Not yet determined

2013-14

Deposit-taking disputes

Current accounts

Accepted current accounts disputes by sales and service channel

There were 1,113 current account disputes in 2013-2014 compared with 919 last year. The most common issues in dispute were transactions (29%), instructions (25%) and financial services provider decision (15%).

Not yet determined

The majority (90%) of current account disputes involved banks. This is consistent with the fact that banks are the main suppliers of deposit-taking products. Accepted current accounts disputes by issue type

Advice

0%

Credit reporting agency

0% 5%

Debt collector or buyer

0%

Finance broker

0%

Financial advisor / planner

5% 0%

FSP Decision

3%

Foreign exchange dealer

0%

General insurer

0%

MIS operator / fund manager

0%

Mortgage broker

0%

Non-cash payment system provider

1%

Product issuer

0%

15%

Instructions Non ToR

Credit provider

8%

Disclosure Financial Difficulty

90%

Bank

Credit union

1%

Charges

0%

25% 0%

Privacy & Confidentiality

7% 9%

Service Transactions

0

29%

0

20

40

60

80

20

40

60

80

100

100

Page 69

Deposit-taking disputes

Savings accounts

Safe custody

FOS accepted 336 savings account disputes in 2013-2014, which was almost the same number as last year (330).

Safe custody is the storage of valuable possessions, such as jewellery and important documents, in a secure vault at a bank.

Of these disputes, 26% related to instructions, 17% to transactions and 16% to disclosure.

We accepted 11 safe custody disputes in 2013-2014. These disputes were mainly over customer instructions and privacy and confidentiality.

The products with which consumers had the most disputes were term deposits (46%) and online accounts (37%). Accepted savings accounts disputes by issue type

Accepted safe custody disputes by issue type

Disclosure

9%

FSP Decision Advice

15%

Charges

Instructions

27%

Privacy & Confidentiality

27%

16%

Disclosure Financial Difficulty

Service

1% 13%

Instructions

20

40

60

80

Accepted safe custody disputes by sales and service channel

26%

Privacy & Confidentiality

18%

0

FSP Decision

2%

Bank

Service

100%

10%

0 17%

Transactions 0

20

40

60

80

100

Accepted savings accounts disputes by sales and service channel

Bank

94%

Credit provider

1%

Credit union

3%

Financial advisor / planner

3%

0

Page 70

18%

1%

20

40

60

80

100

20

40

60

80

100

100

Investment disputes

Investment disputes

FOS accepted 1,174 investment disputes in 2013-2014, a decrease of 3% from last year. Dispute numbers dropped across every category except superannuation. As the graph below shows, this continues the trend of a steady decline in accepted disputes in most investment categories since 2010-2011. This supports the view that issues arising from the Global Financial Crisis (GFC) have driven investment disputes in previous years but that these issues are now tailing off. Consumers who sustained significant losses due to the GFC are likely to have now had their disputes processed. In addition, better market conditions – together with improved disclosure and management of risk – have most likely helped to minimise the number of investment disputes. Accepted investment disputes by product category and year 1200

1,157

2010-11

2011-12

2013-14

2012-13

1000 931

800

600

579 539

400

379 313

296 285

275 213

200

201 190 115

95

111 100 12 11 10 9

0 Managed investments

Superannuation

Securities

Derivatives/hedging

Real property

10

1

28 40

Not yet determined

Page 71

Investment disputes

Managed investments We accepted 539 managed investment disputes in 2013-2014, down 7% from last year but 53% down from 2010-2011. Mixed asset funds (investing in multiple asset classes such as cash, bonds, shares and property) continued to be the most common managed investment product that people complained about. In 2013-2014, mixed asset funds represented 352 disputes or 65% of managed investment disputes. This was about the same number and proportion as last year. Advice accounted for more than half (52%) of the issues in managed investment disputes, followed by financial services provider (FSP) decision (14%). Many investors complained that the advice they received was inappropriate – that it did not properly accord with their financial position, goals and tolerance of risk. The majority (60%) of managed investment disputes involved a financial adviser/planner or a managed investment scheme operator/fund manager (24%). Accepted managed investment disputes by issue type

Not yet determined

0%

Advice

52%

Charges

7%

Financial Difficulty

2%

Not yet determined

Accountant 0% Administration 0% services provider Bank

4%

Credit provider

1%

Custodial and depository services

1%

Derivatives dealer

1%

Finance broker 0% Financial advisor / planner

60%

Foreign exchange dealer

0%

Friendly society

1%

Life insurance 0% broker Life insurer

1%

Make a market

1%

MIS operator / fund manager

8%

Disclosure

Accepted managed investment disputes by sales and service channel

0%

24%

Mortgage broker

0%

Research house

1% 3%

Securities dealer

FSP Decision

14%

Instructions

8%

Service

7%

Stockbroker 0% 0

20

40

60

80

100

Superannuation

Transactions

2%

0

20

40

60

80

100

In 2013-2014 we accepted 296 superannuation disputes, which was a 4% increase from last year, and represented one-quarter of all investment disputes. Most superannuation disputes were about selfmanaged funds (35%) and retail funds (33%). People who lodged disputes about self-managed funds were most likely to complain about inappropriate advice (31%). Common issues in disputes about retail funds were inappropriate advice (16%) and failure to follow instructions/agreement (14%).

Page 72

Investment disputes

Securities

Accepted superannuation disputes by issue type

Advice

FOS accepted 190 securities disputes in 2013-2014, down 5% from last year. The vast majority (95%) related to shares.

40%

Charges

Disputes relating to advice (25%) were most common, followed by instructions (24%) and FSP decision (17%).

8%

Of all the securities disputes, almost one-third (32%) involved a financial adviser/planner, 25% a securities dealer and 13% involved stockbrokers.

4%

Disclosure

Financial 0% Difficulty FSP Decision

Accepted superannuation disputes by sales and service channel

9%

Instructions

22%

Advice

Privacy & Confidentiality 0%

5%

Charges

Service

9%

Disclosure

12%

17%

FSP Decision

4%

Transactions

25%

0

20

40

60

80

Instructions

100

24%

Privacy & Confidentiality

Accepted superannuation disputes by sales and service channel

1% 13%

Service Transactions 0

1%

Not yet determined Administration services provider

0%

Bank

6%

20

40

60

80

100

Accepted securities disputes by sales and service channel

5%

Credit provider Custodial and depository services

4%

Finance broker

1%

Financial advisor / planner 0%

General insurer

0%

MIS operator / fund manager

4%

Custodial and depository services

5%

Foreign exchange dealer

2%

Friendly society

1%

Pooled superannuation trust

1%

Managed discretionary account operator

Research house

1%

MIS operator / fund manager

Securities dealer

0%

Stockbroker

1%

20

7% 2% 4%

Product issuer

1%

Research house

2% 25%

Securities dealer

18%

0

32%

Make a market

8%

Superannuation fund trustee / advisor

2%

Financial advisor / planner

4%

Life insurer

Bank

Derivatives dealer

55%

General insurance broker

2%

Not yet determined

0%

40

60

80

100

13%

Stockbroker 0

20

40

60

80

100

Page 73

Investment disputes

Derivatives/hedging

Real property

Derivatives and hedging products include contracts for difference, foreign currencies, forwards, futures, options and swaps.

Real property includes land and a residential or commercial property on it.

In 2013-2014, we accepted 100 disputes about these products, down 10% from last year. The most common issues were FSP decision (39%), instructions (18%) and advice (13%). Accepted derivatives/hedging disputes by issue type

Advice

We accepted only nine disputes about real property in 2013-2014. The main issue in these disputes was advice (67%). Accepted real property disputes by issue type

Advice

67%

Disclosure

11%

Service

11%

Transactions

11%

13%

Charges

2% 12%

Disclosure

0

20

40

60

80

100

39%

FSP Decision

Accepted real property disputes by sales and service channel 18%

Instructions 9%

Service Transactions

7%

0

11%

Not yet determined Financial advisor / planner

20

40

60

80

100

Accepted derivatives/hedging disputes by sales and service channel

67%

MIS operator / fund manager

11%

Superannuation fund trustee / advisor

11%

0 2%

Not yet determined

3%

Bank

1%

Credit provider

12%

Derivatives dealer Finance broker

2%

Financial advisor /planner

15%

Foreign exchange dealer

14%

Make a market

27%

Managed discretionary account operator

2% 1%

Product issuer Research house

3% 8%

Securities dealer

9%

Stockbroker Superannuation fund trustee /advisor

1%

0

Page 74

20

40

60

80

100

20

40

60

80

100

Life insurance disputes

Life insurance disputes

FOS accepted 1,163 life insurance disputes in 2013-2014, an increase of 12% from last year. The rise was due to a 14% increase in disputes about income stream risk products, with most of these disputes relating to income protection insurance. Denial of claim was the most common reason consumers came to FOS with life insurance complaints. Accepted life insurance disputes by product category

Not yet determined

2%

Income Stream Risk

59%

Non-Income Stream Risk

39%

0

20

40

60

80

100

Income stream risk We accepted 681 disputes relating to income stream risk products in 2013-2014. Of these disputes, 539 (or 79%) involved income protection insurance, compared with 469 last year. Income protection insurance pays an income in the event that the policyholder is unable to work due to injury or illness (as defined by policy conditions). We accepted 142 disputes about consumer credit insurance in 2013-2014 compared with 128 last year. This insurance is designed to cover the policyholder for their obligations under a loan agreement. Consumer credit insurance protects the borrower in the event of accident, sickness, involuntary unemployment or death. If the policyholder is unable to work due to accident, sickness or involuntary unemployment, it covers the loan repayments for a stated period of time or until the policyholder is able to return to work. Most disputes we accepted about income stream risk products were in relation to financial services provider (FSP) decision (57%). Of these, an FSP decision to deny a claim was by far the most common complaint for both income protection insurance and consumer credit insurance. Within these disputes, the applicants complained that the FSP was unwilling to accept the veracity of the information provided to support the claim, such as profit and loss statements, business activity statements and tax returns, or medical reports supporting a disability.

Disputes over denial of claim and claim handling delays were common in income protection insurance, along with complaints about claim amounts and incorrect premiums. An emerging trend in income protection disputes is calculation of benefits (rather than claim denial) for applicants who own a business or are directors or selfemployed. In one case the FSP sought to reduce the benefits based on the passive income the applicant continued to receive through profit sharing in the company in which he worked and was a shareholder. FOS found that when the applicant became totally disabled, he ceased to earn any personal exertion income and any amounts subsequently payable to him from the business were ‘passive’ income – in the nature of dividends on a shareholding, not amounts referable to his disability – and therefore were not able to be offset under the policy. Given that life insurers are the main suppliers of these products, it was not surprising that most income stream risk product disputes (69%) involved life insurers. Accepted income stream risk disputes by issue type

2%

Advice

8%

Charges Disclosure

5%

Financial Difficulty

0% 57%

FSP Decision Instructions

6%

Non ToR

0%

Privacy & Confidentiality

0%

Service

21%

Transactions

1%

0

20

40

60

80

100

Page 75

Life insurance disputes

Non-income stream risk

Accepted income stream risk disputes by sales and service channel

Not yet determined

0%

Administration services provider

0%

There were 458 non-income stream risk disputes in 2013-2014, up 7% on last year. Half the disputes about non-income stream risk products related to a decision made by the FSP. The product at the centre of most of these disputes was total and permanent disability insurance (29%). Denial of claim was the most common reason people lodged disputes about this product, followed by delay in claim handling.

2%

Bank Credit provider

0%

Custodial and depository services

0%

Financial advisor / planner

We accepted 88 disputes related to trauma insurance products in 2013-2014. Denial of claim was the most common issue. FOS also accepted 87 term life insurance product disputes and 86 whole of life insurance product disputes. The most common issues for the term life products were denial of claim and incorrect premiums, and for the whole of life products they were denial of claim and failure to follow instructions/agreement.

11%

Friendly society

0%

General insurance broker

1%

General insurer

Life insurers, as the main suppliers of these products, represented the majority (71%) of non-income stream risk product disputes.

6%

Life insurance broker

0%

Life insurer

Accepted non-income stream risk disputes by issue type

69%

MIS operator / fund manager

3%

Research house

0%

Securities dealer

0%

Superannuation fund trustee / advisor

Advice

10%

Charges

5%

0

4%

7%

Disclosure 20

40

60

80

100

Financial Difficulty

0% 51%

FSP Decision 9%

Instructions Non ToR

1%

Privacy & Confidentiality

0%

Service

16%

2%

Transactions 0

Page 76

20

40

60

80

100

Life insurance disputes

Case study Non-disclosure at centre of dispute An applicant seriously injured in a water-skiing accident was denied income protection insurance because of non-disclosure. He brought a dispute to FOS complaining about the FSP’s delay in making a decision. The applicant, who took out the insurance in December 2010, suffered a broken neck and back, head trauma, nerve damage to his arms and a staph infection as a result of the accident in September 2012. In the FSP’s application form for the insurance cover, the applicant ticked ‘no’ in answer to a question in his personal statement about engaging in hazardous pastimes. The question specifically mentioned ‘motor or water sports’, among other activities.

In a further personal statement, the applicant said that he used a ‘bullet’ ski boat with maximum speeds of 147kmh, had participated in boat (water-skiing) racing for 18 years, competed in races monthly and was a member of a water-ski racing club. The FSP wrote to the applicant stating that it would not pay the insurance cover because of the applicant’s failure to disclose his participation in water-ski racing. FOS ascertained that the applicant was clearly informed of his duty of disclosure, that his history of engaging in hazardous pastimes was known and relevant, and that the FSP would not have entered into the contract with the applicant if it had known this information.

Page 77

Traditional trustee service disputes

Traditional trustee service disputes

FOS accepted 21 traditional trustee service disputes in 2013-2014. This was nine more than last year. Of this year’s disputes, 15 related to estate management products and 4 related to trusts. Accepted traditional trustee disputes by product category

Accepted estate management disputes by sales/service channel

7%

Not yet determined

13%

Bank Custodial and depository services MIS operator / fund manager

5%

Not yet determined Estate Management

71%

Estate Planning

5%

20

40

60

80

100

The key issues in estate management disputes were service (33%), instructions (27%) and charges (20%). Accepted estate management disputes by issue type

Advice

7%

Charges

20%

Disclosure

7%

FSP Decision

7%

27%

Instructions Service

33%

0

Page 78

20

40

20%

Research house

7%

Securities dealer

7%

0

19%

Trusts

0

47%

60

80

100

20

40

60

80

100

Last year was our first full year of dealing with traditional trustee service disputes and we have continued to see a very small number of such matters since our jurisdiction expanded on 1 January 2012.

Financial difficulty disputes

Financial difficulty disputes

Financial difficulty occurs when a consumer is unexpectedly unable to meet their repayment obligations. This can be as a result of a variety of causes including accident, separation, death of a family member, unexpected medical or funeral expenses, reduction of work hours, redundancy, or a downturn in business. FOS can consider financial difficulty disputes from individuals and small businesses. In 2013-2014 FOS accepted 4,705 disputes relating to financial difficulty, which was a 9% reduction from last year and 29% less than 2011-2012. Almost all disputes (99%) were in the credit product category. The reduction in disputes are most likely due to several factors including: » improvements financial services providers (FSPs) have made in managing hardship requests and complaints from customers in financial difficulty » c  onsistently low interest rates, which have reduced repayment pressure for many borrowers. The reduction may also reflect a lesser number of consumers requesting financial difficulty assistance from their FSPs or a greater willingness of FSPs to provide financial difficulty assistance if it is requested. In previous years we have seen volatility in the volume of financial difficulty disputes accepted. Volumes trended upwards from 2010 to mid-2012, then downwards until early 2013. In the past 18 months, the volume of these disputes has stabilised. In 2013-2014, the most common financial difficulty disputes were those involving an FSP declining financial difficulty assistance. However, these disputes have declined from 45% in 2011-2012 to 34% in 2013-2014. If an FSP declines a request to provide hardship assistance and the facility is regulated by the National Credit Code, the consumer must be provided with the name and contact details of the FSP’s approved external dispute resolution scheme. It is then up to the consumer if they want the FSP’s decision to be reviewed. Financial difficulty disputes accepted by year 2011-2012

6,626

2012-2013

5,161

2013-2014

4,705

Financial difficulty disputes accepted by sales/service channel

70%

Bank Credit provider

17%

Credit reporting agency

0%

Credit representative

0% 2%

Credit union Custodial and depository services

0%

Debt collector or buyer

2%

Finance broker

0%

Financial advisor / planner

1%

Friendly society

0%

General insurance broker

0%

General insurer

0%

Life insurer

0%

Make a market

0%

MIS operator / fund manager

0%

Mortgage broker

1%

Mortgage manager

0%

Mortgage originator

0%

Non-cash payment system provider

0%

Product distributor

0%

Research house

0%

Securities dealer

0%

Stockbroker

0%

Superannuation fund trustee / advisor

0% 5%

Not yet determined 0

20

40

60

80

100

Page 79

Financial difficulty disputes

Business finance

Financial difficulty disputes accepted by issue

Decline of Financial Difficulty Request

Business finance disputes represented 10% of all financial difficulty disputes accepted in 2013-2014. Of these, 69% related to business loans and 14% to lines of credit/overdraft facilities.

34%

Default Notice

While the volume of financial difficulty disputes involving business facilities was small compared with consumer credit facilities, we have found that dealing with financial difficulty disputes involving business finance facilities can be more complex. The applicants may represent multiple entities and the value of some facilities can be high.

2%

FSP failure to respond to request for assistance Request to Suspend Enforcement Proceedings

33% 30%

Not yet determined

2%

0

20

40

60

80

100

Financial difficulty – products

Business Credit Card

Consumer credit Most financial difficulty disputes are lodged with FOS by individuals, and most of the financial difficulty disputes we accepted related to consumer credit facilities (87%). Of these, 43% related to home loans, 28% to credit cards and 18% to personal loans. It is not uncommon for applicants to lodge financial difficulty disputes in relation to multiple facilities, with one or multiple FSPs. For this reason, it is important that FOS is aware of all the facilities applicants hold to ensure that options being considered are appropriate and consistent with the level of difficulty the applicant may be experiencing. It is also important that applicants are willing to share information about their financial position with their FSPs, because this can help facilitate the earlier resolution of disputes. Consumer Credit Financial difficulty disputes accepted by product

28%

Hire purchase /lease

6%

Home Loans

43%

Investment Property Loans

3%

Line of credit /overdraft

2%

Personal Loans

18%

Short term finance

0%

0

Page 80

20

Commercial bills

1%

Hire purchase /lease Letter of credit

10% 0%

Line of credit /overdraft Non FSP Debt

14% 0%

0

20

40

60

80

100

Financial difficulty outcomes Most financial difficulty disputes are resolved when both parties work together, with FOS’s assistance, to reach an agreement.

Our FOS Approach documents contain detailed information about dealing with financial difficulty disputes. These can be viewed on our website at www.fos.org.au/approach.

0%

Non FSP Debt

69%

Business Loans

Disputes that were outside FOS’s Terms of Reference represented 20% of financial difficulty cases in 2013-2014. Most of these disputes were excluded as a result of debt recovery legal proceedings progressing beyond a point where FOS can consider the dispute. This is also reflected in the legal proceedings dispute section, as the majority of these disputes relate to financial difficulty.

0%

Equity Release

5%

In 2013-2014, 40% of financial difficulty disputes were resolved directly between the FSP and the applicant, and 16% reached an outcome via negotiation facilitated by FOS. Conciliation was used to reach an outcome in 9% of disputes.

Construction 0% Loans Credit Cards

Business finance financial difficulty disputes accepted by product

40

60

80

100

Financial difficulty disputes

Financial difficulty – applicant demographics

Outcomes of financial difficulty accepted disputes

In the table below, we align the total number of financial difficulty disputes with the population data on page 29.

3%

Assessment

Financial difficulty disputes – a state-by-state breakdown 9%

Conciliation Decision in Favour of Applicant

Victoria, New South Wales and Queensland residents were the most likely to lodge financial difficulty disputes in 2013-2014. This is consistent with the overall geographic distribution of disputes received.

4%

Decision in Favour of FSP

2%

Discontinued

A higher proportion of applicants from Queensland lodged financial difficulty disputes compared with other issues.

5%

FSP Offer/ Action Confirmed

In financial difficulty disputes, applicants are most likely to lodge their dispute with FOS through our website. Applicants are also more likely to lodge a financial difficulty dispute by phone compared with other disputes at FOS. We are developing an online option for applicants to enable them to provide more details of their financial position electronically.

0%

16%

Negotiation Outside Terms of Reference

20%

40%

Resolved by FSP 0

20

40

60

80

100

Received disputes – geographic breakdown FD

% FD

All

All exc. FD

% all exc. FD

ACT

65

1%

479

414

2%

NSW

1,760

30%

9,647

7,887

31%

28

0%

182

154

1%

QLD

1,216

21%

5,889

4,673

18%

SA

357

6%

1,790

1,433

6%

NT

TAS

95

2%

420

325

1%

VIC

1,784

30%

9,198

7,414

29%

WA

471

8%

2,665

2,194

9%

Not provided

114

2%

1,087

973

4%

Other Country

38

1%

323

285

1%

31,680

25,752

Total

5,928

Page 81

Financial difficulty disputes

How applicants in financial difficulty heard about FOS 31% of applicants in financial difficulty had already heard about FOS. Most of the others found out about our service through their financial counsellor (13%) or legal aid/free legal service (6%). In 2013-2014, 60% of all dispute referrals to FOS from financial counsellors and 48% of dispute referrals from a charity or church organisation were for reasons of financial difficulty. Received disputes by how applicant heard about FOS Total Not yet determined Already knew about FOS

198 1,853

Another dispute resolution scheme (eg SCT)

171

Charity / Church organisation

62

Community Centre/ Consumer Representative

110

Event/Trade Fair/ Presentation

4

Family/Friends/Colleague (word of mouth)

423

Financial Counsellor

741

Financial Planner

72

FSP I have a dispute with

158

Government Agency (e.g. ACC, ASIC, APRA)

93

Industry Association (e.g. ABA, FPA, IFSA)

9

Legal Aid/Free Legal Service

350

Media (eg newspaper/ magazine)

25

Member of Parliament

14

Newspaper/Magazines

15

Not Provided

724

Phone Directory

32

Solicitor/Legal Professional

303

The Internet

563

Welfare/Migrant Service Total

Page 82

8 5,928

Age of all applicants compared with age of financial difficulty applicants Applicants in financial difficulty disputes are more likely to be in the 40-59 age bracket compared with other disputes. Where applicants in financial difficulty disputes appoint a representative, the representative is less likely to be a family member, and more likely to be a financial counsellor compared with other disputes. This reflects the role financial counsellors play in helping consumers deal with financial difficulty. Applicants in financial difficulty are more likely to lodge disputes jointly. Where the dispute is lodged by a single applicant, it is more likely to be a female applicant compared with other disputes. Our records also show that applicants in financial difficulty disputes are twice as likely to be suffering from a mental illness compared with applicants in other disputes.

Financial difficulty disputes

Received disputes by age of applicant FD

% FD

All

All exc. FD

% all exc. FD

Less than 17 years

5

0%

27

22

0%

18-24 years

175

3%

1,108

933

4%

25-29 years

359

6%

2,535

2,176

8%

30-39 years

1,141

19%

6,520

5,379

21%

40-59 years

2,944

50%

12,708

9,764

38%

60+

735

12%

4,697

3,962

15%

Others

569

10%

4,085

3,516

14%

31,680

25,752

Total

5,928

Received disputes by type of special assistance

Received disputes by type of representative

Accountant

1%

Co-Trustee

0%

Dispute Resolution Agent

Hearing

8%

Literacy

8%

26% 62%

Mental Health 0%

Executor

Physical Impairment

28%

Family or Friend

16%

Sight/Vision Financial Advisor

5%

1%

Financial Counsellor

1%

Text Telephone

23%

0 Legal Guardian

20

40

60

80

100

0%

4%

Not Listed Here

2%

Power of Attorney

13%

Solicitor Trustee affected party

0%

0

20

40

60

80

100

Page 83

Financial difficulty disputes

Case study Consider all facilities in hardship cases A dispute involving an applicant injured in a car accident, and who had a daughter with special needs, was expedited when she experienced financial difficulty. The dispute involved the applicant’s home loan, a supplementary loan (both secured by her home) and a credit card facility. Following the car accident, the applicant relied on insurance payouts to maintain payments on the loans. But when the applicant became involved in a legal dispute with the insurer in relation to a compensation claim, her financial situation worsened and she fell into arrears on the loans and credit card. She sought hardship assistance from the FSP while the compensation claim was processed, and the FSP placed a six-month moratorium on payments for the home loan and supplementary loan. The applicant continued making fortnightly payments on the loans but only sporadic payments on the credit card, and lodged a dispute with FOS. At one stage, the credit card balance was almost $5,600. The applicant met the minimum fortnightly repayments on both loans, but was unable to clear the arrears on the home loan. FOS considered the dispute and found that the FSP had worked with the applicant by delaying

Page 84

payment requirements on her loans. However, when the applicant demonstrated her ability to service the loans, consideration had not been given to capitalising the arrears, and the FSP did not address or mention the credit card in its discussions with the applicant. In our view, the FSP’s consideration should have extended to the credit card, through prompt and early assistance, and we determined that the FSP had failed to meet its obligation to genuinely consider the applicant’s financial difficulty request. We determined that: » t he credit card enforcement fee of $615 and overlimit and late fees totalling $360 be refunded (together with interest charged on those fees) » t he FSP accept $79 per month to reduce the credit card debt and to consider accepting $50 per month to repay the credit card (as requested by the applicant and which it did following the determination), and » t he FSP capitalise the arrears of the applicant’s home loan and recast the fortnightly repayments so that the loan was repaid within its original term (because the applicant had shown she was able to maintain fortnightly payments for this loan).

Legal proceedings disputes

Legal proceedings disputes

In 2013-2014 FOS accepted 1,677 legal proceedings disputes, which was 13% less than last year, and closed 12% less disputes than last year. Legal proceedings disputes are where a financial services provider (FSP) has begun debt recovery legal proceedings against an applicant in court prior to the dispute being lodged with FOS. We can consider these disputes as long as the applicant has not taken a step beyond lodging a defence or a defence and counterclaim in those proceedings.

Legal proceedings disputes by year 2500

1,677 1,453

1500

1000

We have a process to help us identify disputes where legal proceedings disputes have begun, and once they are identified we treat these disputes as urgent and expedite them through our dispute resolution process.

500

As these disputes relate to debt recovery, financial difficulty remains the most common issue in legal proceedings disputes. See page 79 for an outline of the reasons behind a reduction in financial difficulty disputes during 2013-2014.

1,925

2000

FOS has been able to consider these disputes since January 2010. Before then, the FOS Terms of Reference excluded such disputes.

For more information please see our Operational Guidelines to the Terms of Reference, which can be found on our website at www.fos.org.au/tor.

2,328

0

446

2009-10

2010-11

2011-12

2012-13

2013-14

Page 85

Legal proceedings disputes

Products

Legal proceedings disputes by sales/service channel

Bank

74%

In these disputes, the legal proceedings generally seek judgment for possession of the family home so that the property can be sold and the proceeds applied to repay the outstanding debt.

8%

Credit provider 2%

Credit union Custodial and depository services

The vast majority (98%) of accepted legal proceedings disputes during 2013-2014 were about credit products, with 85% of these relating to consumer credit products. Most (56%) of those related to home loans.

0%

Debt collector or buyer

A smaller proportion of legal proceedings disputes related to unsecured facilities – 14% to credit cards, 8% to personal loans (some personal loans may be secured by vehicles or equipment) and 7% to business loans.

5%

Finance broker

0%

Financial advisor / planner

1%

Friendly society

0%

General insurer

1%

Make a market

0%

MIS operator / fund manager

1%

Mortgag broker

1%

Mortgage manager

0%

Mortgage originator

0%

Product distributor

0%

Research house

Legal proceedings disputes by product category Total Not yet determined

15

Business Finance

183

Consumer Credit

1,640

Current Accounts

3

Direct Transfer

1

Domestic Insurance

16

Guarantees

40

Income Stream Risk Managed Investments

1 10

Margin Loans

1

Non ToR

8

0%

Professional Indemnity Insurance

1

Securities dealer

0%

Savings Accounts

3

Trustee

0%

Securities

1

Trusts

1

5%

Not yet determined 0

Page 86

Total 20

40

60

80

100

1,924

Legal proceedings disputes

Issues

Outcomes

In 2013-2014, the predominant issue category in legal proceedings disputes was financial difficulty (86%). The most common issues within that category were applicant requests for an FSP to suspend enforcement proceedings (59%), followed by an FSP declining a request for financial difficulty (13%) and failure of an FSP to respond to a request for assistance (13%).

During 2013-2014, 39% of legal proceedings disputes were outside our jurisdiction. The most common reason for this was that a court order had been issued before the dispute was lodged. For this reason it is important for applicants to contact their FSP quickly if they are experiencing difficulty making repayments on their loan. If the applicant is not satisfied with the consideration given by their FSP following this contact, it is equally important that they do not delay lodging a dispute with FOS.

Legal proceedings disputes by issue type Total Advice

5

Charges

32

Disclosure Financial Difficulty FSP Decision

16 1,659

Legal proceedings disputes by outcome

143

Instructions

21

Non ToR

11

Privacy & Confidentiality

14

Service

17

Transactions

6

Total

Of the legal proceedings disputes that FOS considered, a significant number were resolved between FSPs and applicants (29%), with FOS also conciliating outcomes in 12% and negotiated settlements in 8% of disputes.

1,924

Total Assessment

9

Conciliation

214

Decision in Favour of Applicant

54

Decision in Favour of FSP

29

Discontinued

112

FSP Offer/Action Confirmed

5

Negotiation

148

Outside Terms of Reference

703

Resolved by FSP

528

Total

1,802

Page 87

Legal proceedings disputes

Demographics People aged 40 to 59 were most likely to lodge legal proceedings disputes with FOS. As in previous years, most of the disputes involving people in this age bracket related to debt recovery legal proceedings in which the FSP was seeking to take possession of the family home. This adds a deal of complexity because the timeframes for a loan to be repaid, before applicants retire, is shorter than for people in younger age brackets. Changes to legal proceedings dispute jurisdiction Following an ASIC review finalised in June 2013, the rules for access to external dispute resolution schemes were changed for small business borrowers during 2013-2014. From January 2014, FOS no longer considers legal proceedings disputes relating to small business credit contracts where the contract the subject of the dispute exceeds $2 million. Our Terms of Reference were amended in 2013-2014 to reflect this change. More information is available in our Operational Guidelines to the Terms of Reference on our website at www.fos.org.au/tor.

Page 88

Conciliation conferences

Conciliation conferences

FOS has a team of specialist conciliators who conduct regular telephone conciliation conferences to resolve disputes involving financial difficulty, general insurance, investments, superannuation, life insurance, stockbroking and banking and finance matters. Conciliation conferences provide an informal forum in which the parties can discuss all issues in dispute and provide the opportunity to develop and assess potential options for resolving the dispute by agreement. In 2013-2014, FOS conducted 1,105 telephone conciliation conferences, which was a 7% decrease from 2012-2013. Of the disputes that went to conciliation, 71% were resolved at this stage (compared with 69% the previous year). The resolution rate varies depending on the issues in dispute. For example, financial difficulty disputes tend to have a higher resolution rate than disputes involving banking and finance products where financial difficulty is not a factor.

New initiatives FOS conciliators played a major role in reducing the backlog in banking and finance disputes during 2013-2014. As part of our drive to reduce dispute queues, the conciliators were referred 30 disputes a month, assisted the parties to negotiate and, where necessary, drafted written decisions. FOS conciliators also ran mediation skills workshops to train selected staff from other FOS teams.

Feedback and peer review All participants in FOS telephone conciliation conferences are invited to complete a survey to allow parties to provide feedback and measure satisfaction with the process. In 93% of cases, respondents said that the role of the conciliator was positive. In 95% of cases their experience during the FOS conciliation conference was positive, and in 89% of cases respondents said their overall experience of the FOS conciliation process was positive.

Case study Calming the waters An insurance dispute involving damage to a boat engine caused by marine animals was resolved by conciliation.

rapport during the telephone conciliation conference which enabled the FSP and applicant to understand each other’s perspective.

The damage happened at a marina when marine animals caused seaweed to block the bilge pump of the twin-hulled boat while the applicant was overseas.

In private sessions, the conciliator discussed with the parties the ways in which a decision maker may approach the dispute. Over the course of the 90-minute conference, which included joint and private sessions, the parties were able to identify common interests which enabled them to work collaboratively to achieve a resolution.

The financial services provider (FSP) refused to pay the applicant’s claim because it said the animal causing the damage was excluded under the policy. The applicant, who had a long history as a customer of the FSP, took the boat to dry dock and paid $17,000 for the repairs. The FSP did not take the opportunity to assess the damage before the repairs were undertaken. When the dispute was referred to conciliation, the FOS conciliator found that both parties were boating enthusiasts. The conciliator developed this

Both parties took into account the benefits of resolving the dispute through conciliation, including the opportunity to avoid the time, money and inconvenience of continuing to an Ombudsman determination. This enabled the parties to evaluate their own positions and ultimately determine for themselves the potential resolution options. The dispute was resolved when it was agreed that the FSP would pay the applicant $8,000.

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Systematic issues and serious misconduct

Systemic issues & serious misconduct

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Systematic issues and serious misconduct

Systemic issues and serious misconduct

In addition to our core business of resolving disputes, FOS is required by ASIC Regulatory Guide 139 to identify, resolve and report on systemic issues and to notify ASIC of cases of serious misconduct. A systemic issue is defined in our Terms of Reference as an issue that will have an effect on people beyond the parties to a dispute. Serious misconduct is defined as conduct that may be fraudulent or grossly negligent or may involve wilful breaches of applicable laws or obligations. Identifying systemic issues gives FOS the chance to help financial services providers (FSPs) fix the issues, raise industry standards and help consumers obtain fair compensation for financial losses.

Our systemic issues process

1

IDENTIFY a possible systemic issue (1,903 referrals in 2013-2014) FOS staff consider whether each dispute raises any issues that could affect a wider group of people. Systemic issues can be identified by staff at any stage of the dispute resolution process.

2 REFER the issue to the FSP (162 cases in 2013-2014) Once a possible systemic issue is identified, we provide details of the issue to the relevant FSP, ask for further information and invite the FSP to respond formally.

3 ASSESS whether it is a definite systemic issue (57 cases were definite systemic issues in 2013-2014) We assess the FSP’s response and determine whether the issue is definitely systemic. Our systemic issues staff carry out investigations in consultation with the relevant Ombudsman. If we decide that it is a systemic issue, we manage its resolution in conjunction with the FSP. If we decide that an issue is not systemic (105 cases in 2013-2014), the matter is concluded, although we may reconsider it if new information becomes available.

4 RESOLVE the issue through collaboration with the FSP (54 cases in 2013-2014) We work with the FSP to resolve the systemic issue. This requires the FSP, where appropriate, to: » identify all affected customers  ompensate the affected customers fairly for any financial loss, and » c » implement a strategy to prevent the problem from recurring.

5 REPORT the issue to ASIC We provide quarterly reports to ASIC on the numbers of possible and definite systemic issues we have identified, and on the nature, progress and resolution of definite systemic issues. FSPs are not named in these reports. FOS identifies an FSP in a report to ASIC only if the FSP has not dealt with a definite systemic issue to the satisfaction of the relevant Ombudsman or if it is a case of serious misconduct. Page 91

Systematic issues and serious misconduct

Systemic issues and serious misconduct cases this year The systemic issues team received 1,903 referrals of possible systemic issues from FOS dispute handling teams in 2013-2014 (compared with 1,250 last year). This included multiple referrals of the same issues. Staff are regularly reminded of FOS’s systemic issues obligation and encouraged to refer any disputes of concern. The systemic issues team uses a thorough assessment process to decide whether a matter should be referred to an FSP for response. This means that some referrals are escalated and some are not. In 2013-2014, we identified and referred 162 possible systemic to FSPs for response (compared with 128 last year), and resolved a total of 54 definite systemic issues (compared with 37 last year). Some of the possible and definite systemic issues identified in 2013-2014 were still being investigated at the end of the year. For the 54 systemic issues resolved this year: » a  lmost 422,000 customers were identified by FSPs as having been directly affected » $  337,000 was refunded following direct FOS involvement » $  75 million was refunded from issues identified at FOS (in some cases, the issues identified from FOS disputes may have already been remediated by the FSP or been subject to ASIC involvement) » 4  ,800 incorrectly-made credit listings were corrected or removed » 182,000 points in reward schemes were reimbursed. We determined that 105 referred issues were not systemic but in many cases a positive outcome was achieved from the referral, including: » g  reater consistency across the FSP’s customer communications, updated template letters and simpler internal FSP communications for dispute correspondence » improved training and policies for dealing with customers in financial difficulty » fees reimbursed to customers for a service not delivered » improvements made to collections systems to ensure that default listings cannot be added after judgment has been obtained » r evised policies, procedures and training where necessary to ensure compliance with external dispute resolution obligations including ensuring that no costs relating to disputes are passed on to complainants and that FOS requests for information are met within appropriate timeframes. We reported 11 cases of serious misconduct to ASIC in 2013-2014.

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Common issues 1. P  olicies for dealing with customers in financial difficulty Key focus areas were: » c  oncerns about continuing collections activity when a customer has requested the release of superannuation funds to clear loan arrears » F  SPs failing to consider a single borrower’s request for hardship assistance when they are party to a joint loan but estranged from their co-borrower » lack of formal procedures in place for dealing with hardship requests arising out of commercial loans or loans not regulated by the National Credit Code » F  SPs breaching clause 13.2 of our Terms of Reference by failing to stop collections activity after a dispute has been referred to FOS » inconsistent charging of application fees when a hardship variation is approved by an FSP » inappropriate procedures for considering hardship requests made by guarantors. 2. Conduct of employees and authorised representatives Examples of concerns that were raised included: » failure to deliver annual reviews to clients despite their payment of annual review fees » a  uthorised representatives providing inappropriate financial advice to clients as a consequence of a lack of FSP supervision » failure to have a reasonable basis for advice or to comply with the ‘best interests’ duty » failure to provide a Statement of Advice or other documentation within a reasonable time. 3. Improper collection activity Key issues in this area were: » w  hether FSPs have appropriate policies and procedures in place for conducting debt collection against minors » issuing default notices inappropriately when customers are complying with repayment arrangements following their notification of financial difficulty » levying an arrears follow-up fee in relation to debt recovery undertaken after a customer has referred their dispute to FOS » t elephone calls or SMS messages from automated systems that do not comply with the ASIC/ACCC Debt Collection Guidelines for contact with debtors because they resulted in excessive contact » inappropriately passing on to customers the costs involved in dispute resolution.

Systematic issues and serious misconduct

Case study Errors in credit listings Several instances of incorrect credit listings identified during the FOS dispute process were found to be systemic issues in 2013-2014. In one instance the FSP entered a default listing on the applicant’s personal credit file for an amount that was not 60 days overdue. FOS examined the default notice sent to the applicant and found that it was not compliant with the relevant section of the National Credit Code because it did not comply with the strict requirement to provide specific information about the debtor’s rights. We asked the FSP to provide its policies and procedures for entering credit listings, to comment on concerns that its default notice was not compliant, to confirm how many listings had been made in the previous five years, and to review any listings made for amounts that were not 60 days overdue. The FSP told FOS that its default notice did not meet the requirements of section 88 of the National Credit Code and that about 70% of the credit listings had been entered in error. As a result of the investigation, the FSP removed or amended the credit listings that had been made in error.

maiden names, name changes, identity fraud and manipulated identity fraud. However, the FSP also acknowledged that some serious credit infringement listings were made in circumstances where a reasonable person would not consider that the debtor had shown an intention to no longer comply with their obligations in relation to credit. In order to resolve this particular issue, the FSP confirmed it had reconsidered its approach to the listing of serious credit infringements and had implemented a policy change to reflect this new approach. Based on the policy change, the FSP also confirmed it would remove all serious credit infringement listings it had made in the past. In another case, an applicant tried unsuccessfully to obtain credit after a default listing was placed on his personal credit file. This happened after judgment was obtained for amounts owed by the applicant to the FSP.

In another definite systemic issue, we found that an FSP had made a number of default and serious credit infringement listings in error.

In FOS’s view, the effect of a court judgment is that the underlying basis of the debt (the credit contract) merges in the judgment. This means that we consider an FSP cannot list a default after judgment has been obtained, as the requirement for the default to be pursuant to the credit agreement has not been met. On this basis, we determined that this was a definite systemic issue.

The FSP told us that a portion of the errors were the result of defaulting cross-referenced credit files as well as credit files directly associated with customers. A cross-referenced file is one that is identified as a match with a customer. Cases where a cross-referenced file exists may include

The FSP confirmed that about 500 default listings had been made after judgment was obtained. As a result of our investigation, the FSP arranged for the incorrectly made listings to be removed, and took steps to change its processes so that the issue didn’t recur.

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Systematic issues and serious misconduct

Case study

Processing errors on offset accounts Several disputes were referred as potential systemic issues regarding calculation of interest on home loan and linked offset accounts. One such issue arose from a dispute in which an applicant was concerned that his offset account had been linked to his mortgage loan improperly and, as a result, interest to his mortgage loan was not being calculated correctly. The FSP had told the applicant that all offset accounts had been audited and monitored. FOS wrote to the FSP to find out if the audit had revealed if other customers had experienced financial loss as a result of an incorrect linkage of loan and offset accounts. The FSP said that the audit and subsequent investigation revealed that a number of loan accounts were set up incorrectly. Interest rate adjustments totalling more than $11,000 were

made to the affected accounts in order to make good any financial loss that had been experienced. Another FSP notified FOS of a similar issue, saying that it had begun investigating and remediating home loan customers with offset accounts and had been liaising with ASIC since the issue was identified. The errors involved loan accounts being unlinked from offset accounts and interest rate discounts not being applied. Both were due to process failures. The FSP provided FOS with a list of disputes affected by the errors, information about the remediation program, and an explanation of the system and process changes it had made to resolve incidents of overcharging of interest on customer mortgage accounts.

Case study

Failure to include stamp duty calculation The definition of ‘market value’ in motor vehicle policies and how that applies to vehicles written off in accidents was the subject of two systemic issues identified in 2013-2014. The possible systemic issue was identified by FOS when examining a general insurance dispute. Staff noticed that the FSP’s policy wording was ambiguous. It was not clear whether all costs – including stamp duty and transfer fees – were included in the vehicle’s replacement cost (in the event of total loss). FOS took the view that replacement cost implies the ‘price paid to acquire’ a vehicle of the same make, model, age and condition as that written off. On this basis, replacement cost would include stamp duty and transfer fees. We wrote to the FSP and asked it to comment on its apparent practice of not including all costs when calculating a vehicle’s replacement cost in the event of total loss. The FSP said that it had changed the definitions within its policies on the basis that it understood that when determining disputes, FOS would assess market value to include stamp duty and transfer fees unless the relevant wording was clear that these items were to be excluded.

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The FSP went on to confirm that it had identified thirteen claims that had been paid which had not included stamp duty and the transfer fee. The FSP said that in order to resolve the issue it would contact the affected customers and arrange for the relevant stamp duty and transfer fee amounts to be paid. It also confirmed that it would refer any such future claims to its management to ensure the settlement of claims was correct. The identical issue was referred to another FSP, on the basis of another FOS determination which found in favour of the applicant The FSP told FOS that a number of relevant policies also contained ambiguous wording and so we wrote to the FSP asking it to review claims paid under these policies to ensure that payment included stamp duty and transfer fees. The FSP told us that more than 380 customers had been affected by its previous practice and that it in order to resolve the systemic issue it would review all of these claims and reimburse approximately $280,000 to the affected customers.

Systematic issues and serious misconduct

Code compliance & monitoring

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Code compliance and monitoring

Code compliance and monitoring

The Code Compliance and Monitoring team is a separately operated and funded business unit of FOS. The team administers and monitors compliance with four industry codes of practice:

Codes of practice set standards of good industry practice for financial services providers (FSPs) to follow when dealing with people who are, or who may become, individual or business customers. Industry codes can therefore play a vital role in enhancing trust between consumers and FSPs. They are the means by which industry bodies and their members can complement formal law and regulation in areas relating to service provision, standards of professional conduct, practice standards and ethical behaviour.

» C  ode of Banking Practice » C  ustomer Owned Banking Code of Practice » G  eneral Insurance Code of Practice, and » Insurance Brokers’ Code of Practice. Our Code Compliance and Monitoring team supports independent code compliance committees who monitor compliance with these standards. The team’s services are funded by the industry associations responsible for the four codes and by Code subscribers, pursuant to a range of service level agreements.

Most industry codes are ‘technology neutral’ and can respond to changing business models in the financial sector, including the transition from face-to-face interaction with customers to digitalised services. This makes industry codes useful for addressing new and emerging issues, such as electronic transactions.

Code of Banking Practice Subscribers 13 banking groups (18 banks) Coverage Individual and small business customers Overseen by Code Compliance Monitoring Committee

Customer Owned Banking Code of Practice Subscribers 90 institutions

Code compliance and monitoring team

Coverage Individual and small business customers Overseen by Customer Owned Banking Code Compliance Committee

General Insurance Code of Practice Subscribers 151 general insurers and Lloyd’s Australia coverholders Coverage Policyholders, third party beneficiaries and uninsured third parties (debt recovery) Overseen by General Insurance Code Compliance Committee (replaced by the Code Governance Committee from 1 July 2014)

Insurance Brokers’ Code of Practice Subscribers 363 insurance brokers Coverage All customers Overseen by Insurance Brokers Code Compliance Committee (since 1 January 2014)

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Code compliance and monitoring

Overview In total, 617 FSPs subscribed to the four codes in 2013-2014. This number comprised 13 banking groups (representing 18 banks), 90 customer owned banking institutions such as credit unions and mutual banks, 151 general insurers, coverholders and claims administrators, and 363 insurance brokers. Each code subscriber has made a commitment to: » w  ork to improve the standards of practice and service in their industry » promote informed decisions about their services » act fairly and reasonably in delivering those services. Code monitoring activities are overseen by Code Compliance Committees, which consist of an independent Chair, a consumer representative and an industry representative. In our experience, this composition facilitates transparency and accountability in code monitoring and governance. The committees are independent of the industries that are responsible for these codes, and they have powers and functions to identify and address breaches of Code obligations. FOS provides secretariat, code monitoring and investigation services to each of these committees, which met on 25 occasions in 2013-2014.

Monitoring compliance In 2013-2014, a total of 589 Code subscribers were asked to respond to an Annual Compliance Statement (ACS) relevant to their Code’s obligations. The questionnaires asked them to report on the operation and effectiveness of the Code monitoring frameworks within their organisations. During this process, Code subscribers self-identified 15,307 breaches of Code obligations. Results of the ACS programs and the trends and emerging risks in Code compliance were reported back to industry and other stakeholders in annual reports published for each code between October 2013 and April 2014. The team assessed the Code monitoring programs of 135 FSPs during 2013–2014. These comprised 14 onsite and 43 teleconference assessments in addition to 78 desk top audits. These assessments allowed us to: » h  ave in-depth, face-to-face discussions with Code subscribers about Code compliance monitoring within their organisation » v  erify compliance information received during the year as a result of our other activities » p  rovide specific feedback for improvement to subscribers deemed to be at risk of non-compliance » d  iscuss complaint and breach systems, complaints handling, Code breach identification and reporting, staff training and promotion of the revised Codes

 ssess the effectiveness of the Code compliance » a monitoring frameworks of the organisations in more detail. The Code Compliance and Monitoring team was involved in three Own Motion Inquiries into Code compliance. The inquiries were targeted reviews to assess how effectively subscribers complied with specific Code obligations in relation to Chargebacks (banks), Financial Difficulty (customer owned banking institutions) and Code Training (insurance brokers). Risk-based assessments are carried out to decide whether such inquiries should take place. Participating subscribers are asked to supply relevant information to assist the inquiry, while market research (such as mystery shopping) may also be undertaken to determine compliance with the obligations. Engagement is also carried out with consumer advocates to better understand issues faced by clients. Inquiry outcomes are published in de-identified reports by the relevant committee and compliance discussions are conducted with individual Code subscribers. The reports can be found on the following websites: www.fos.org.au/about-us/codes-of-practice www.ccmc.org.au, or www.cccmutuals.org.au.

Significant breaches of the Code Significant breaches of Code obligations usually require a number of customers to have been impacted by the conduct or activity and to have suffered loss. They also require more extensive remedial action to be undertaken by the subscriber to correct the non-compliant conduct and to reduce the likelihood of recurrence. The Code Compliance and Monitoring team dealt with 46 breaches of the Codes during 2013-2014 which were assessed as ‘significant’. In banking, 12 significant breaches of Code obligations were self-reported in 2013–2014 by banks which identified more than 200,000 customers affected. While a number of these significant breaches did not result in loss to customers, banks confirmed that more than $12 million was refunded to customers in relation to some of these breaches. Issues related to IT systems caused several of these breaches. For example, a systems error at a third party provider led to home mortgage statements being sent to incorrect customer addresses, which resulted in a breach of customer confidentiality. Affected customers were notified and corrective actions to prevent a recurrence were implemented. In its report, the Code Compliance Monitoring Committee emphasised to banks the need for close monitoring to reduce the risks associated with system failures. In general insurance, 13 breaches were considered to be significant, affecting 19,444 customers and resulting in $767,659 being returned by insurers.

» m  ake recommendations to individual participants, and

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Code compliance and monitoring

In 2013-2014, the Annual Compliance Statement program for customer owned banking institutions and insurance brokers requested details of significant breaches for the first time. One of the 16 significant breaches reported by customer owned institutions related to the in-branch advertising of loan interest rates that did not include a reference to a comparison rate as required by the National Credit Code. Corrective actions were implemented including the removal of the unauthorised material. Out of five significant breaches reported by insurance brokers, one related to the incorrect processing of $60,000 of fees and commissions on refund premiums. The error was corrected within 24 hours and refunds were submitted to clients.

Investigating alleged breaches Investigating breach allegations is part of the financial services industry’s consumer protection framework. In many cases, breach allegations are made by individual customers or financial counsellors. This is particularly important because Code obligations may form part of the terms and conditions that exist between a subscriber and their individual and small business customers. The rectification of breaches as a result of these investigations may lead to improvements in systems, processes and procedures and prevent recurrence of these breaches. Where an individual has suffered detriment, identification of breaches through these investigations may also lead to the remediation of loss. Identifying breaches may also provide an early indication of where issues are emerging across the industry. Issues identified in this manner are used in part to inform decisions about where monitoring activity should be applied. In 2013-2014, we conducted 232 investigations into allegations that an FSP had breached one or more Code obligations. There were 84 confirmed breaches across the four Codes identified as a result of our investigations activity. The Code subscribers responsible for each breach took action to remedy the non-compliance and prevent similar breaches occurring again. Some of the key findings from investigations into the Code of Banking Practice’s provision of credit obligations were: » a  customer profile may necessitate inquiries beyond the bank’s standard credit assessment processes » p  rovision of credit obligations apply to guarantors too » legal advice to guarantors must be independent of the bank and the guarantor » b  ank processes should record advice from the bank to guarantors/borrowers about their risk and the consumer’s understanding of the risk, and

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» in some cases, banks should not grant a facility unless independent advice is obtained or expressly declined regardless of whether similar advice has previously been obtained.

Code governance frameworks The team was involved in three independent reviews of respective Codes of Practice in 2013-2014 in the insurance broking, customer owned banking and general insurance sectors. With the participation of all stakeholders, these reviews have led to the development of revised Codes and enhanced governance frameworks. Two new independent code compliance committees have been established as a result of these reviews, in the Insurance Broking and General Insurance sectors. FOS will provide code monitoring, secretariat and administrative services to these committees.

Code transition In 2013-2014, the team assisted Code subscribers to transition to revised codes of practice: » T  he Insurance Brokers Code of Practice came into operation on 1 January 2014, replacing the 2007 version (transition to 1 July 2014). » T  he Customer Owned Banking Code of Practice came into operation on 1 January 2014 following an independent review of the Code’s predecessor, the 2010 Mutual Banking Code of Practice (transition to 1 July 2014). » T  he revised 2013 Code of Banking Practice came into operation on 1 February 2014, following a 12 month transition. We have been working closely with Code subscribers to help them understand and interpret their new Code obligations, and to adapt their internal monitoring and compliance frameworks to accommodate the revised Code provisions. We offered support through our stakeholder forums, teleconferences and onsite visits as well as through a range of guides and checklists produced specifically to support Code transition. We also worked with consumer advocates and financial counsellors to keep them informed of key changes in the Codes, through our training initiatives and presentations at industry conferences and events. The 2014 General Insurance Code of Practice commenced operation on 1 July 2014, with a 12 month transition to follow.

Industry engagement In 2013-2014, we extended the breadth and depth of our engagement with stakeholders to encourage positive changes in industry behaviour, share our experience of Code compliance, and highlight areas of good industry practice and service delivery.

Code compliance and monitoring

Significant initiatives for the year included the annual Bank Forum of the Code Compliance Monitoring Committee, attended by 18 participants representing 13 banks. Hosted by the National Australia Bank in its Melbourne offices, the forum provided participants with the opportunity to discuss the work program of the Code Compliance Monitoring Committee (banking) and hear a range of speakers from industry. Three Bank Stakeholder Liaison Group teleconferences held throughout the year complemented the forum, allowing attendees to discuss Code compliance issues. The team attended Insurance Council Australia’s Code Reference Group three times in 2013-2014 to discuss General Insurance industry data (including aggregated breach data) and FSP’s transition to the revised Code of Practice.

Consumer advocate and financial counsellor training In 2013-2014, we developed training and other professional development and awareness modules specifically for consumer advocates and financial counsellors. These were well received by the sector.

Code Compliance and Monitoring team – the numbers at a glance 4

Codes of Practice

4

Independent Oversight Committees

25

Committee meetings

2

Websites maintained

617

FSPs subscribing to the Codes

6

Annual reports published

589 Annual Compliance Statements completed and reviewed 78

Desktop audits completed

15,307 Code breaches reported

We delivered our training program throughout the year in a range of forums:

46

» p  rofessional development for financial counsellors in codes of practice (in partnership with the Financial and Consumer Rights Council)

57 Onsite visits and verification teleconferences

» C  ode of Banking Practice at the Financial Counselling Australia Annual conference, and » C  ode training to financial counsellors in Melbourne and Sydney with the Credit Ombudsman Service (COSL) and other ombudsman schemes in the telecommunications, water and energy sectors. To supplement our training program we partnered with other ombudsman schemes to develop a pocketsize ‘toolkit’. The toolkit provides a series of useful references regarding Code obligations and contact details that advocates can readily access when assisting their clients. In addition, we consulted regularly with consumer groups to inform and develop the scope of Code monitoring activities.

Breaches assessed as significant

3

Own Motion inquiries

232

Compliance investigations

84 Breaches of Codes identified through investigations 66 Meetings with regulators, industry associations, consumer advocates and other stakeholders 25 Information bulletins and other publications issued 28 Presentations and training sessions conducted

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Code compliance and monitoring

Case study Delays unacceptable for travel claims A significant breach of the General Insurance Code of Practice occurred when about 2,700 customers experienced delays in the handling of their travel insurance claims. This affected customers whose claims were considered to be of a high value (more than $1000), representing about 15% of the FSP’s travel insurance claims. Under the Code, the FSP must notify customers within 10 business days of submitting a claim about the detailed information needed to make a decision on the claim, and approximately how long the decision will take. Once the FSP has all the information and details it needs, it must then decide whether to accept or deny the claim and notify a customer of its decision within 10 business days. The FSP self-reported that it had breached the Code as it had not handled these claims within the relevant time frames. The FSP said the delays had occurred because of an unanticipated and unusual increase in the volume of claims, unplanned leave taken by senior staff and delays in employing adequately trained replacement staff.

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The claims department further failed to report the delays to the FSP’s compliance team for several months. After it was reported, the Code team worked with the FSP to introduce several key initiatives to ensure compliance with the Code’s claims handling standards and to remove the backlog of claims that had not been dealt with in accordance with the expected time frames. We were satisfied that the customers had not suffered any financial detriment as a result of the breach. Remedial action included: » A  uthorising overtime and recruiting additional permanent and temporary claims staff, as well as seconding staff from other teams. » Improving governance and internal awareness of the FSP’s incident reporting policy. » C  loser monitoring of the claims department by its compliance and quality assurance teams. » Introducing assurance measures in the claims department to help identify files that are not processed within standard services timeframes. » U  ndertaking a review of the FSP’s claims handling processes.

Code compliance and monitoring

Corporate governance

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Corporate governance

Corporate governance

FOS prides itself on independence, integrity and transparency in all aspects of its operations, and applies the principles of good corporate governance to the running of the company. We consider the ASX Corporate Governance Principles and Recommendations, 3rd Edition, sets the benchmark for a high standard of corporate governance in Australia. The rest of this section explains how we apply the Principles and Recommendations issued by the ASX Corporate Governance Council to FOS’s own operations.

Principle 1: Lay solid foundations for management and oversight Functions reserved by the Board and those delegated to management Since the inception of the company, the FOS Board has adopted a Charter that governs its operations and clearly delineates the responsibilities of the Board and of senior management. The role of the Board is to monitor the performance of FOS, provide direction to the Chief Ombudsman on policy matters, set the budget, and review from time to time the Terms of Reference, including the jurisdictional limits of FOS. The Board does not involve itself in the detail of disputes lodged at FOS, as that would prejudice the independence of the Ombudsmen. The decisions of the Ombudsmen are free of any interference from the Board. The Board has two committees to assist it in its role – the Finance and Risk Management Committee and the Nominations and Remuneration Committee. The role of management is to implement the strategic direction provided by the Board and to ensure that FOS provides its EDR services within the terms of its approval from ASIC. Appointment of directors The Nominations and Remuneration Committee Charter sets out the process to be followed by the Board when appointing or reappointing directors and other Board appointees.

Written terms of appointment Written agreements set out the terms of each appointment of FOS Board directors and senior executives. Direct accountability of Company Secretary to Board for proper functioning of the Board As set out in the Board Charter, the FOS Company Secretary is appointed by, and accountable to, the Board and may advise the Chair, the Board, its Committees and individual directors on matters of governance process. Diversity policy The FOS Diversity Policy and Procedures are available via the Careers page on our website (www.fos.org.au/careers) and reflect our commitment to diversity at all levels in the FOS workplace. Evaluation of performance of FOS Board The Nominations & Remuneration Committee of the Board ensures a robust system of performance evaluation is in place for Board appointees and the Board itself. To date, the performance evaluation has been a self-assessment, but in the 2014-2015 financial year the Board intends to engage an external consultant to perform the assessment. Evaluation of performance of FOS senior management Since FOS began operating in 2008, all employees of FOS, including senior managers, have been subject to a performance evaluation process. The line manager of an employee conducts the performance evaluation, with the Chief Ombudsman responsible for the performance evaluation of the senior managers reporting to him. The performance evaluation of the Chief Ombudsman is conducted by the Chair of the Board.

Principle 2: Structure the Board to add value The FOS Board of Directors The majority of FOS Directors have been in office since 1 June 2009, except: » R  obert Belleville – appointed on 25 January 2010 » J  ennifer Darbyshire and Christopher McRae – both appointed on 8 June 2012 » J  enni Mack – retired 31 May 2014, and » E  lissa Freeman – appointed on 1 June 2014.

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Corporate governance

Professor The Honourable Michael Lavarch AO – LLB (QUT) Michael Lavarch was appointed a Transition Director on incorporation of the company, for a term expiring on 31 May 2009, and when the new Board was formed on 1 June 2009 he was appointed a director and Independent Chair of the Board. He was re-appointed as Chair of the Board on 1 May 2012 for a further three-year term. Michael is the Commissioner, Risk Analysis and Investigation, for the Australian Skills Quality Authority. Michael is formerly Executive Dean of the Faculty of Law at the Queensland University of Technology. He is a former Federal Attorney-General and a former Secretary-General of the Law Council of Australia. He has extensive board experience, having held public and private company directorships, and is currently Chief Adjudicator of the Alcohol Beverages Advertising Code adjudication panel. In 2012, Michael was appointed an Officer of the Order of Australia for distinguished service to law, education and human rights. Robert Belleville – MBA Robert Belleville was appointed an Industry Director on 25 February 2010 and reappointed for a further term of three years on 15 February 2013. Robert is a member of the Insurance Manufacturers of Australia (IMA) Board and is Chair of the IMA Board Risk Committee and a member of its Audit Committee. He was employed by AAMI for more than 37 years, culminating in his appointment as Chief Executive Officer in 2002. Soon afterwards he added the position of Chief Executive of Promina’s Direct Division, adding APIA, Shannons and Just Car Insurance to his responsibilities. Following the successful offer by Suncorp to take over Promina, Robert was appointed Group Executive, Personal Lines, which added GIO and Suncorp portfolios to his oversight. Despite retiring in December 2008, Robert stayed on with Suncorp as a part-time consultant until September 2009. David Coorey – BA, LLB (UNSW) David Coorey was appointed a Consumers’ Director on 1 June 2009 and reappointed for a further term of three years on 11 May 2012. He is a senior lawyer with the Consumer Law team of the Civil Litigation section of the Legal Aid Commission of NSW, which he joined in 2002. Since commencing with the

Legal Aid Commission, he has been actively involved in policy work in consumer law, with particular interest in policy issues that affect consumers of insurance products. He previously worked with the law firm Freehills for more than three years, including a one-year pro bono secondment to Kingsford Legal Centre. He is also a former member of the Insurance Council of Australia Consumer Reference Group. David has worked in various areas of civil law, including insurance, credit, consumer and trade practices litigation, as well as human rights and discrimination law. Jennifer Darbyshire – BA, LLB (Hons), LLM (London), GAICD Jennifer Darbyshire was appointed an Industry Director on 8 June 2012. Jennifer is General Counsel and Company Secretary for National Australia Bank’s UK Banking Operations. She previously led NAB’s Product Regulation Resolution team, providing strategic legal advice across NAB’s Australian and Asian operations and playing a key role in identifying and managing legal risks. In this role, Jennifer managed major litigation and large scale non-litigious disputes. Jennifer is Chair of Heide Museum of Modern Art and from 2006 to 2011 was a director of St Vincent’s & Mercy Private Hospital. Jennifer has previously worked in private legal practice (including Mallesons in Melbourne and Linklaters in London) and in major Australian corporations (including Coles Myer). She has a corporate legal and executive background with extensive regulatory, governance and transactional experience. Elissa Freeman – BA (UNSW) Elissa Freeman was appointed a Consumers’ Director on 21 February 2014 and commenced in the role on 1 June 2014. Elissa is a prominent consumer advocate and is Manager of Consumer Policy at CHOICE. Elissa has advocated for consumers across the financial services, telecommunications and energy and water industries in her roles at CHOICE, the Australian Communications Consumer Action Network and the Public Interest Advocacy Centre. She has represented consumers widely, including at the ASIC Consumer Advisory Panel and the ACCC Consumer Consultative Committee. She has previously held governance positions at the Financial Rights Legal Centre (then the Consumer Credit Legal Centre of NSW) and the Women and Girls Emergency Centre, and has been a Council member of the Energy and Water Ombudsman of NSW.

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Corporate governance

Catriona Lowe – LLB (Qld) Catriona Lowe was appointed a Consumers’ Director on 1 June 2009 and reappointed for a further term of three years on 11 May 2012. Catriona is a member of the Board of the Telecommunications Industry Ombudsman and is Treasurer of the Consumers’ Federation of Australia and Chair of the ACCC Consumer Consultative Committee. She is formerly the Co-Chief Executive Officer of the Consumer Action Law Centre and before joining Consumer Action, she was a Director in the Australian Competition and Consumer Commission’s Policy and Liaison Branch. Catriona was Deputy Director and the first Principal Solicitor of the legal practice at Consumer Law Centre Victoria and spent five years in private practice as a litigation lawyer. She has undertaken consumer advocacy on issues affecting Australian consumers across a range of markets, including financial services, utilities, telecommunications and general consumer products and services. Catriona has also served as a member of the Board of the National Information Centre on Retirement Investment (NICRI), a member of ASIC’s External Advisory Panel, a member of the NAB Social Responsibility Advisory Council, a member of the Insurance Council of Australia Consumer Reference Group and a member of the Motor Car Traders’ Guarantee Fund Claims Committee. Jennifer Mack – BA, MALP (Administrative Law) Jennifer Mack was appointed a Transition Director on incorporation of the company, for a term expiring on 31 May 2009, and when the new Board was formed on 1 June 2009 she was appointed a Consumers’ Director. Jenni retired as a Director on 31 May 2014. Jenni is Chair of Job Futures Ltd and ASIC’s Consumer Advisory Panel. She is also a member of ASIC’s External Advisory Committee and is leading the effort to establish a new organisation for superannuation consumers. She is an experienced director and sits on the boards of the Food Standards Authority and the Travel Compensation Fund. She is Deputy Chair of the Advisory Board to the Office of the Migration Agents Registration Authority. In addition, she has been part of the leadership group working with the Commonwealth and States to develop new food labels to help consumers make healthier food choices. Before this, Jenni was Chair of the independent consumer organisation CHOICE and a former executive director of the Consumers’ Federation of Australia. In the mid-1990s she was the NSW Deputy Legal Services Commissioner, responsible for handling complaints Page 104

about lawyers, and she has represented the community on the NSW Judicial Commission (which, among other things, deals with complaints about judicial officers). Russell McKimm – Dip FP, FSIA, MSDIA, FAICD, ADA1 & 2 (ASX) Russell McKimm was appointed a Transition Director on incorporation of the company, for a term expiring on 31 May 2009, and when the new Board was formed on 1 June 2009 he was appointed an Industry Director. Russell was re-appointed for a further term of two years on 11 May 2012. This was extended by a further 12 months in September 2013, to 31 May 2015. Russell is an adviser with Patersons Securities Ltd and a panel member for the ASX Disciplinary Tribunal and the ASIC Markets Disciplinary Panel. He was appointed a non-executive director of the G.W. Vowell Foundation Ltd on August 2013. His previous positions include Director with Shaw Stockbroking Ltd from 2005 to 2007, Director with Tolhurst Noall Ltd from 2001 to 2005 and Managing Director of Ord Minnett Ltd from 1988 to 1991. He holds a Diploma of Financial Planning from Deakin University and has studied at the Securities Institute of Australia, where he was also a regular lecturer in Certificate and Graduate Diploma courses. Russell is a past President of the Financial Planning Association (FPA) and a former board member of the FPA Complaints Resolution Scheme. Christopher McRae – BA, LLB (Sydney) Chris McRae was appointed an Industry Director on 8 June 2012. Chris is a director of McRae Services Pty Ltd, an incorporated legal practice specialising in financial services law, corporate governance and regulatory compliance, life insurance contracts review, drafting and settlement, stamp duty, superannuation and trustee services, consumer credit law and financial services dispute resolution. Chris is also a consultant to several of the Financial Services Council’s (FSC’s) larger members. Before establishing his legal consultancy in 2009, Chris held senior legal roles at AMP for more than 25 years. He was Specialist Counsel for AMP Financial Services from 1998 to 2008 and Chief Legal Officer for AMP Society Australia from 1988 to 1998. He managed in-house legal teams in his time at AMP and represented AMP on FSC committees and in dealings with APRA and ASIC.

Corporate governance

Denis Nelthorpe – B Juris, LLB, AM Denis Nelthorpe was appointed a Consumers’ Director on 1 June 2009 and reappointed for a further term of two years on 11 May 2012. This was extended by a further 12 months in September 2013, to 31 May 2015. He is the Manager of Footscray and Wyndham Legal Service and Director of Legal Services with the Brimbank Melton Community Legal Centre. He was appointed Adjunct Professor of Law at Victoria University in July 2012 and is Chair of the Code Compliance Committee for the Australian Liquid Petroleum Gas Association. He is a past President of the Consumers’ Federation of Australia and a past Chief Executive Officer of the Consumer Credit Legal Service (1986–91) and the Consumer Law Centre Victoria (1993–98). He was also Director of the State Insurance Office Consumer Appeals Office in 1991–92. Denis was made a Member of the Order of Australia in the June 2011 Queen’s Birthday Honours List. Company Secretary Nicolas Crowhurst - BA, LLB (Hons), ACIS, ACSA Nicolas Crowhurst was appointed Company Secretary on 23 September 2010, after serving as Assistant Company Secretary. He is also a Director of Financial Services Compensation Scheme Pty Ltd. Nicolas qualified as a barrister in the United Kingdom in 2000 and has previously served as Legal Counsel to the Financial Industry Complaints Service Limited and the company. He is a member of Chartered Secretaries Australia, and the Institute of Chartered Secretaries and Administrators. Disclosures regarding Nominations and Remuneration Committee The Nominations and Remuneration Committee is comprised of the Chair of the Board, one industry director (Russell McKimm) and one consumers’ director (David Coorey). This composition satisfies the Constitutional requirements for board committees to maintain equal membership between industry and consumers’ directors. However, where thought necessary, the Committee has engaged external assistance from relevant stakeholder groups to provide advice and guidance on its duties and responsibilities.

Actual attendance

Eligible to attend

Michael Lavarch

5

5

David Coorey

5

5

Russell McKimm

5

5

The Skills Matrix of the FOS Board of Directors The Board Charter states:

 xamples of the core technical competencies which » E should be found across the Board should include: » A  ccounting and finance (Directors who have expertise in financial accounting). » B  usiness judgment (Directors who have a record of making good business decisions). » G  overnance (Directors who understand and keep abreast of good governance practices). » K  nowledge of consumers’ issues and needs (Directors with appropriate and relevant consumer movement-specific knowledge and experience). » Industry knowledge (Directors with appropriate and relevant industry-specific knowledge and experience). » K  nowledge of internal and external dispute resolution. » H  uman resource management (Directors who have experience and interests in Human Resource Management and staff welfare). Independent directors The Chair is required by the FOS Constitution to be independent and the FOS Board Charter prohibits a single individual from occupying the roles of Chair and Chief Ombudsman. The FOS Board is comprised of individuals with expertise and knowledge as required by the FOS Constitution. None of the directors are executive directors. While the directors, with the exception of the Chair, are required to represent the interests of industry or consumers, each understands his or her legal obligation as a director to put the needs of FOS before those of their own ‘constituents’. Induction and training of directors Upon appointment, each director is provided with a comprehensive induction to FOS and its operations. The directors are also permitted to request and receive all reasonable training necessary for them to perform their role as directors effectively.

For the 2013–2014 financial year, the following table sets out the meetings and attendances for the Nominations & Remuneration Committee: Page 105

Corporate governance

Principle 3: Promote ethical and responsible decision-making

Principle 5: Make timely and balanced disclosure

Code of Conduct

Disclosure Policy

The standards of behaviour expected of FOS directors and employees are set out in the Board Charter, the FOS Code of Conduct, and the FOS values of Respectful, Efficient, Trustworthy and Thinking Ahead.

This principle applies to companies that are subject to the ASX Listing Rule disclosure requirements, and as such has no direct relevance to FOS.

Principle 4: Safeguard integrity in financial reporting Audit Committee The functions of an audit committee are carried out at FOS by the Finance and Risk Management Committee. Catriona Lowe is the Chair of this committee, and Robert Belleville is the other member.

However, FOS has various policies and procedures which, in combination, cover many of the same areas as the recommended Disclosure Policy.

Principle 6: Respect the rights of shareholders As a public company limited by guarantee, FOS does not have any shareholders. As a result, this principle has no direct relevance to FOS.

Since its inception in 2008, the Committee has had a formal charter governing its area of responsibility. The Charter was last revised in October 2012 and approved by the Board.

However, FOS is committed to respecting the rights of its stakeholders, particularly the FSPs that are members of the scheme and the consumers who use the service.

The following table sets out the meetings and attendances for the Finance and Risk Management Committee for 2012-2013:

Information about FOS and its governance Information about FOS can be found on its website (www.fos.org.au), by email ([email protected]), or by telephone (1300 78 08 08 for consumers, 1300 56 55 62 for members).

Actual attendance

Eligible to attend

Robert Belleville

6

6

Stakeholder relations program

Catriona Lowe

6

6

FOS has a Stakeholder Engagement strategy which sets out our approach to liaison with our members, consumers, ASIC and the broader community.

CEO and CFO declarations Prior to the Board approving the annual financial reports contained within the FOS General Purpose Financial Report, the Board receives from the Chief Ombudsman and Chief Financial Officer a declaration that, in their opinion, the financial records have been properly maintained and that the financial statements comply with appropriate accounting standards. These declarations also state that the financial statements give a true and fair view of the financial position and performance of FOS and that these opinions have been formed on the basis of a sound system of risk management and internal control which is operating effectively. Attendance of the external auditor at Annual General Meeting The external auditor receives an invitation to attend each AGM, but attendance has not, to date, been required by the membership.

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Activities that promote two-way communication include industry and consumer forums, the FOS Conference, our online magazine The Circular, and our Accessibility project. Meetings of stakeholders The Annual General Meeting is held and run in accordance with the Corporations Act 2001 and the FOS Constitution. FOS’s ASIC Liaison Policy and Procedures and our Stakeholder Engagement Strategy encourage participation at general stakeholder meetings. Electronic communications FOS has developed Secure Services, a secure part of the website for both financial services providers and consumer representatives to manage disputes and information exchange electronically. In addition, consumers are able to lodge disputes electronically through the FOS website (www.fos.org.au).

Corporate governance

Principle 7: Recognise and manage risk Oversight of risk While ultimate responsibility for risk oversight and risk management rests with the full Board, the Finance and Risk Management Committee has operational oversight of these activities and the Senior Leadership Group has day-to-day operational responsibility for risk oversight and management. Given the nature of the material business risks of FOS, the Senior Leadership Group is supported and advised by a Risk Management Working Group, chaired by the Company Secretary and comprised of: » t he Chief Financial Officer » t he Chief Information Officer » t he Manager – Stakeholder Engagement and Communications, and » t he Operations Manager – General Resolution Group. A Risk Management Report is presented to the Finance and Risk Management Committee at the end of each quarter, with significant issues being advised as necessary. Review of risk management framework There were four internal audits conducted during 2013-2014, as well as a full review of the risk management framework which saw refinements made to the risk reporting approach and a streamlining of the procedural documentation. Internal audit

Principle 8: Remunerate fairly and responsibly Remuneration committee The main functions of a Remuneration Committee are performed at FOS by the Nominations and Remuneration Committee. The Board sets its own remuneration by consensus, in accordance with clause 4.15 of the FOS Constitution and on advice from the Nominations and Remuneration Committee. The Board also sets the remuneration of the Chief Ombudsman. Responsibility for the company’s remuneration, recruitment, retention and termination policies for all other employees has been delegated to the Chief Ombudsman, but significant changes to these policies are ratified by the Board. The remaining aspects of this principle are applicable to companies that are subject to the ASX Listing Rules, and as such have no relevance to FOS. Remuneration of non-executive directors and executive directors All FOS directors are non-executive directors and, aside from the Chair, are paid equally, with a small additional payment being made to the members of the Finance and Risk Management Committee. Equity based remuneration FOS does not offer equity-based remuneration to any employee.

During 2013-2014, FOS introduced an internal audit function to provide additional assurance to its policies and procedures, particularly those regarding Financial, Human Resources, Legal and IT risks and responsibilities. This internal audit function has been outsourced to Pitcher Partners, who provide a systematic, disciplined approach to evaluating and improving the effectiveness of our risk management and internal control processes. Material exposure As at the time of publication, FOS has no known material exposure to any economic, environmental or social sustainability risks.

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Glossary

Glossary Term

Explanation

accepted dispute

a dispute that has passed through the Acceptance stage of our dispute resolution process – it can either have proceeded from the Registration stage into Acceptance or gone directly into Acceptance (compare to registered dispute)

ACR

authorised credit representative – a business that is authorised to engage in specified credit activities on behalf of a business with an Australian financial services licence or a credit licence from ASIC

ADR

alternative dispute resolution – ways of resolving disputes that do not involve going to court, such as conciliation and negotiation

APRA

Australian Prudential Regulation Authority

ASIC

Australian Securities and Investments Commission

consumer

An individual or small business owner who uses the services of a financial services provider

EDR

external dispute resolution – dispute resolution managed by an independent third party (the Financial Ombudsman Service is an EDR service)

financial difficulty

A consumer (individual or small business owner) may experience financial difficulty if they are unexpectedly unable to meet the repayment obligations on a credit contract

FSP

financial services provider

FSRA

Financial Services Reform Act

GFC

global financial crisis

IDR

internal dispute resolution – every member should have IDR processes in place to handle disputes they receive about their business

member

a financial services provider that is a member of the Financial Ombudsman Service

NCC

National Credit Code (part of the National Consumer Credit Protection Act 2009)

OECD

Organisation for Economic Co-operation and Development

Ombudsman

someone who investigates disputes between aggrieved parties (eg consumers and small businesses) and organisations (eg financial services providers) and mediates a fair settlement or makes a final decision on the matter

outcome

the way in which a dispute has been resolved or finalised

outcome type

the result or consequences of the resolution or finalisation of a dispute

product

a specific type of product within a product category (eg shares are a product within the securities product category)

product category

a group of products within a particular product line (eg securities are a product category within the investments product line)

product line

a broad line of products (eg investments)

registered dispute

a dispute that has entered the Registration stage of our dispute resolution process (compare to accepted dispute)

Closed dispute

a dispute is closed once our handling of it is complete – this can be achieved through an agreement between the parties involved, through a decision by FOS, or because the dispute is discontinued or outside our Terms of Reference

RG 139

ASIC Regulatory Guideline 139 – this document sets out the requirements of how an organisation like the Financial Ombudsman Service can become an ASIC-approved EDR scheme and how they have to operate and report to maintain that approval

sales/service channel

the channel a consumer used to purchase or get advice about the product in dispute

TOR

Terms of Reference – the document setting out the broad rules and processes that the Financial Ombudsman Service follows

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Contact us Our website contains comprehensive information about our services. You can also contact us by phone, email or mail. Website www.fos.org.au Phone 1300 78 0808* Email [email protected] Mail GPO Box 3 Melbourne VIC 3001 *9am – 5pm AEST/AEDT. Calls are charged at the cost of a local call from landlines. Calls from mobile phones are charged at the applicable rate from your carrier. ©Financial Ombudsman Service 2014 ABN 67 131 124 448