This article by me first appeared in Complinet.
The Australian Securities and Investments Commission ( ASIC) has released Consultation Paper 102: Dispute Resolution – update of RG 139 & RG 165 proposing improvements to the way financial services businesses operating in Australia resolve disputes with consumers.
It also aims to refine and harmonise the approaches taken by different external dispute resolution (EDR) schemes.
Under s 912A of the Corporations Act, financial services businesses that do business with retail clients are required to have a dispute resolution system that consists of an internal dispute resolution process and membership of one or more external dispute resolution schemes approved by ASIC.
ASIC requires that access to an approved EDR scheme should be free of charge for consumers and investors. ASIC does not propose to reconsider this requirement as part of this review.
A key proposal of ASIC’s is to replace monetary limits on claims with a cap on compensation that can be awarded by an external dispute resolution scheme approved by ASIC and to increase the compensation amount to $280,000.
This would mean that some schemes would need to lift their current limits within an appropriate transitional period.
Main issues affecting financial service providers
Internal dispute resolution (IDR)
Financial service licensees must currently have IDR procedures that satisfy the Essential Elements of Effective Complaints Handling in Section 2 of AS 4269–1995 and appropriately document their IDR procedures.
The review reflects the introduction of a new Australian Standard on complaints handling (AS ISO 10002). The AS ISO 10002 2006 definition of "complaint" will be adopted:
An expression of dissatisfaction made to an organisation, related to its products or services, or the complaints handling process itself, where a response or resolution is explicitly or implicitly expected.
ASIC also proposes requiring financial providers to provide final responses to complainants within 45 days, but within 30 days if possible. Some Codes already provide for faster response times.
A final response is a letter to complainants informing them of:
(a) the outcome of their complaint;
(b) their right to take their complaint to EDR; and
(c) the name and contact details of the relevant EDR scheme.
If the financial services provider cannot respond within 45 days, it should inform the complainant of the reasons for the delay and their right to refer the complaint to the EDR scheme.
The requirement to provide a final response to complaints within a maximum of 45 days will still apply to financial services providers that use multi-tiered IDR procedures that include internal appeals or escalation processes.
External dispute resolution (EDR)
Currently financial services licensees must belong to one or more EDR schemes and have appropriate links between their IDR procedures and EDR scheme (including a system for informing complainants about the availability of EDR and how to access it).
ASIC is proposing the following changes to take account of major rises in the value of retail investments in recent times and to reduce the large number of court cases flowing from corporate collapses:
• Increasing the compensation cap to $280,000 across all ASIC-approved EDR schemes. ASIC plans to review the size of the cap every three years.
• Allowing consumers and investors with losses above $280,000 to access EDR schemes by waiving the excess and claiming up to the cap.
• Entitling consumers and investors to claim interest in addition to compensation, even where this leads to the total compensation exceeding the cap.
ASIC also intends to harmonise complaint-handling procedures for all approved EDR schemes to produce consistency for financial providers operating in different sectors. For example, a consumer or investor should have access to the same compensation cap whether or not they buy an insurance product through a broker or directly from an insurer.
Other areas of harmonisation include:
• complaints where the scheme member ceases to carry on business;
• the ability of scheme members to commence legal proceedings that are related to complaints;
• time limits for making complaints;
• jurisdiction over complaints that have been dealt with in another forum; and
• changing the Rules or Terms of Reference of an EDR scheme.
ASIC has also proposed to:
• clarify that decisions of EDR schemes do not generally bind complainants;
• amend the frequency of regular independent reviews of EDR schemes;
• update the requirements for EDR schemes to report systemic issues and serious misconduct by scheme members to ASIC; and
• require EDR schemes to publish an annual report of statistical information about the number of complaints received and upheld for each scheme member.
Existing ASIC-approved EDR Schemes
ASIC has approved the following EDR schemes under RG 139:
(a) the Banking and Financial Services Ombudsman Limited (BFSO);
(b) the Credit Ombudsman Service Limited (COSL);
(c) the Credit Union Dispute Resolution Centre Pty Limited (CUDRC);
(d) the Financial Co-operative Dispute Resolution Scheme (FCDRC);
(e) the Financial Industry Complaints Service Limited (FICS);
(f) Insurance Brokers Disputes Limited (IBDL);
(g) the Insurance Ombudsman Service Limited (IOS); and
(h) the Financial Ombudsman Service (FOS).
Each EDR scheme has Rules or Terms of Reference that set out the jurisdiction and operation of the EDR scheme.
The Financial Ombudsman Service was formed by the merger of the BFSO, FICS and IOS. FOS commenced operations on 1 July 2008 and provides dispute resolution services for up to 80% of Australian banking, insurance and investment disputes. A single set of FOS Terms of Reference will not be in place until 1 January 2010
The Code of Banking Practice, the draft Mutuals Code of Practice, the General Insurance Code of Practice and the General Insurance Brokers Code of Practice currently have varying requirements.
Implications of changes
Financial service providers will need to review the required resources and staff for dispute resolution processes, especially if they do not currently meet the Australian Standard on complaints handling. Meeting the new time limit for final responses may also require additional resources.
When will the changes start?
The closing date for submissions is 7 November 2008.
It is expected that a revised regulatory guide will be released in mid-2009.
Compliance tips and next steps
If your organisation operates in different sectors you should look at the current claim limits and response times and assess the effect of the changes, if introduced.
All organisations should:
• Review the new definition of complaint and the types of complaints that will be covered;
• Review policies establishing when a complaint becomes a dispute;
• Review internal reporting, with emphasis on whether a complaint is evidence of a licensing breach
• Review what is needed to comply with the complaint handling standards.
