Ross Hart (Bass, Australian Labor Party) Share this | Hansard source

I am very pleased to be able to speak to the issues arising from the Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017, currently before this chamber. I speak to the bill in the context of a 30-year career as a legal practitioner, primarily as a commercial practitioner, but also in the latter part of my career as a litigation practitioner, addressing a lot of work within the financial services industry but also dealing with people as customers who were attempting to deal with, I might say, the pointy end of the financial services industry.

It's important for this place to understand that there is significant anxiety generated, particularly when a financial organisation seeks to take possession of real estate that's been pledged to secure a customer's obligations under a loan. In other words, the foreclosure process brings the customer and the bank into conflict. And, up to now, that conflict has really only been softened or ameliorated by the intervention of the Financial Ombudsman Service and the alternative dispute resolution services that are made available by the financial institutions.

We also need to be mindful of the fact that there has been significant disquiet in the community about financial institutions and the banking industry, and that that disquiet has led to significant pressure being placed upon the government to inquire into the conduct of financial institutions. Hence, Labor announced at the last election that it would support the establishment of a royal commission to inquire into misconduct in the financial services sector.

What we have before us today is very much the government's initial response to that political pressure that it was necessary and appropriate to inquire into misconduct within the financial services industry. Unfortunately, as is the case with the government's response with respect to the rolling out of infrastructure, there is a very significant gap between announcement and deliverable, particularly when you look at what's being proposed in this legislation.

Let me be perfectly clear. Labor moved amendments to this legislation in the Senate so as to retain the existing tribunal which addressed statutory superannuation complaints. That was undertaken in order to protect the quality of superannuation dispute resolution and the integrity of the compulsory superannuation system. The central reason for that was that Labor felt that it was necessary to keep this new authority out of regulation of or inquiry into complaints dealing with superannuation. We moved those amendments in good faith because we believed that the changes that we proposed would have significantly improved this legislation. We are disappointed that the amendments were not accepted by the Senate. We are also concerned that the government has not been able to give satisfactory answers to questions about how the transition process that will apply to the new financial complaints body in this bill would work—because we're not talking about something which is trivial in execution. We're talking about the consolidation of a number of different organisations, including a statutory Superannuation Complaints Tribunal, into one body. We know, nevertheless, that this will pass the House, and Labor will support the passage of this bill through the House of Representatives.

It is appropriate that we consider some of the history leading to the introduction of this bill and why we're here today. As I said earlier, in April 2016 the opposition announced that a Labor government would establish a royal commission into misconduct within the financial services sector. It might be fairly put that the government's response was somewhat lacklustre. It concentrated on reforming the powers of the Australian Securities and Investments Commission and implementing the Ramsay review into the financial system external dispute resolution processes. An expert panel conducted a review to ensure that the Australian system of external dispute resolution was effectively meeting the needs of users of the financial system. As I indicated in my opening, I've seen this in operation. I've seen it in operation while acting for the banks, but I've also seen this at the pointy end when individual customers are endeavouring to deal with external dispute resolution. I've seen where litigation has been stayed as a consequence of a complaint made under the Financial Ombudsman Service and the other schemes.

Whilst there might be a case built for the establishment of a consolidated one-stop shop as described by the government, I do still have significant concerns as to the incorporation of the separate and distinct area of superannuation into that one-stop shop. The bill combines three existing external dispute resolution schemes—that is, the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal. The new body, as everybody is aware, will be known as the Australian Financial Complaints Authority. What needs to be emphasised is that this bill actually abolishes an existing tribunal under what might be described as a 'rebranding' exercise.

Of course, the context for this is vitally important to understand because this was in the context of Labor's calls for a royal commission. In late 2016 the Prime Minister promised a low-cost speedy tribunal to deal with financial sector complaints. He said this would constitute real action against the banks. Rather than real action, what we have with this bill is a merging of the Financial Ombudsman Service and the Credit and Investments Ombudsman rebadged as the Australian Financial Complaints Authority. The body has no new or additional powers other than accruing some additional jurisdiction—that is, monetary jurisdiction—in that the new authority can hear disputes with higher monetary thresholds than its predecessors. That is a good thing in the sense that it opens up the jurisdiction to more disputes.

If you were cynical, you would think that the implementation of this complaints authority was simply another delaying tactic from this government intended to stave off increasing public pressure for a banking royal commission. Before now, most disputes with financial service providers in Australia were resolved through internal dispute resolution processes between the customer and the relevant bank or other providers. I know the protocols that apply with particular complaints. I know the banks are required to investigate certain complaints, escalate particular complaints, but it doesn't remove, in my view, the general concerns that we have regarding financial misconduct, particularly in the area of sales of financial instruments and financial advice.

There have been far too many examples of poor conduct on the part of the banks and the financial service providers, including illegal activity, misconduct, inappropriate financial advice, insurance claims unfairly declined, fraudulent activity, the targeting of whistleblowers and irresponsible lending. Many of those complaints of particularly egregious behaviour have been seen by me in the course of my legal practice. And, of course, it is true that if you needed to articulate that argument in a court, it would be very difficult to do that with the resources that are available to a financial institution like a major bank and the resources available to an individual customer. That is, after all, why Labor remain committed to the establishment of a royal commission into the financial sector that would extend to banks, insurance providers and superannuation funds.

It must be emphasised that the word 'authority' in this particular authority's name is a misnomer. This is just another ombudsman scheme, according to the minister, as confirmed in the Senate, in this case in the form of a private company limited by a guarantee. There are already two of these organisations in existence for financial services disputes, which, as I've said earlier, are the Financial Ombudsman Service and the Credit and Investments Ombudsman. The bill abolishes the three existing complaints-handling bodies and, in many respects, represents a merger and rebranding of the work of three separate authorities. There is some overlap between the work of the two previous bodies. Indeed, I've seen some financial firms choose one or other of the ombudsman services and, in practical operation, they seem to me to be indistinguishable. At the moment, a customer who has a dispute with a bank, an insurer, a payday lender or a mortgage broker can go to an ombudsman scheme to have their dispute resolved. Once this bill passes, the customers will be able to go to an ombudsman scheme to have the dispute resolved.

We have some concerns as to the transitional arrangements that are proposed. The government has said that AFCA will start from 1 July 2018 for new complaints and so we're hoping that the government has given proper consideration to make sure the transition process works.

There has been a Senate inquiry, and it has raised concerns about this. A commentator, Mike Taylor, summarised in Super Review some of the concerns about this process in light of evidence given to the Senate:

There is much to suggest that the creation of AFCA represents a bureaucratic slow-motion train crash with the Treasury officials confirming that the financial services industry will have to deal with four different external dispute resolution schemes for at least a year after the necessary legislation is passed and that the Superannuation Complaints Tribunal will still be clearing its workload as late as 2022.

Labor has questioned the government in the Senate about the transition plans and how they would make sure that the transition to the AFCA would work. The lack of detail in the answers has been very concerning. It seems that since the bill passed the Senate the government has announced additional funding in MYEFO, which of course is welcome, to help the Superannuation Complaints Tribunal work through its existing workload. It was very concerning that the government did not appear to properly plan for this when announcing AFCA in the budget.

As I said earlier, these sorts of external dispute resolution schemes are very important. They are important to give the voice to consumers, sometimes in situations which are really riven by conflict. The situations that I've seen are those where customers are the subject of foreclosure proceedings, and in those circumstances it's certainly appropriate for external dispute resolution to be promoted by any responsible regulator or government. However, as I've said in my remarks this afternoon, it's vitally important that the government understands that there is an existing effective complaint scheme with the Superannuation Complaints Tribunal. The effectiveness of the transitional arrangements needs to be monitored and they need to be properly resourced. We'll have a situation where, if the government takes its eye off the ball, there will be significant distress occasioned to people that are already exposed to the stress of foreclosure or dispute with a financial institution.

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