Kelly O'Dwyer (Higgins, Liberal Party, Minister for Revenue and Financial Services) Share this | Hansard source

Firstly, I'd like to thank those members who have contributed to this debate. Today the government is delivering on its commitment to overhaul the financial dispute resolution framework as announced in the 2017 budget in response to the Ramsay review. There is a clear need to improve the dispute resolution framework, which is a product of history rather than design. Currently, there are three external dispute resolution bodies: the Superannuation Complaints Tribunal, the Financial Ombudsman Service and the Credit and Investments Ombudsman.

The existence of multiple external dispute resolution schemes with overlapping jurisdictions means it is more difficult to achieve similar outcomes for consumers with similar complaints. It is also difficult for consumers to know which scheme to approach, leading to duplicative costs within the system. The monetary limits and compensation caps that apply under the existing schemes are manifestly too low and are not working to ensure access to justice for consumers and small businesses. FOS' and the CIO's current monetary limit of $500,000 and compensation caps of $309,000 bear little relationship to the value of most financial products and are no longer fit for purpose. Similarly, the monetary limit of $2 million for credit disputes and a compensation cap of $309,000 is precluding too many small businesses from accessing justice under the existing schemes.

Further, the dispute resolution arrangements for superannuation are in drastic need of improvement. The inflexible tribunal model has meant that the SCT has been unable to resolve disputes in a timely manner, and the body now has a significant backlog of legacy claims. At the time of the Ramsay review, the SCT was taking an average of 796 days to resolve a dispute that reached determination stage. This is clearly unacceptable.

In April 2016, the government commissioned an independent comprehensive review of the dispute resolution framework, led by an expert panel comprising Professor Ian Ramsay, Julie Abramson and Alan Kirkland. The review made 11 recommendations to strengthen and futureproof the dispute resolution framework, and the government accepted all of these recommendations.

The flagship recommendation was for the establishment of a new one-stop shop industry funded dispute resolution scheme to hear and determine all financial disputes, including superannuation disputes. The new scheme would replace the SCT, FOS and CIO. The reforms in this bill to establish the Australian Financial Complaints Authority will radically overhaul how financial disputes are dealt with in Australia and will ensure that significantly more consumers and small businesses have access to free, fast and binding dispute resolution.

All financial firms, including superannuation funds, that deal with consumers will be required by law to be members of AFCA, and decisions of AFCA will be binding on financial firms. AFCA will be based on an industry ombudsman model, which will provide it with the flexibility to adapt to changes in the financial system and user expectations. By not restricting how AFCA deals with complaints, the framework enables AFCA to be flexible and innovative and to take advantage of new technologies and techniques in the resolution disputes.

AFCA will be a not-for-profit company governed by a board comprising an independent chair and equal numbers of directors with industry and consumer backgrounds. The bill introduces a legislative framework which sets out the standards that AFCA must adhere to, ensuring that AFCA is accountable to its all users: consumers, small businesses and members of financial firms. Under the legislative framework, AFCA will be accessible to consumers and small businesses which would be able to have their disputes heard by AFCA for free, and will be funded by industry. AFCA will have a range of statutory powers to effectively manage superannuation complaints, such as the ability to join third parties to a dispute, to require parties to attend conciliation, and to require the production of information.

As the Minister for Revenue and Financial Services, I will authorise the new AFCA scheme and I will have the ability to set conditions on authorisation. Until I am satisfied the scheme will have robust systems and processes, I will not authorise AFCA. I will also appoint the independent chair and a minority of the initial AFCA board to ensure that it has an appropriate mix of skills and experience.

The Australian Securities and Investment Commission will be responsible for overseeing AFCA to ensure that it meets the standards set out in the legislation. So that ASIC can fulfil this role, the legislation will provide ASIC with the ability to set regulatory requirements that AFCA must adhere to and will also provide ASIC with a general directions power to compel AFCA to comply with the standards set out in the legislation. In addition, ASIC will have a specific directions power that can be used to require AFCA to increase funding in the event that it is insufficiently financed.

The bill was examined by the Senate Economics Legislation Committee. In response to the committee's report, the government moved a number of amendments to provide additional certainty and clarity around aspects of AFCA's operations, to ensure it will operate as effectively as possible. Additionally, the government will commission an independent review of the new external dispute resolution arrangements 18 months after AFCA commences operations. This review will take into account feedback from consumers and small businesses regarding whether AFCA resolved their complaint in a way that was fair, efficient, timely and independent. The review will also specifically examine the appropriateness of the monetary limits applying to complaints relating to credit facilities provided to primary production businesses. The Legislative and Governance Forum for Corporations was consulted in relation to the bill and to these amendments, and has approved them as required under the Corporations Agreement 2002.

While overhauling the dispute resolution framework, the government also looked to strengthen the internal dispute resolution processes within firms. The legislation also introduces a new IDR reporting regime. Under the regime, ASIC will be provided with the power to collect and publish IDR data at both the aggregate and firm level.

Being such a significant reform, the government understands the importance of having a smooth transition from the existing dispute resolution bodies to AFCA. That is why the government has created a transition team, led by Dr Malcolm Edey, a former assistant governor of the Reserve Bank, to drive the establishment of AFCA. The transition team has undertaken consultation with key stakeholders, and feedback from that consultation process will inform its advice to government on AFCA's terms of reference, governance and funding arrangements. It will also advise government on the transitional arrangements required to appropriately resolve legacy disputes of the three existing schemes.

Once the legislation is passed by the parliament, I will be seeking an application for authorisation. Following an assessment of that application, I will be authorising AFCA and making my formal appointments to the board. It is my intention to do this as swiftly as possible, to ensure that the AFCA board has the maximum time available to put in place the required operational arrangements, including securing membership and funding, and to undertake consultation on its terms of reference and funding arrangements ahead of AFCA's commencement. In line with advice received by Dr Edey and the transition team and in order to facilitate an orderly transition to AFCA, it is my intention that AFCA will commence accepting disputes no later than 1 November 2018.

The change to IDR and the establishment of AFCA will ensure that consumers have free, fast and binding resolutions of complaints regarding financial services, ensuring confidence in our financial system. I commend the bill to the House.

Question agreed to.

Bill read a second time.

Ordered that this bill be reported to the House without amendment.

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