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

I present the explanatory memorandum to this bill and move:

That this bill be now read a second time.

This bill amends the Corporations Act 2001 and other related legislation to radically overhaul the financial system dispute resolution framework by establishing a new one-stop-shop dispute resolution body—the Australian Financial Complaints Authority—to ensure that consumers and small businesses have access to free, fast and binding dispute resolution.

The bill forms part of the Government's broader commitment to ensuring that the banks and other financial institutions are held to account when they fail to meet community expectations.

The financial sector plays a vital role in the Australian economy by meeting the needs of its users, including consumers and small businesses.

Its role in the economy and the lives of all Australians continues to grow and evolve.

Given the crucial nature and role of the financial sector, Australians expect high standards from financial institutions.

Where these expectations are not met and consumers wrongfully suffer a loss, it is critical that those who have been wronged have access to redress in a timely manner.

External dispute resolution (EDR) plays a critical role in providing consumers and small businesses with access to an alternative, out-of-court dispute resolution service to hear and determine their complaints about financial firms.

The government is committed to having a world-class financial dispute resolution system.

That is why in April 2016 the government commissioned an independent comprehensive review of the dispute resolution framework (the Ramsay review), which was led by an expert panel comprising Professor Ian Ramsay, Julie Abramson and Alan Kirkland. I would like to place on record my deep appreciation for their hard work and the intellectual rigor that they applied to this very important issue.

The Ramsay review undertook a rigorous consultation process and received 187 submissions in response to its issues paper and interim report.

The Ramsay review found that the current dispute resolution framework is a product of history rather than design and, in significant areas, reform is needed.

The review made 11 recommendations to strengthen and futureproof the dispute resolution framework, all of which the government has accepted.

The review's central recommendation was to establish a new one-stop shop dispute resolution body for all financial disputes, including superannuation disputes.

In line with this recommendation, the government committed to establishing the Australian Financial Complaints Authority, or AFCA, which will be based on an industry ombudsman model, with additional statutory powers where required.

This approach combines the strengths of both a statutory tribunal and an industry ombudsman scheme.

AFCA will replace the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal (SCT) and will reduce the unnecessary duplication and consumer confusion that has been characteristic of the current framework.

This simplification of the system has been welcomed by Gerard Brody, CEO of the Consumer Action Law Centre who has commented that:

Currently if you have a problem with a bank or finance provider, it is incredibly confusing to fix the problem. The people who call our services just want to get their lives back on track—the Government can help them by simplifying the system and giving it teeth.

CHOICE likewise welcomed the announcement of AFCA, stating, 'It will provide consumers with a single, accessible complaints resolution service when something goes wrong.'

AFCA will have higher monetary limits and compensation caps than those of FOS and CIO, and it will maintain the SCT's unlimited monetary jurisdiction for superannuation complaints. The new monetary limits and compensation caps are double and, in the case of small business credit facility disputes, almost triple the limits and caps currently in place. This will significantly improve access to justice for consumers and small businesses.

The creation of AFCA will also address recommendations of the House of Representatives Standing Committee on Economics' Review of the four major banks (also known as the Coleman report) and the Carnell Inquiry into small business loans.

The Coleman report recommended that the government replace the three existing EDR schemes with a one-stop banking and financial services tribunal. The report noted that it would: reduce confusion for consumers; enhance small businesses' EDR scheme coverage; help ensure consistent outcomes for complainants; and eliminate unnecessary duplication. The AFCA will fulfil all of these requirements.

The Carnell report likewise recommended the establishment of an industry funded external dispute resolution one-stop shop with appropriate small business expertise to hear disputes relating to credit facilities of up to $5 million. The AFCA will meet this recommendation by significantly expanding small business access to redress through monetary limits and compensation caps that are almost triple the existing limits and caps.

Small business has welcomed the establishment of AFCA. Peter Strong, CEO of the Council of Small Business Australia (COSBOA), commented that:

Too often, small business owners are shafted by the actions of big banks and these business owners have little option but to take their medicine in the face of the overwhelming power of the big banks. But this new Authority will provide business owners with a clear mechanism to seek redress where they have been unfairly done by.

The bill introduces a new legislative framework which sets out the standards that AFCA must adhere to. Under the legislative framework, AFCA will be accessible to consumers and small businesses, who will be able to have their disputes with financial firms heard and determined by AFCA for free.

All financial firms, including superannuation funds, will be required by law to be members of AFCA.

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. It will be funded by industry.

The legislation will ensure that AFCA will provide fair, efficient, timely and independent dispute resolution services and that it has the relevant expertise to resolve the disputes it hears. The legislation also includes a number of statutory provisions to ensure that AFCA has the necessary powers to effectively resolve superannuation disputes. Additional statutory provisions are required because of the complex nature of some of the superannuation disputes that involve third parties, such as death benefit disputes.

AFCA will have the power to join third parties to a dispute, require parties to attend conciliation and require the production of documents.

The statutory provisions available to AFCA will allow timely decisions to be made to enable prompt payment of death benefit amounts by superannuation funds to those who may be in need.

The framework does not dictate the way in which AFCA should deal with complaints. This will enable AFCA to adapt to change and to be flexible and innovative in its approach to resolving disputes.

To ensure that AFCA meets community expectations for free, fast and binding dispute resolution, it will be subject to a comprehensive accountability regime.

First, the AFCA scheme will be authorised by the government. I, as Minister for Revenue and Financial Services, will not authorise the AFCA scheme unless I'm satisfied that it has robust systems and processes in place to meet community expectations and the rigorous standards set out in the legislation. And where the scheme, once authorised, fails to meet these standards, I will have the ability to revoke authorisation.

In addition, I will have the ability to impose conditions on authorisation. This ability to set conditions will allow the government to ensure that AFCA is accountable to both consumers and member firms, for example, through requiring AFCA to report and provide reasons to the government on an annual basis in respect of any changes AFCA makes to its membership fees.

The AFCA board will comprise an independent chair and equal numbers of directors with consumer and industry backgrounds. At the establishment of AFCA I will make a one-time appointment of the minority of AFCA's board, including the independent chair, to ensure that it has an appropriate mix of skills and experience.

The AFCA board will include at least one director with a superannuation background and who will not be representing any particular segment of the superannuation industry.

The Australian Securities and Investments Commission, or ASIC, will be responsible for ensuring that AFCA meets the standards set out in the legislation on an ongoing basis.

To fulfil this role, the bill provides ASIC with the ability to set regulatory requirements that AFCA must adhere to and also provides ASIC with a general directions power to compel AFCA to comply with the standards set out in the legislation. ASIC will also have a specific directions power that can be used to require AFCA to increase its funding in the event that it is insufficiently financed.

The enhanced accountability that AFCA will be subject to under the new regime represents a significant improvement over the existing regime, under which ASIC has limited powers to require dispute resolution bodies to improve their practices.

In the course of passage through the Senate, the government moved a small number of amendments to provide additional certainty in relation to the handling of superannuation disputes and to enshrine in legislation the requirement that the AFCA chair be independent.

Additionally, the government will commission an independent review of the new 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 government has announced that a primary production business with a dispute relating to a credit facility of $5 million or less will have access to compensation of up to $2 million.

The bill also strengthens the internal dispute resolution reporting processes within firms.

Internal dispute resolution is a financial firm's internal complaints handling process. That is, its initial response to a complaint. An effective internal dispute resolution process plays an important role in enabling financial firms to quickly resolve genuine complaints, without an EDR or court process.

To provide firms with an incentive to have best practice internal dispute resolution procedures, the government is implementing a new internal dispute resolution reporting regime.

Under the new regime, ASIC will be empowered to create a legislative instrument that will determine the internal dispute resolution data that financial firms will need to report to the regulator. ASIC will then have the ability to publish this data at both the aggregate and the firm level.

Publishing internal dispute resolution data will drive financial firms to improve their internal dispute resolution practices by providing industry benchmarks on how long it takes to resolve disputes and highlighting poor-performing firms.

Given the significance of these reforms, 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 the AFCA.

The transition team will advise the government on AFCA's terms of reference, governance and funding arrangements. It will also make recommendations on the transitional arrangements required to appropriately resolve legacy disputes of the three existing schemes.

The AFCA transition team has held targeted workshops with key industry and consumer bodies and has undertaken a public consultation process to inform and seek feedback on these matters.

In particular, the AFCA transition team has had detailed discussions, including with representatives from the superannuation industry and the not-for-profit and retail sectors, as well as targeted discussions with the Law Council of Australia and individual funds and administrators.

The AFCA transition team will continue to engage closely with all interested parties, including all sectors of the financial industry, as well as the three existing schemes to facilitate an orderly transition to AFCA.

The bill also provides for the winding down of the SCT, which will cease to accept new complaints once AFCA commences operations. The AFCA transition team is working closely with the SCT to ensure a smooth transition between the SCT and AFCA. The government will ensure that the SCT is sufficiently funded to get through its backlog of complaints by the time AFCA commences operations.

Following passage of the legislation in the Senate in December 2017, I announced that AFCA would commence operations in the second half of this year.

In line with advice received from 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.

Once the legislation is passed by parliament, I will be seeking an application for authorisation. Following an assessment of that application, I'll be authorising a company as AFCA and making my formal appointments to the AFCA board. It is my intention to do this as swiftly as possible to ensure that the AFCA board has the maximum time available to secure membership and funding and to have appropriate staffing and dispute resolution procedures in place.

Following authorisation, the AFCA board will undertake public consultation on its terms of reference and funding arrangements, ahead of AFCA's commencement.

The new EDR regime will result in significant benefits for consumers and small businesses, with less confusion and an increase in access to redress and greater accountability for financial firms.

As the Consumer Action Law Centre stated, 'Australians need one high-quality service to resolve their disputes against financial institutions quickly and fairly. The one-stop shop announced today is a sensible move that can help Australians get justice.' This bill achieves this outcome and ensures Australian consumers and small businesses get free, fast and binding access to redress and compensation.

Full details of the measure are contained in the explanatory memorandum.

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

It's been quite a tortuous process to get here and this is a far-from-perfect piece of legislation. This is a piece of legislation which was designed by the government to avoid the need for a royal commission into the banking and financial services sector, which didn't quite work out for the government. They've tried all the tricks to try to avoid a royal commission and they were dragged kicking and screaming into holding a royal commission in the end.

In October 2016, in an attempt to distract attention from the urgent need for a royal commission into banking and financial services, the Prime Minister promised that we would get:

… a low-cost, speedy tribunal to deal with these types of consumer complaints, customer complaints against banks, and this will be real action …

But a little while later, the Minister for Revenue and Financial Services, who is at the table, had to walk back from this and argue that the Prime Minister had really only meant. 'A little T tribunal; not a big T tribunal,' a distinction which failed to register with observers around the country, who really, with all due respect, had no idea what the minister was talking about.

Now, of course, we also have the 2017 budget announcing that the new body would be called the Australian Financial Complaints Authority—it's true, it's not a tribunal; the minister's right there. But this is also a misnomer, because the minister in the Senate confirmed that AFCA will be just another ombudsman scheme in the form of a private company limited by guarantee, so it's not really an authority. There are already, of course—and this is the key point—two of these services in existence for financial services disputes, the Financial Ombudsman Service and the Credit and Investments Ombudsman. So any suggestion that this bill is a groundbreaking reform which finally gives consumers rights that they previously did not have is simply not the case. This is simply a piece of administration. This is simply a piece of tidying up.

The bill abolishes three existing financial sector complaints-handling bodies: the Financial Ombudsman Service, the Credit and Investments Ombudsman and also the Superannuation Complaints Tribunal. For the first of these three bodies, the bill is in many respects just a merger and a rebranding—that's all it is. There is no, or very little, improvement in consumer outcomes contained in this bill. I know both of these bodies very well, as a former minister who, in a previous government, held the portfolio of the minister at the table. I had responsibility for these ombudsman services, and they were very good—

Joel Fitzgibbon (Hunter, Australian Labor Party, Shadow Minister for Agriculture, Fisheries and Forestry) Share this | Link to this | Hansard source

You were much better than her.

Chris Bowen (McMahon, Australian Labor Party, Shadow Treasurer) Share this | Link to this | Hansard source

They were very good ombudsman services.

Ms O'Dwyer interjecting—

I was allowed to answer questions during question time when I had the portfolio, so at least I had that over the current minister. What we had was the financial ombudsman—and I would have dealt with payday lending, as the member for Oxley correctly points out. We did have Future of Financial Advice reforms other great reforms which improved consumer outcomes. We wouldn't have squibbed it on payday lending. I have to pay respect to the minister, she didn't squib it and she didn't want to squib it; she was rolled on that. The member for Perth and the member for Oxley will continue to prosecute that case on our behalf. The point I was making was that these are good ombudsman services and they work as they are currently constituted. They don't resolve every matter to every client's satisfaction, but they certainly get to the bottom of many and they lead to better outcomes. What the minister couldn't do in her second reading speech was outline how consumers will actually be empowered by these reforms, because they won't. The average consumer who's got a problem won't see any difference from whether they go in today to the Financial Ombudsman Service or they go in after the AFCA is established. They won't have a different experience and they won't have a different outcome; they'll simply have one body instead of three.

In relation to the Superannuation Complaints Tribunal, we are not convinced that this should be rolled into the AFCA. The Superannuation Complaints Tribunal provides quite a specialised service, a different role. The Superannuation Complaints Tribunal is quite a different sort of a body to the others. The Superannuation Complaints Tribunal deals with very complicated and detailed matters in relation to superannuation, which is a particularly complicated and complex form of law, and we don't think it's appropriate that it be rolled into these bodies. Under this legislation, disputes over an individual's superannuation will now be lumped in with those from the banks, insurance, payday lenders and others. Our overriding concern with the proposed abolition of the Superannuation Complaints Tribunal is that no evidence has been produced to demonstrate that the abolition of the tribunal and its replacement by an ombudsman scheme will result in more-efficient and better outcomes. This is the key point: the Superannuation Complaints Tribunal actually works quite differently from the other two ombudsman services. They have a different role and a different way of dealing with these matters, and we think that lumping them in with the ombudsman on a similar basis is a backwards step. The government—

Ms O'Dwyer interjecting—

and the minister, if I understand her interjection correctly—has pointed to delays in the resolution of complaints by the Superannuation Complaints Tribunal. That's a reason to shut it down? You could give it more resources and actually help it do its job. But, no; they say: 'We'll shut it down. We'll throw it in with the ombudsman. That'll fix it. We'll get rid of it. If it's taking too long to resolve problems, we'll just get rid of the Superannuation Complaints Tribunal.' That's the government's logic. These delays are of course a reason for concern, but they're not a reason for abolishing the tribunal. I can think of any number of ways the government could have approached the matter of Superannuation Complaints Tribunal delays other than by abolishing it.

The Senate inquiry demonstrated that this government has neglected the Superannuation Complaints Tribunal quite dramatically. It's consistent with this government's ideological attacks on superannuation that they're dismantling a statutory tribunal for superannuation that has been an important part of Australia's compulsory superannuation system. The Superannuation Complaints Tribunal was established in 1993. It was introduced at the time that universal compulsory superannuation was also introduced, and it has served the nation well over that time. If the government have concerns about delays then, as I said, they could have any number of ways of dealing with them.

I agree with the chairperson of the Superannuation Complaints Tribunal, who told the Senate hearings into this bill:

I don't think it would be true to say, in relation to super, that it's a rebranding exercise. Arguably, it's quite a significant change for superannuation, specifically in terms of the external dispute resolution. It goes from a statutory body to a non-statutory body. It moved from a specialist body to a one-stop-shop body.

We have concerns about removing the statutory body when it comes to superannuation. When it comes to superannuation complaints, people have the right to have a powerful tribunal, a body with teeth, and this government is taking away a statutory body and lumping it in with the other ombudsman services, which have operated quite differently. We moved amendments in the other house to that effect. Those amendments failed. We don't like that, but that was the result. We don't regard it as a reason to vote against the bill as a whole, but we are pointing out that we think that the government has failed here and that to abolish the Superannuation Complaints Tribunal is the wrong lever. It won't stop us supporting the bill, but it does mean that we will point out strongly that the minister at the table has, I think, made a serious error in this regard.

We also have serious concerns about the transition arrangements for AFCA, as currently outlined in the bill, which are worthy of a few comments. The government has said that AFCA will start from 1 July 2018 for new complaints. As that is not that far away, we're hoping the government has given proper consideration to making sure this transition process works. The Senate inquiry raised concerns about this. Mike Taylor, in Super Review, summarised some of these concerns about the process in light of evidence given to the Senate. That report said:

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 SCT will still be clearing its workload as late as 2022.

So we're going to have a very long transition from the Superannuation Complaints Tribunal to AFCA—until 2022. This is going to create more uncertainty. It's not a one-stop shop; it's a four-stop shop that the minister's creating during that transition period, and we don't think that that's a very clever way of dealing with it either.

We questioned the government in the Senate about transition plans and about how they would make sure the transition would work, and the lack of detail in the answers was very concerning. It seems that, since the bill passed the Senate, the government has announced additional funding, in MYEFO, to help the Superannuation Complaints Tribunal work through its existing workload. Well, that's good. But it was concerning that the government did not appear to have properly planned for this when they announced the AFCA in the budget.

This has been an ill-thought-out process. It has been one which was very clearly created to avoid the need for a royal commission. Remember that period in which we had weekly announcements of new and shiny things in banking and financial services designed to avoid the need for a royal commission? We've had many announcements of things that were designed to stop the royal commission. The government were desperate to avoid the royal commission, and they were very reluctantly dragged into calling the royal commission. We were told by the government it was regrettable that we needed to have a royal commission, and yet that royal commission has started now.

I note the royal commissioner's comments—and I welcome his comments—about confidentiality and standing in the way of the royal commission's activities and operations. We will watch its activities with interest, more interest than the government, who didn't want to hold the royal commission in the first place and went through this elongated process and are somehow now pretending that amalgamating three dispute resolution mechanisms into one dispute resolution mechanism is some great step forward when it comes to consumer protection. That's simply not the case. It is an administrative measure which might provide some efficiencies in the back office et cetera, but let's not pretend that this is any great step forward for the Australian people. It's been done for the wrong reasons and the implementation has been botched.

We will vote for the bill, because we have no in-principle objection to at least two of the three coming together, and our objection to the third complaints tribunal being brought into this body is not so strong that it would prevent us voting for the legislation and facilitating its passage through the House.

Debate adjourned.