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ASIC is consulting on plans to lift complaints handling standards and increase transparency

6 mins  22.05.2019

Overview | CP 311 Internal Dispute Resolution: update to RG 165

The Australian Securities and Investments Commission (ASIC) is consulting on proposed new Internal Dispute Resolution (IDR) standards and reporting requirements to improve the way in which financial firms including Australian Prudential Regulation Authority (APRA) regulated superannuation funds handle consumer and small business complaints.

 

Key takeouts


  • Scope of the changes: The consultation covers proposed updates to ASIC’s IDR standards (currently set out in Regulatory Guide 165 Licensing: Internal and external dispute resolution) and the proposed framework for mandatory IDR data reporting by financial firms to ASIC.
  • Aim of the reforms: The proposed reforms are intended to improve the way in which financial firms including Australian Prudential Regulation Authority (APRA) regulated superannuation funds, handle consumer and small business complaints.
  • Some key proposals: Among other things, ASIC proposes to expand the definition of complaint to include expressions of dissatisfaction made ‘to or about’ an organisation including on a firm's own social media platform(s), to reduce the maximum timeframes for IDR processes and to set new requirements for tracking and responding to complaints.
  • Providing feedback: The consultation states that 'If you disagree with the policy proposals set out in this consultation paper, particularly around reduction of IDR timeframes and collection and recording of IDR data, evidence of your own IDR performance and experience will be required to persuasively support any counter position'.
 
  • Naming individual firms?  ASIC proposes to publish IDR data at both aggregate and firm level and is seeking stakeholder views on what principles should guide it's approach (ahead of further consultation)

The Australian Securities and Investments Commission (ASIC) is consulting on proposed new Internal Dispute Resolution (IDR) standards and reporting requirements to improve the way in which financial firms including Australian Prudential Regulation Authority (APRA) regulated superannuation funds handle consumer and small business complaints.

Announcing the consultation, ASIC Deputy Chair Karen Chester said that the proposed reforms, which include new mandatory data reporting, are intended to improve the way that consumer complaints are dealt with across the financial system and to make firms’ complaints handling performance transparent.

The deadline for submissions on the proposed changes is the 9 August.  

Context

Evidence of the need for improvement

The proposed reforms follow the release last year of ASIC report 603 which identified a number of areas in which current complaints handling processes could be improved (see: Governance News 17/12/2018).

ASIC Deputy Chair Karen Chester commented that it is 'widely acknowledged there is room for much improvement when it comes to handling consumer complaints in our financial system'.  This view is evidenced, Ms Chester said, by the findings of the Ramsay Panel Review, recent ASIC research, case studies before the Financial Services Royal Commission (FSRC) and ASIC's own supervisory work.

Ms Chester added that the absence of effective redress for consumers and the failure of firms to identify and investigate systemic complaints were also findings of the Financial Services Royal Commission and the Prudential Inquiry into the CBA.  

Proposed Changes

The consultation covers proposed updates to ASIC’s IDR standards (currently set out in Regulatory Guide 165 Licensing: Internal and external dispute resolution) and the proposed framework for mandatory IDR data reporting by financial firms to ASIC.  

Proposed changes include the following.

  • Reducing maximum time frames for IDR responses: 
    •  reduce the maximum IDR timeframe for superannuation complaints and complaints about trustees providing traditional services from 90 days to 45 days 
    • reduce the maximum IDR timeframe for all other complaints (excluding credit complaints involving hardship notices and/or requests to postpone enforcement proceedings and default notices where the maximum timeframe is generally 21 days) from 45 days to 30 days
    • introduce a requirement that financial firms can issue IDR delay notifications in exceptional circumstances only.
  • Expanding the definition of complaint to include expressions of dissatisfaction made ‘to or about’ an organisation including on a firm's own social media platform(s).  This is in alignment with the definition in  AS/NZS 10002:2014.
  • Introducing additional guidance to assist financial firms to accurately identify complaints including: the factors firms should and should not consider when determining whether a matter is a complaint and the point at which a complaint must be dealt with under a firm's IDR process.
  • Modifying the definition of ‘small business’ in the Corporations Act 2001 (Cth) to align it with the small business definition in the AFCA Rules which states: 'A Primary Producer or other business that had less than 100 employees at the time of the act or omission by the Financial Firm that gave rise to the complaint'.
  • Requiring financial firms to record all complaints, including those that are resolved to a complainant’s satisfaction at the first point of contact.
  • Requiring firms to provide clear reasons for rejecting/partially rejecting a complaint including: identifying and addressing all the issues raised in the complaint; setting out the financial firms’ finding on material questions of fact and referring to the information that supports those findings; and providing enough detail for the complainant to understand the basis of the decision and to be fully informed when deciding whether to escalate the matter to AFCA or another forum.
  • Setting clear standards about what should be in written reasons for decisions: ASIC proposes to include the content of IDR responses as a core requirement for all financial firms, including superannuation trustees, in the legislative instrument making parts of RG 165 enforceable: see paragraph 22.
  • Requiring customer advocates to comply with RG 165 (including meeting the maximum IDR timeframes and minimum content requirements for IDR responses) if they: act as an escalation point for unresolved consumer complaints or have a formal role in making decisions on individual complaints.
  • Strengthening the requirement that firms take a systemic focus to complaints handling: ASIC proposes to introduce new requirements on financial firms regarding systemic issue identification, escalation and analysis.  These include the following.
    • Requiring boards and financial firm owners to set clear accountabilities for complaints handling functions, including setting thresholds for and processes around identifying systemic issues that arise from consumer complaints.  Ms Chester commented that ASIC 'expects greater investment and attention by Boards to their own internal customer complaints data and complaints handling performance.’
    • Requiring reports to the board and executive committees to include metrics and analysis of consumer complaints including about any systemic issues that arise out of those complaints.
    • Requiring financial firms to identify possible systemic issues from complaints by: requiring staff who record new complaints and/or manage complaints to consider whether each complaint involves potentially systemic issues, regularly analysing complaint data sets, and conducting root-cause analysis on recurring complaints and complaints that raise concerns about systemic issues.
    • Requiring financial firm staff who handle complaints to promptly escalate possible systemic issues they identify to appropriate areas for action.
    • Requiring financial firms to have processes and systems in place to ensure that systemic issue escalations are followed up and reported on internally in a timely manner.
  • Complaints tracking requirements: To facilitate complaints data reporting to ASIC, the regulator proposes that all firms be required to record an identifier or case reference number (unique to that complaint) for each complaint received.  It's also proposed that firms be required to collect and record a prescribed data set for each complaint received.
  • Mandatory IDR reporting requirements: The proposed changes give effort to the reforms introduced by the Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Act 2018 (AFCA Act) which established a mandatory IDR data reporting regime to improve the transparency of financial firms’ IDR activities and performance.  ASIC proposes that all financial firms required to report IDR data to ASIC must:
    • for each complaint received, report against a set of prescribed data variables including a unique identifier and a summary of the complaint
    • provide IDR data reports to ASIC as unit record data (ie one row of data for each complaint)
    • report to ASIC at six monthly intervals by the end of the calendar month following each reporting period
    • lodge IDR data reports through the ASIC Regulatory Portal as comma-separated-value (CSV) files (25 MB maximum size)
  • Core requirements to be enforceable: ASIC states that once the policy settings are finalised, it intends to  issue a legislative instrument that will have the effect of making the core IDR requirements set out in RG 165 enforceable.

Increased transparency — stakeholder views sought on the publication of aggregate and firm level data

ASIC proposes to publish IDR data at both aggregate and firm level in accordance with ASIC’s powers under s1 of Sch 2 to the AFCA  Act.

Ms Chester comments that 'Firm performance in how they handle customer complaints, and their interaction with AFCA, will increasingly be in plain sight. This greater transparency will inform consumer and broader public understanding of how well firms treat their customers. For a regulator, it also provides an invaluable insight into how non-financial risks are being managed by the firm and ultimately the Board. ASIC expects greater investment and attention by Boards to their own internal customer complaints data and complaints handling performance.’

The consultation notes that the regulator is aware that there are 'diverse views' about the publication of this information, particularly firm level data, and it is interested in hearing stakeholder views on what principles should guide it's approach.

ASIC adds that a separate consultation on the publication of IDR data will commence in early 2020.

Providing feedback

The consultation states that 'If you disagree with the policy proposals set out in this consultation paper, particularly around reduction of IDR timeframes and collection and recording of IDR data, evidence of your own IDR performance and experience will be required to persuasively support any counter position'.

Timeline

  • ASIC seeks public input on the consultation documents by 9 August 2019 and aims to release new IDR standards (in a new Regulatory Guide 165) by end 2019.  In addition to this consultation paper, ASIC will conduct a series of stakeholder meetings. 
  • A further, separate consultation on the publication of IDR data will commence in early 2020.
  • ASIC proposes that all financial firms must comply with the requirements set out in the draft updated RG 165 and supporting legislative instruments immediately on the publication of the updated RG 165 (with certain exceptions).

[Sources: ASIC media release 15/05/2019; Consultation Paper: CP Internal dispute resolution: Update to RG 165

Responses to the consultation

  • Industry response? Some media reports suggest that the proposals, especially the possibility that public rankings of which bank or superannuation fund is best at handling disputes, are expected to receive significant resistance from the banking and superannuation sector.  
  • AFCA has welcomed moves to track dispute resolution within financial firms: In a statement, the Australian Financial Complaints Authority (AFCA) welcomed ASIC’s consultation and in particular, increased transparency.  AFCA Chief Ombudsman and CEO David Locke said: 'Increased transparency is good news.  It will help firms to continuously improve, and that will be good for the firms and their customers alike.' Mr Locke added that AFCA also welcomes the idea of requiring firms to provide a standard set of data as it on the basis that it will help companies know how they compare to their competitors and help to inform consumers about the companies they’re dealing with.  Mr Locke added that 'in this digital age, the move by ASIC to require firms to include complaints made on social media platforms, is entirely appropriate'.   
    Noting that ASIC is consulting with industry about the proposed changes, Mr Locke observed the timeliness of the process and the proposed regulatory changes.  'ASIC’s aim to match dispute resolution data with AFCA data will provide a robust and accountable way to make sure the system is fully transparent.'
  • CHOICE and the Superannuation Consumers' Centre also welcomed the consultation, in particular, the proposed introduction of a legal requirement for firms to comply with dispute resolution processes on the basis that 'self-regulation of internal dispute resolution has clearly failed'.  With respect specifically to the superannuation sector, the statement observes that 'The voluntary code for the superannuation funds is not enforceable and has no oversight, so we can't even be sure super funds are even keeping these exceptionally loose promises to their members. The Hayne Royal Commission called for an overhaul of industry codes, as too often financial service providers were either making poor promises or breaking promises without repercussions. The best solution is let ASIC get on with protecting consumers and set standards in line with reasonable community expectations.

[Sources: [registration required] The AFR 15/05/2019; [registration required] The Age 16/05/2019; [registration required] The Australian 16/05/2019; [registration required] The SMH 16/05/2019AFCA media release 15/05/2019; CHOICE media release [accessed via LexisNexis Capital Monitor]

 

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