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Systemic Issues

Systemic Issues and Serious Misconduct

FOS Responsibility

Under ASIC Regulatory Guide 139, FOS is obliged to identify, resolve and report on systemic issues and serious misconduct.


A systemic issue is defined in FOS’s Terms of Reference as an issue that will have an effect on people beyond the parties to a dispute.
Serious misconduct is defined as conduct that may be fraudulent or grossly negligent or may involve wilful breaches of applicable laws or obligations under the Terms of Reference.

By dealing effectively with systemic issues and serious misconduct, FOS can raise industry standards and help consumers to obtain fair compensation for financial losses.

FOS Systemic Issues Process

FOS has established the following process for dealing with systemic issues:



Systemic Issues Process Diagram


1. Identification
While FOS is handling a dispute, we consider whether the dispute raises any issues that might be systemic. Identification of a possible systemic issue can occur at any stage of FOS’s dispute resolution process.

2. Referral
Once a possible systemic issue has been identified, we refer it to the relevant financial services provider (FSP). We will detail the issue, ask for further information, and invite the FSP to formally respond.

3. Assessment
We then assess the FSP’s response and determine whether the issue is definitely systemic. Investigations are carried out by FOS’s systemic issues staff, in consultation with the relevant Ombudsman. If we decide that the issue is not in fact systemic, then the matter is concluded (though FOS may reconsider an issue at a later time in light of new information relevant to the issue). If we decide that it is a systemic issue, then we will manage its resolution in conjunction with the FSP.


4. Resolution
FOS will work with the FSP to resolve the systemic issue. Resolution of the issue will require the FSP, where appropriate, to:

  • identify all affected customers
  • compensate the affected customers fairly for any financial loss, and
  • implement a strategy to prevent the problem from recurring.

5. Reporting
FOS reports to ASIC quarterly on systemic issues. We report on the numbers of possible and definite systemic issues and on the nature, progress and resolution of definite systemic issues. FSPs are not identified in these reports.
FOS only identifies an FSP in a report to ASIC if the FSP has not dealt with a definite systemic issue to the satisfaction of the relevant Ombudsman.


Systemic Issues in 2010

Break cost methodology on fixed principal and interest loans
In the course of investigating a number of disputes relating to break costs on fixed principal and interest loans, FOS found that a number of members were not adequately taking into account the present day value discounting required for principal repayments over the remaining term of the fixed rate loan. This was resulting, in some cases, in an incrementally higher break cost for the customer.

In order to resolve this systemic issue, all of the FSPs involved:

  • adopted a present day value methodology for all future calculations of break costs on fixed principal and interest loans
  • reviewed the break costs charged on all early repayments of fixed principal and interest loans since 1 September 2008 and refunded any variance, and
  • agreed to pay interest on the refunds from the date of payment of the break costs to the date of repayment at the rate of 3% per annum.

In one case, the FSP estimated that the issue affected 1,304 accounts and that $592,000 (including interest) would be refunded to customers.


Disclosure of merchant facility fee
One FSP had unilaterally altered the terms of its merchant facility agreement by increasing fees and charges without notice. The FSP indicated that 13,051 merchants using terminals had not received the required notice of the fee change.

The financial services provider agreed to pay refunds to all affected customers and reset their facility fee back to the level it was at before the unadvised change. It paid 70 refunds totalling $12,065.13.


Failure to link eligible offset accounts

FOS discovered that one FSP involved in a number of disputes had not always correctly linked its offset home loan feature to an eligible offset account.  Over 12 months, the FSP identified all the affected customers and reimbursed about $11.6 million to those customers. The FSP also fixed and enhanced its system to ensure that the problem did not recur.