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Issue 26 - August 2016

An update from the Code Compliance and Monitoring Team (FOS Code)


The Code team is a separately operated and funded business unit of the Financial Ombudsman Service (FOS) Australia. We support independent committees to monitor compliance with codes of practice in the Australian financial services industry to achieve service standards people can trust. Find out more about who we are and what we do.

Review of the Code of Banking Practice and the CCMC
In April 2016, the Australian Bankers’ Association (ABA) announced that it would arrange a review of the Code of Banking Practice, which is the banking industry’s customer charter on best practice banking standards, disclosure and principles of conduct.

The Code Compliance and Monitoring Committee (CCMC), which monitors banks’ compliance with the Code of Banking Practice, is required under its mandate to arrange an independent review of its activities, to coincide with the review of that Code. 

Phil Khoury, of Cameronralph Navigator, has been appointed to conduct the review of the CCMC. Mr Khoury has also been appointed by the ABA to conduct the independent review of the Code of Banking Practice. Both reviews will be completed by 31 December 2016.

During the review:

  • the Code team and the CCMC will liaise with Mr Khoury
  • Mr Khoury will consult with banks, consumer and small business organisations, regulators, external dispute resolution schemes and other stakeholders.

The Terms of Reference for the independent review of the CCMC are available on the CCMC website and the website of the independent reviewer

The public is invited to make submissions on any matters outlined in the Terms of Reference. Submissions are requested by 19 August 2016 and can be sent to

Testing banks’ compliance with Code obligations
As part of its risk-based monitoring approach, the Code team, on behalf of the CCMC, is conducting an Own Motion Inquiry into how banks comply with the provision of credit obligations in the Code of Banking Practice. The inquiry focuses on unsecured lending and looks at how banks form an opinion about a customer’s ability to repay a loan.

The data gathering phase of the inquiry was completed in June 2016 and we are currently analysing, verifying and testing the information provided by banks. We expect the final report to be published around October 2016.

General insurance industry data report and key observations
The Code Governance Committee’s General insurance Industry Data Report 2014-2015 is now available from our Code compliance publications web page.

In 2014-15, consumers acquired more than 48 million personal general insurance policies, largely in Motor, Travel and Home, and made almost 3.7 million personal insurance claims, up 8%.

At the same time, the number of personal insurance claims the industry did not accept continued to grow – up 16% overall to 122,875, with substantial increases reported in Sickness & Accident, Consumer Credit and Motor. This continuing upward trend in declined claims numbers is only partly explained by the 8% growth in claim numbers.

Consumers also withdrew 206,222 personal insurance claims, up 61%, and while the cause of this trend is not entirely clear, it points to a gap between consumer expectations and how these products operate in practice. While the number of declined and withdrawn claims grew, the number of internal disputes about personal insurance products and services continued to fall, down by 15% to 21,719.

Inquiry into general insurance outsourcing
The Code Governance Committee extended the scope of its first Own Motion Inquiry (Inquiry) to include claims investigations practices and policies, in addition to outsourced functions. The Code team rolled out the Committee’s expanded Inquiry to participating Code Subscribers and consumer advocates during June and we expect to receive responses during August.

Providing simple guidance for good industry practice
The Code team continued to provide its Tip of the Month series, including case studies of Code breaches to the National Insurance Brokers Association (NIBA) for promotion in NIBA’s new publication, the Insurance Adviser. It is also developing an industry stakeholder group to discuss upcoming industry issues.

The Code team also met with the Australian and New Zealand Institute of Insurance and Finance (ANZIIF). ANZIIF has taken over the educational training role for insurance brokers previously provided by NIBA. The purpose of the meeting was to ensure that there is appropriate consideration of Code issues in training materials.

The Code team reviewed the website for the Customer Owned Banking Code Compliance Committee to include specific information for consumers and Code subscribers. Consumer information includes information about rights under the Code, including if you are in financial difficulty and information for small business and how to report a concern. Meg’s story provides a good case study. Code subscribers are also provided with practical examples of how to comply with the Code. Fact sheets in the news and publications section can be used by Code subscribers for staff training.

Increasing Code awareness among stakeholders
The Code team has engaged with various industry stakeholders to increase awareness of the work of the Customer Owned Banking Code Compliance Committee (COBCCC) and to discuss common interests relating to customer owned banks. Among those stakeholders we have met are the Mutuals Audit & Governance Professionals Institute, Women in Mutuals, and Small Australian Mutuals Network.

We also took part in the Customer Owned Banking Association’s (COBA) Compliance Forums in Sydney, Brisbane, Adelaide and Melbourne and presented on Code issues, in particular highlighting the differences between Code compliance monitoring activities and external dispute resolution investigation matters. The presentation included examples for positive breach and complaints recording, monitoring and reporting. Contact us at if you would like a copy of the presentation.

Sharing knowledge
The COBCCC met its equivalent compliance monitoring body in the banking sector – the CCMC - to discuss common issues and share knowledge and compliance monitoring experiences. As part of that meeting, the Committee also met ASIC to discuss ASIC’s current issues in the financial services sector.

Coming soon: assessing engagement with the wider community
The Code team is undertaking an Own Motion Inquiry to examine Customer Owned Banking institutions’ compliance with their obligations under Part C Key Promise 9 of the Customer Owned Banking Code of Practice to effectively engage with the wider community. The outcome of this inquiry will be published when available.

Code Committee appointments
Each code of practice is governed by an independent code committee. The following re-appointments were made in the June 2016 quarter:

  • Ian Berger was re-appointed as the industry representative on the General Insurance Code Governance Committee.
  • Julie Maron was re-appointed as the consumer representative on the General Insurance Code Governance Committee.

Outcomes from Code breach investigations

Case study – fairness in decision making in the General Insurance Code of Practice
The customer, who had comprehensive motor vehicle insurance, lodged a claim following a collision with another motor vehicle. Her insurer investigated the claim and denied liability on the basis that:

  • she had not told the truth about the claim’s circumstances and
  • her conduct and actions had tainted the claim with fraud.

On behalf of the customer, a community lawyer lodged a dispute with FOS. FOS issued a determination in favour of the customer and found that the insurer should indemnify the customer for her loss.

Following the determination, the community lawyer alleged that the insurer was in breach of its obligations under the Code.

The code obligations
Under the Code, insurers are required to conduct claims in a fair, transparent and timely manner and take into account relevant information only when deciding a claim.

The outcome
The Committee determined that the insurer breached the Code because it took into account irrelevant information in deciding the claim such as a perceived association between the customer and the other driver, and unconfirmed sightings of a young man fleeing the scene of the accident. The Committee also determined that the insurer’s external expert report lacked transparency and was unfair. It noted that in the determination, FOS provided little weight to the report because the insurer’s expert’s conclusions were flawed.

The insurer acknowledged the Code breaches and provided feedback to internal staff and its external service suppliers. The insurer also provided additional training in relation to fraud awareness to ensure staff are reaching fair decisions.