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.
The four committees we support are the:
- Code Compliance and Monitoring Committee (CCMC)
- Customer Owned Banking Code Compliance Committee (COBCCC)
- General Insurance Code Governance Committee (GICGC)
- Insurance Brokers Code Compliance Committee (IBCCC)
Review of the Code of Banking Practice and the CCMC
Independent reviews of the Code of Banking Practice (the Code) and the CCMC began in August 2016. Phil Khoury of Cameronralph Navigator is conducting each of the reviews. He has published 25 submissions to the Code review to date and issues for consideration. Several submissions to the Code review also provide comments in relation to the CCMC review.
Further information regarding the reviews and the publicly available submissions are available at: www.cobpreview.cameronralph.com.au/ and www.ccmcreview.cameronralph.com.au/
Both reviews are expected to be completed by 31 December 2016.
Testing banks’ compliance with Code obligations
The Code team on behalf of the CCMC has been conducting two activities to test banks’ compliance with the Code of Banking Practice: the Annual Compliance Statement (ACS) Program and an Own Motion Inquiry into the provision of unsecured credit.
The banks’ submissions to the ACS program have been received and are being analysed. The results of this analysis will be discussed with the relevant bank at onsite visits in October 2016. Aggregated results from the ACS will be included in the CCMC’s Annual Report, which is expected to be published in December 2016.
The Own Motion Inquiry focuses on unsecured lending and looks at how banks form an opinion about a customer’s ability to repay a loan. We have completed our analysis and are about to discuss the results with our stakeholders. We expect to publish the final report in November 2016.
Customer owned banking institutions’ community engagement
The Code team on behalf of the COBCCC has been conducting an inquiry into Key Promise 9 of the Customer Owned Banking Code of Practice. This key promise reflects the customer owned banking sector's commitment to serving its communities.
The inquiry gathered information about which communities are being served by the customer owned banking industry, the methods of engagement, the focus and impact of community engagement and how institutions embed community engagement in their business culture and framework.
We are reviewing the results of the inquiry and the outcome will be published in due course.
Insurance Brokers Code Compliance Committee Annual Review
The Insurance Brokers Code Compliance Committee has published its 2015-16 annual review.
The 323 insurance brokers subscribing to the Insurance Brokers Code of Practice self-reported 862 Code breaches, including 11 significant Code breaches, and 1,023 complaints handled by their internal dispute resolution process.
This was the first time since the review of the Code that all Code subscribers were requested to self-report breach and complaints data assisted by the introduction of a new online portal for Annual Compliance Statements.
This crucial Code monitoring activity, supporting their own Code compliance efforts, will provide the Committee with a more comprehensive and nuanced view of compliance across the industry. It also supports a framework of positive breach and complaints reporting and monitoring, and will be able to provide benchmarks for good industry practice once more data becomes available over the years.
Compliance with legal obligations (Service Standard 1) was the most significant area of non-compliance, accounting for more than one-quarter (29%) of self-reported breaches.
Reported breaches under this standard related to promptly providing information and documents, compliance with the Privacy Act 1988 and compliance with the 14-day timeframe requirement in section 58(2) of the Insurance Contracts Act 1984.
Service Standard 5, which requires insurance brokers to discharge their duties 'diligently, competently, fairly and with honesty and integrity', also accounted for 28% of self-reported breaches, of which 4% related to claims handling.
Almost three in ten complaints (27%) related to service issues, reflecting the high number of Code breaches reported for Service Standard 5 on the general discharge of services. Combined, complaints relating to personal motor vehicles (20%) and commercial motor vehicles (8%) made up almost three in ten complaints.
Effectively handling client complaints in a professional and timely manner – including analysing their root causes – is important to maintaining the traditional leadership role of the industry in providing insurance broking services. Most Code subscribers provided valuable comments and information in addition to the number of complaints. However, the Committee is concerned about the high number of complaints for which the issue (37%) or product/service (19%) involved was not recorded.
Assessment of Insurance Brokers’ internal dispute resolution processes
The Code team on behalf of the Insurance Brokers Code Compliance Committee conducted an Inquiry into insurance brokers’ compliance with their obligations under Service Standard 10 of the Insurance Brokers Code of Practice. This key promise demonstrates the insurance broker sector’s commitment to have an internal complaints and dispute handling process in place that meets the Code Complaints and Dispute process standards.
The inquiry consisted of a 51-question online questionnaire which was released to all 323 Code subscribers. Each question asked insurance brokers to rate their organisation’s internal dispute resolution procedures and how these procedures are embedded in their organisation’s overall compliance framework.
The outcome of the inquiry is expected to be published on the FOS website in December.
General Insurance Code Governance Committee releases its Annual Report
The CGC has released its 2015-16 annual report. The report sets out the CGC’s compliance monitoring and other activities during the reporting period and examines Code subscribers' compliance with the 2014 General Insurance Code of Practice (the Code).
This year saw the general insurance industry's full transition to the Code, which brought new responsibilities for the CGC. The CGC implemented a full compliance program which included initiating its first Own Motion Inquiry into claims investigations and outsourced functions, dealing with nine significant breaches resulting in the return of about $1.7 million in overpaid premium funds to affected consumers, and working with Code subscribers to address breaches.
The CGC’s increased engagement with consumer advocates about its work and emerging consumer issues led to more consumer advocates and individual consumers coming forward with allegations of Code breaches in 2015-16. Determining these matters – many of which involved the Code's important new hardship provisions – has been a major part of the CGC’s work this year.
The report also provides guidance to industry about the application of some financial hardship standards. In particular, the CGC highlighted that a Code subscriber is required to notify a consumer about its assessment of whether they are entitled to financial hardship ‘as soon as reasonably practicable.’ However, the Code does not define what ‘reasonably practicable’ means or specify a timeframe for assessing a financial hardship request.
To ensure Code subscribers respond quickly and appropriately to consumers who have requested financial hardship assistance, the CGC made the following recommendations, based on the timeframes outlined in the National Credit Code:
- Within 21 calendar days, the Code subscriber should assess the consumer’s application for hardship assistance and inform them of its hardship decision, in accordance with subsection 8.6, or inform them that it needs more information
- If the Code subscriber needs more information, it should allow the consumer at least 21 calendar days to provide it
- Within 21 calendar days of the consumer providing the requested information, the Code subscriber must make its hardship decision and inform the consumer of its decision in accordance with subsection 8.6
- If the consumer fails to provide the requested information, the Code subscriber must make its hardship decision on the information available within 28 calendar days, and inform the consumer of the decision, in accordance with subsection 8.6.
The full report is available here.
The Insurance Council of Australia – the owner of the Code – has also published the report on its Code of Practice website under Governance and monitoring.
Increasing Code awareness among stakeholders
The Code team attended the annual conferences of the Financial Consumer Rights Council and the Financial Counsellors’ Association of NSW. These events provided important opportunities to engage with financial counsellors.
The Insurance Brokers Code Compliance Committee and the Customer Owned Banking Code Compliance Committee met representatives of consumer advocates at their meetings. Discussions were held regarding issues experienced by consumer advocates in their engagement with the industry sectors and their expectations about future engagement with the committees.
The Code team will be delivering Code training to the Consumer Action Law Centre in November 2016 and similar training is planned for the Western Community Legal Centre, Footscray.
The Code team will also attend and present at the annual conference of the Money Workers Association of the Northern Territory in November 2016 in Darwin. Part of the conference includes a visit to the Tiwi Islands to visit an Indigenous community.
The Code team is also developing an e-learning tool for external stakeholders – this module will supplement our existing ‘in person’ engagement program and increase accessibility to Code training to a state and national level.
Industry stakeholders also received presentations from the Code team at the FOS Conference and the National Insurance Brokers’ Association Convention in September.
The chairs and consumer representatives of all four committees met in the past two months to discuss common issues and share knowledge of their compliance monitoring work.
Code Investigation Process
The Code team continues to enhance the investigation services it delivers to the Code Compliance and Monitoring Committees. Current focus areas are:
- strengthening and streamlining the QA process for investigated cases, particularly Committee decisions
- automating case tracking tools across the life of individual files and across the Code team as a whole.
Outcomes from Code breach investigations
CCMC Determination – Code of Banking Practice
Issue: Andrew alleged that his mother’s bank, Bank A, had breached the ‘provision of credit obligations’ of the 2004 Code when it established a $20,000 credit card for her in 2009. He also alleged the bank had breached the Code in 2012 when it increased her credit limit to $30,000 and then $35,000 in 2012. Andrew lodged a dispute with FOS and contacted the CCMC after the dispute settled.
Clause 25.1 of the 2004 Code states: “Before we offer or give you a credit facility (or increase an existing credit facility), we will exercise the care and skill of a diligent and prudent banker in selecting and applying our credit assessment methods and in forming our opinion about your ability to repay it.” The equivalent provision in the 2013 Code is clause 27.
Outcome: The CCMC found that Bank A had not exercised the care and skill of a diligent and prudent banker when it approved the credit facility in 2009 or when it increased the limits in 2012. The key reasons for the CCMC’s findings were:
- The income and outgoings Andrew’s mother stated in her credit application did not align. When the bank checked with her accountant, it found she had overstated her income by 50%. However, the bank did not take similar steps to verify if the information it had received about her liabilities was accurate before making its lending decision in 2009. As a result, it did not meet the ‘prudent and diligent’ standard required by Code clause 25.1.
- The information about her liabilities was incorrect. However, because the bank had not checked those liabilities, the information used by its automated process in 2012 to assess if a credit limit increase was appropriate was also flawed. Accordingly the bank’s increases in 2012 were also inconsistent with Code clause 25.1.
During the investigation, the bank explained its lending processes to the CCMC and how it handles credit card limit increase decisions. The CCMC will incorporate this information into the Own Motion Inquiry it is conducting into banks’ ‘provision of credit’ obligations under clause 27 of the 2013 Code.
IBCCC Breach confirmation – Insurance Brokers Code of Practice
Issue: The applicant was a partner in a partnership which ran a transport business. The financial services provider (FSP) was an insurance broker that arranged insurance policies on behalf of the partnership.
The applicant alleged the FSP breached its obligations to her by transferring the partnership’s insurance policies into the name of a separate business (run by her former partner) without her consent.
The applicant sought compensation from the FSP for various financial and non-financial losses suffered as a result of its actions. In particular, the applicant stated she incurred costs in taking out replacement insurance for her business and was denied the benefit of a settlement for a claim made under the original policies.
A FOS panel determined that the FSP failed to comply with the standards expected of a broker in the circumstances of the applicant.
Service Standard 5: ‘We will discharge our duties diligently, competently, fairly and with honesty and integrity … when you are buying insurance and we act on your behalf.’
Outcome: Following referral of the matter from FOS to the Code team, the Code team contacted the FSP regarding the alleged Code breach. Following discussions with the FSP, the FSP confirmed and reported the Code breach.
The FSP also provided satisfactory information regarding remediation action taken, including:
- Instigation of a best practice project to provide for accuracy and compliance with procedures, to research and provide improvements to processes and for a consistent business approach
- Revised client instruction sheets (a revised detailed instruction sheet and a brief version for endorsement requests) which is mandatory for all employees to complete when taking an instruction from a client
- The purchase and instigation of an electronic filing system to help the team with an effective and efficient means for accurate filing
- The appointment of a compliance manager to oversee and help monitor all facets of compliance, including Code of Practice, across all branches
- One-on-one training and development for employees directly associated with this complaint, and then more widely to the business units
- Recording of the breach on its breach register.