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Issue 29 - April 2017

An update from the Code Compliance and Monitoring Team


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 currently 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).

The Code Team will also shortly be providing support to the new Life Insurance Code Compliance Committee (LICCC)

Review of the Code of Banking Practice and the CCMC
Phil Khoury has now completed his reviews of the Code of Banking Practice and the CCMC. His reports were published on 20 February 2017.

In his review of the Code Mr Khoury made 99 recommendations, including 19 in respect of changes to the CCMC’s Mandate. These recommendations include:

  • moving to a risk based approach to monitoring and investigations
  • seeking more data from banks and enhancing the CCMC’s data analysis function, and
  • adding a Small Business/Agribusiness representative to the Committee.

In addition, among other things, Mr Khoury made recommendations in respect of Responsible Lending, Small Business and Accessibility to Banking.

Mr Khoury’s report on the Code can be found here. The Australian Bankers Association’s (ABA) response to the review recommendations were released on 28 March 2017 and can be found here.

The review of the CCMC’s work made six recommendations for its future operations. The recommendations would see, amongst other things, the CCMC shift its emphasis away from investigating individual complaints in favour of an expanded role monitoring overall sector practice and reporting effectively and transparently on this monitoring work.

On welcoming the outcomes of the review, CCMC Independent Chair, Professor Christopher Doogan AM, said that the Committee supports the review’s recommendations, a number of which align with improvements the CCMC had identified in its own internal review.

“We will be considering Mr Khoury’s recommendations carefully and, as appropriate, incorporating them into our three-year rolling work plan,” Professor Doogan said.

“The CCMC will also be working closely with the ABA, in relation to its response to the Code and CCMC review recommendations.”

A copy of the CCMC review can be found here.

The CCMC’s Annual Bank Forum 2017
On 2nd and 3rd March 2017, the CCMC held its Bank Forum at Suncorp’s offices in Brisbane. This annual event is the CCMC’s chance to meet with all the code-subscribing banks together and discuss topical issues.  This year, 21 delegates representing 12 banks attended. The topics discussed included:

  • The Code and CCMC reviews
  • The challenges of reporting breach data consistently across the banks
  • Accessibility to banking, including a presentation by a consumer advocate, and
  • The ABA’s view of the year ahead.


Customer owned banking institutions’ engagement with community
On 18 January 2017 the COBCCC published its Own Motion Inquiry into Key Promise 9 of the Customer Owned Banking Code. This key promise reflects the customer owned banking sector's commitment to serving both its communities and its customers.

The inquiry developed a better understanding of how institutions manage this obligation, the identification and promotion of good business practices for engaging with communities and the assessment of the effectiveness of institutions’ impact on the wider community. It benchmarks current industry practice and makes recommendations for good industry practice based on the data collected.

Key findings included:

  • The customer owned banking sector is community focused, reflecting its history and the culture and frameworks that underpin its dealing with customers. Many institutions reported that they engage with over 100 different community groups on an annual and ongoing basis. Over 50% of institutions engage with communities on a weekly or monthly basis.
  • 73% of all institutions spent more than $20,000 on community engagement activities, with 19 of the largest institutions spending over $500,000.
  • Philanthropic or voluntary community engagement, such as engagement which does not provide direct benefit to the institution, is wide-spread irrespective of the size of the institution.
  • Community engagement brings benefits to both communities and institutions – increasing community trust and cohesion.

A copy of the Own Motion Inquiry Report can be found here.

Future inquiries into customer owned banking institutions’ direct debit and privacy obligations
The Committee is currently discussing potential areas of concern for future own motion inquiries. These include a follow up inquiry into direct debit obligations, and an inquiry into privacy obligations.

The own motion inquiry into Direct Debit obligations will be the second follow-up inquiry based on the Committee’s inquiry in 2010 and the subsequent follow up in June 2012. The inquiries assessed the Customer Owned Banking institutions’ compliance with its direct debit obligations under Section 20.1 of the Code.

In March 2011 the Committee recommended in its report that all Institutions must ensure that staff are adequately trained and understand the obligations under the Code and the Bulk Electronic Clearing System (BECS) rules.

In June 2012 the Committee provided in its report a sample of a direct debit compliance assessment questionnaire.

Customer owned banking institutions’ compliance verification
The Annual Compliance Statement (ACS) Verification Program was conducted via telephone conferences between November and early December 2016. This year 22 Institutions participated in this Program, including all Institutions with over $1b assets and five other Institutions varying in size.

Prior to each telephone conference, Institutions were provided with a copy of their 2015-16 ACS response and for the first time with an ‘Aggregated Outcomes and Comparative Data’ document. The purpose of this newly-developed comparative data document is to provide more targeted feedback to enable the Institution to benchmark its compliance outcome against industry performance in general and against other Institutions within the same size category.

Key findings included:

  • Inconsistent self-reporting of complaints data is one of the biggest challenges of the ACS activity.
  • Need for improved guidance for completion of the ACS.
  • The level of maturity and sophistication of an Institution’s compliance framework often depends on the systems and infrastructure that support that framework.

Institutions need to look beyond their complaints data for sources of Code breaches and share examples of other sources to promote a positive compliance culture.

The Code Team is planning to conduct a webinar and host a ‘Question and Answer’ session prior to the completion of the 2017 ACS.

Insurance Brokers’ internal dispute resolution processes
The IBCCC has finalised its Own Motion Inquiry into insurance brokers’ compliance with their obligations under Service Standard 10 of the Insurance Brokers Code of Practice.

The Committee looked at whether insurance brokers have complaints processes that meet the Insurance Brokers Code of Practice good practice standards for internal dispute resolution. The Committee collected data for its Inquiry report through a questionnaire completed by 299 organisations.

The Committee found that staff are well-trained to handle complaints, and all organisations follow good industry practice on responsive and fair complaint handling. Almost all insurance brokers provide basic information about how to make a complaint.

However, brokers are not always doing enough to ensure complaint processes are accessible to all customers. Only half (49%) consistently proactively inform customers that they can get help from a friend or family member to make a complaint. Around one-third (31%) consistently offer customers from a non-English speaking background assistance to make a complaint.

The Committee recommended that staff be given more training and guidance on how to assist customers with some form of difficulty – such as a disability or language barriers – should they wish to complain.

A copy of the Own Motion Inquiry Report can be found here.

General Insurance Industry Data Report 2015–16
The General Insurance Code Governance Committee (GICGC) has published its report covering Code Subscribers’ general insurance and workforce data, compliance initiatives and outcomes for 2015–16.

A new data collection framework places the GICGC in a unique position to confidently identify retail general insurance industry trends and offers insights into the circumstances and practices driving these trends. The annual industry data report published on 29 March 2017 provides all insurers with information to enable them to improve services for Australians and increase trust in the general insurance industry.

The GICGC’s General Insurance Industry Data Report 2015–16 can be found here and shows that during the reporting period (and compared with 2014–15) Code Subscribers:

  • Issued 44,171,089 retail policies to consumers
  • Received 3,755,643 retail claims from consumers, up 2%
  • Recorded the withdrawal of 270,799 retail claims, up 29%
  • Declined to accept 143,445 retail claims, an increase of 14%
  • Received 28,587 retail internal disputes from consumers, up 32% and reviewed 25,563 retail internal disputes, up 19%.
  • Self-reported 5,021 Code breaches, 33% more than last year
  • The general insurance workforce comprised 143,338 participants, up by 112%.

A snapshot of the Report can be found here. The GICGC identified 12 recommendations to assist Code Subscribers to comply with their Code obligations. It also highlighted continued and substantial increases in both declined and withdrawn claims which Code Subscribers did not explain adequately.

The GICGC Chair, Lynelle Briggs AO, said that while Code Subscribers referred to “…strong business growth as the main reason why they are declining more claims…the Committee does not believe that this adequately explains the growth in declined claims frequency, given that the number of retail insurance claims grew only slightly.”

Together with an unexpected 32% increase in internal disputes trends, Ms Briggs said the GICGC would like to see Code Subscribers “…do more to identify and understand the factors underlying year on year increases in declined claims data” as it will assist Code Subscribers in reducing consumer dissatisfaction with claim outcomes. Ms Briggs also said that continued increases in the number of withdrawn claims may “… point to gaps in consumers’ understanding of the insurance products they are purchasing.”

General Insurance Code Governance Committee’s Own Motion Inquiry into claims investigations and outsourced services
We continue our work on a second report for the GICGC which will deal with the outcomes of the GICGC’s first own motion inquiry (OMI). The OMI examined the way in which participating Code Subscribers investigate claims and their arrangements for outsourced services. The GICGC expects to publish the report by early May 2017.

General Insurance Code Governance Committee’s proposed submission to the Insurance Council of Australia’s review of the 2014 General Insurance Code of Practice
On 17 February 2017, the Insurance Council of Australia (ICA) launched its review of the 2014 General Insurance Code of Practice (the Code). We are currently working with the GICGC on developing its submission to the ICA. The proposed submission will outline several areas of the Code that the GICGC considers could be improved.

The Code review will consider the operation and effectiveness of seven key sections of the Code:

  • Buying insurance – section 4
  • Standards for Employees, Authorised Representatives and Authorised Financial Services Licensees acting on behalf of a Code Subscriber – section 5
  • Standards for Service Suppliers – section 6
  • Claims – section 7
  • Financial hardship – section 8
  • Complaints and disputes – section 10
  • Monitoring, enforcement and sanctions – section 13.


Increasing Code awareness among stakeholders
Following the Christmas/New Year break, the Code team continued its engagement with the various industry associations to which the codes of practice relate, the regulator and consumer groups, in addition to meetings with FOS executive staff and ombudsmen, FOS members and code subscribers to discuss emerging code compliance issues.

Sally Davis, General Manager Code Compliance & Monitoring was part of a panel discussion at the inaugural Responsible Lending and Borrowing Summit 2017 in Sydney in February 2017. Code team staff also attended and gave a short presentation at the annual conference of the Financial Counsellors’ Association of Queensland.

Committee members and Code team staff attended the ASIC Annual Forum in Sydney in March 2017 to discuss the balance between innovation and stability in our rapidly transforming financial system.

Outcomes from Code breach investigations
General Insurance Code of Practice – Determination by the General Insurance Code Governance Committee (GICGC)
The Committee recently made two important Determinations.

In the first matter the GICGC had to consider the words “in accordance with this section” which appear in subsection 4.4 of the Code.

The Committee had regard to the purpose and spirit of the Code and determined that sub-section 4.4 operates as a stand-alone provision. This decision is important because the same words appear in subsections 6.2, 7.2 and 10.4 of the Code and may require some Code Subscribers to review how they internally monitor and report against these obligations.

In the second Determination the GICGC had to consider if a Code Subscriber had sufficient evidence to support its decision to reject a claim based on fraud. The Committee was not persuaded that the evidence available supported that conclusion. In finding the insurer in breach of its obligation under subsection 7.2 of the Code, the Committee expressed particular concern about inferences the insurer had drawn against the policy holder based on his living arrangements with the driver. Rejecting a claim on the basis of fraud is a serious matter and the decision is a useful reminder to insurers to ensure they have sound and verifiable evidence before making such decisions.

Insurance Brokers Code of Practice – Determination by the Insurance Brokers Code Compliance Committee (IBCCC)
In a recent Determination the IBCCC had to consider if file notes made by an insurance broker’s authorised representative prior to arranging an insurance policy meet the obligation to act in a diligent and competent manner, as required by Service Standard 5 of the Code. In making its decision the IBCCC determined that:

  1. Good record keeping is an integral part of being a diligent and competent insurance broker and is a key element in meeting the requirements of Service Standard 5 and managing the overall client relationship.
  2. To meet Service Standard 5, the Committee expects an Insurance Broker (or its Authorised Representative or agent) to record what it has done to identify its actions with its client.
  3. Where an Insurance Broker (or its agent or Authorised Representative) fails to make and record comprehensive file notes the Committee will consider the Insurance Broker to have breached Service Standard 5.