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Issue 34 - August 2018

Systemic issues update

This article summarises some notable systemic issues we identified during the June 2018 quarter. These de-identified matters were reported to the Australian Securities and Investments Commission (ASIC).

The article also gives an update on some other current systemic issue investigations, as well as some positive outcomes from matters that we investigated but ultimately considered were not systemic.

Our process for identifying and resolving systemic issues was outlined in Issue 4 of The FOS Circular. The process is in line with our obligations to ASIC.

Our online training module provides further information about our approach to systemic issues.


New Definite Systemic Issues

Improper collection activity

The financial services provider (FSP) acted in breach of the Debt collection guideline for collectors and creditors by attempting to make excessive contact with its customers through its automated dialler system. The guideline is jointly issued by the Australian Securities and Investment Commission (ASIC) and the Australian Competition and Consumer Commission (ACCC).

The FSP confirmed that its settings permitted collection agents to attempt to make more than 120 calls per month, which was more than double the level which ASIC had indicated was acceptable.

Mistaken internet payment: process

The FSP was charging consumers a fee to handle mistaken internet payment (MIP) claims, contrary to its obligations under the ePayments Code (the Code).

The FSP acknowledged that while the Code prohibited it from charging customers to report a MIP, it argued that it did not preclude it from charging a fee where the customer decided to progress with the claim. This argument was rejected by the Lead Ombudsman on the basis that it did not align with FOS’s interpretation of the Code, nor was it in line with industry practice.

Activity on foreign exchange account

The FSP was not meeting its obligations under ASIC Regulatory Guide 227; Over-the-counter contracts for difference: Improving disclosure for retail customers (RG227), to assess prospective investors’ understanding of the products they were investing in prior to opening an account and engaging in foreign exchange trading.

To determine the suitability of the product for the investor, the FSP relied on investors answering quiz questions. However, in many instances, the information provided in the FSP’s initial ‘scripting’ often aided investors with answers to the quiz questions. The Lead Ombudsman was therefore not satisfied that the FSP was adequately assessing prospective investors’ suitability to invest in complex financial products.

Suitability of product

There were concerns raised about the FSP’s sale of add on insurance products through motor vehicle dealerships. The concerns were raised after ASIC issued a consultation paper that highlighted various issues about the sale of insurance through car yard intermediaries, including unfair sales tactics and placing pressure on consumers to purchase the products.

The FSP confirmed that in the last two years, it has paid its corporate authorised representatives approximately $2.7M in commissions for the sale of add on insurance, received approximately $10.2M in premiums, and only paid approximately $1.8M in claims. The Lead Ombudsman expressed the view that, based on this information, the sales method was unlikely to properly inform consumers of the low value of the product.

Positive outcomes from rejected systemic issues

Sometimes we investigate issues that are ultimately determined not to be systemic. The issue may involve substantial investigation and result in a change to an FSP’s process or a comment from the relevant Lead Ombudsman about relevant industry practice. Here is a selection from the June quarter:

  • The FSP instructed its collections staff to check whether customers experiencing financial difficulty repaying credit card and personal loan debt may be able to make a claim under a related insurance policy.
  • The FSP updated its IT infrastructure to reduce the potential for outages on its mobile banking application. The FSP also improved its communication channels, including increased use of SMS and email, to notify customers quickly if there were any issues.
  • The FSP restructured its claims team and improved its complaint handling processes, to ensure insurance claims and any subsequent complaints were dealt with in a responsive and timely manner.
  • The FSP updated its processes to notify all insured parties when one co-insured requests to cancel an insurance policy.
  • To improve customer satisfaction, the FSP made changes to its processes for managing complaints about the quality and timeliness of motor vehicle repairs for insurance claims. It also started tracking complaints about repair delays and repair times.
  • The FSP updated its product disclosure statement to clearly inform policyholders of their right to cancel their travel insurance policy outside the cooling off period. The FSP also extended the cooling off period from 14 to 21 days.
  • The FSP introduced system checks to prevent administrative errors occurring that resulted in Certificates of Insurance and policy documents being issued to consumers who in fact had their cover declined.
  • To improve customer experience, the FSP stopped charging an administration fee when its customers request privacy information.