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Systemic issues update - January-March 2012


This article summarises systemic issues that we identified during the March quarter of 2012 and reported to the Australian Securities and Investments Commission (ASIC). It also provides an update on some current and recently resolved systemic issue investigations.

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

To learn more about our approach to systemic issues, you can do our online training module.

New definite systemic issues

Flood disputes: failure to clearly inform

FOS determined a number of flood disputes in favour of the applicants on the ground that the financial services provider (FSP) failed to clearly inform the applicants of the limited flood cover under their policies, contrary to the requirements of section 35 of the Insurance Contracts Act 1984 (Cth). FOS raised this matter as a possible systemic issue with the FSP.

The FSP confirmed there were 64 flood claims dating back to 2007 which would have to be reviewed to ascertain if the customers were clearly informed about the limited flood cover. The FSP agreed to review the claims and provide a report to FOS.

After the FSP sent us a report, we decided this was a definite systemic issue. The FSP is now taking steps to resolve the systemic issue by improving their disclosure documents and procedures and by identifying and reimbursing customers that were affected by the issue in the past.

Error in credit listings (case A)

We received several similar disputes in which applicants raised concerns about serious credit infringement listings an FSP made on their personal credit files.

We referred the FSP to sections 6 and 18E of the Privacy Act 1988 (Cth), which define “serious credit infringement” and specify the circumstances in which such an infringement can be listed. We informed the FSP that in each case we investigated, it appeared that serious credit infringements had been listed, even though the FSP had not conducted sufficient tracing to determine that the applicants’ actions indicated that they intended to no longer comply with their obligations in relation to credit. We also informed the FSP that we would review whether it had made serious credit infringement listings against any other customers that were not based on actions that a reasonable person would consider to indicate that the customers no longer intended to comply with their obligations in relation to credit.

The FSP responded by providing, as requested, copies of its policies and procedures for making a serious credit infringement listing against customers. It also confirmed that all disputes cited by FOS had involved third party tracing agents.

We reviewed the information and asked the FSP to review a sample of listings that involved the use of external field agents. After the FSP confirmed that a high proportion of the serious credit infringement listings reviewed had been made incorrectly, we decided that the issue was definitely systemic.

In order to move towards a resolution of this systemic issue, we asked the FSP to tell us how many serious credit infringement listings had been removed completely as well as the date the removal and/or re-listing took place. We also asked the FSP to formally undertake to consider, case by case, any claims for non-financial loss from customers whose listing was made in error.

Error in credit listings (case B)

The applicant in one dispute complained that the FSP had not correctly assessed his application for hardship assistance regarding the hire purchase agreement for which he had acted as guarantor. During our investigation of the dispute, we found that the FSP had listed a commercial debt on the applicant's personal credit file. In our view, a commercial debt could not be considered credit under the relevant legislation and therefore the listing had been made inappropriately.

We asked the FSP to tell us whether it had made any other default listings relating to commercial credit on a customer's personal credit file. We also asked it to provide copies of its policies and procedures regarding commercial credit listings.

We reviewed the information submitted by the FSP and determined that this was a definite systemic issue due to the number of incorrect default listings made. The FSP has been asked to correct the incorrect listings and to send us copies of its policies and procedures relating to default listing business guarantors on their personal credit files.

Failure to advise customers about FOS

In its final decision letter to a customer who had made a complaint, an FSP said that no further review of the complaint was available under the general insurance industry's alternative dispute resolution process. Specifically, it said that the matter was outside FOS’s jurisdiction, due to the time that had elapsed since the original complaint.

We raised the matter as a possible systemic issue with the FSP and asked:

  • whether it had issued internal dispute resolution (IDR) responses to other customers which informed them that they did not have a right to take their complaint to FOS
  • whether it had failed to provide FOS's contact details to other customers on the basis that FOS did not have jurisdiction to deal with the complaint due to the amount of time that had elapsed.

ASIC's Regulatory Guide 165: Licensing: Internal and External Dispute Resolution requires an FSP, in its final response to a complainant, to include information about:

  • their right to take their complaint to an external dispute resolution (EDR) scheme
  • the name and contact details of the EDR scheme to which they can take the complaint.

This means that any final decision letter must explain that the complainant may take their complaint to the EDR scheme to which the FSP belongs, which deals with complaints made by its retail clients in relation to the financial services it provides. The existence of the 'right to take' a complaint to FOS does not depend on whether the complaint is within our jurisdiction. Whether a matter falls within our jurisdiction can only be determined by us after the matter is referred to us.

We have consistently expressed the view that it is a matter for us to determine whether we have jurisdiction to deal with a complaint. An FSP should not unilaterally make that decision and inform a customer that it does not have the right to take their complaint to FOS.

We reviewed this matter and found that it was a definite systemic issue. We asked the FSP to:

  • remove any wording from IDR responses that inappropriately discourages customers from taking a complaint to FOS
  • redraft its IDR responses so that they meet the requirements of Regulatory Guide 165 (outlined above)
  • indicate the approximate number of customers who, in the last six years, would have received IDR responses that did not meet these requirements.


Some of the ongoing systemic issues investigated in the March quarter are summarised below.

Methodology and disclosure of break costs on fixed interest loans

One investigation relating to this matter remains on foot; another has been closed following completion of a detailed remediation timetable. No new possible systemic issues relating to this matter were identified during the March quarter.

Errors in credit listings and inaccurate credit file enquiries

This continues to be an area that raises systemic issue referrals, particularly in relation to serious credit infringement listings and the form of default notices.  There were a number of continuing investigations during this quarter that have yet to be resolved to our satisfaction.

Recovery of costs of dealing with FOS from an applicant

This issue has been resolved by the identification and remediation of the affected customers in relation to two FSPs. Correspondence has been sent to one other FSP regarding a possible systemic issue in relation to this matter.

Failure to advise customers about FOS

There have been disputes which illustrate that FSPs in some instances have not advised customers about FOS or have provided incorrect information about FOS. As explained above, FSPs have to provide certain information about FOS in IDR responses.