The interim report from the Financial System Inquiry (The Murray Inquiry) released last month covered a broad range of issues across the whole financial sector.
In his speech to the National Press Gallery, the Chair of the Inquiry David Murray highlighted that sustaining confidence in the Australian financial system has been central to the work of the Inquiry and that a key issue for the inquiry is “whether end users can have trust and confidence in the system.” He added that in this area, the Inquiry questioned some of the assumptions and conclusions of the Wallis Inquiry.
We welcome the interim report’s key focus on consumer trust and confidence in the financial system. This reflects the key theme of the FOS submission to the Inquiry, in which we recommended placing sustainable consumer trust in financial services at the heart of the Inquiry’s considerations, as trust is the key principle underpinning a dynamic, innovative and competitive financial sector. In our submission we highlighted international research which shows that trust in financial services continues to lag other sectors in the economy.
FOS also suggested that the Inquiry’s recommendations should be designed to encourage and support consumer trust and confidence in the financial system, the financial services providers and individuals they deal with, and the products and services they use. We suggested that its recommendations clearly support:
- financial services providers putting the interest of their customers first at all stages of their business – from the design of products, marketing and distribution, to managing customers’ savings, the provision of risk protections, and how they deal with their customers when things go wrong
- the creation of sustainable relationships that encourage consumers’ confidence and trust in financial services throughout the whole intermediation process
- appropriate high standards of care by all of those who manage the savings of others, or who advise on credit, financial investment and risk products and services
- special attention to measures that assist vulnerable consumers and those currently excluded from the formal financial services sector
- regulation, competition policy and remuneration structures that create the appropriate incentive structures for the creation of relationships of trust, and
- strong sanctions and effective External Dispute Resolution mechanisms where such trust relationships are breached.
Accordingly, we are pleased the interim report of the Inquiry set out five consumer outcomes, including that consumers should have confidence and trust in the financial system and be able to expect fair treatment; and have access to timely, low-cost and efficient dispute resolution and remedies when problems arise.
The Inquiry’s interim report canvasses the concerns expressed by FOS and others that current compensation arrangements are not adequate to provide redress to consumers who have suffered financial loss. It also canvasses some of the issues about the sufficiency of relying on professional indemnity insurance as a compensation mechanism. The interim report noted that submissions were mixed on the need for a statutory compensation scheme. The Inquiry is now seeking further information on the question: Given the limitations of professional indemnity insurance, what options, if any, exist for addressing the issue of consumer loss?
FOS remains an advocate of some form of limited compensation scheme of last resort as the most effective way to deal with the issue of consumer losses. We remain willing to work with all stakeholders on how such a scheme can be designed and funded in a way that addresses stakeholder concerns while also addressing consumer needs. We will provide a further submission to the Inquiry in response to their request for more information on this issue.