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Tuesday, 5 December 2017
Page: 9747

Senator WHISH-WILSON (Tasmania) (18:32): The purpose of the Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017 is to amend the Corporations Act 2001 and other related legislation to implement the central recommendation of the Ramsay review. What was that? You've probably heard this from the minister several times. It was for the establishment of a new one-stop-shop external dispute resolution, or EDR, framework—the Australian Financial Complaints Authority.

The Australian Financial Complaints Authority will replace the Superannuation Complaints Tribunal, SCT, the Financial Ombudsman Service, which we know as FOS, and the Credit and Investments Ombudsman, CIO, in the existing EDR schemes approved by the Australian Securities and Investments Commission. It will also provide an enhanced internal dispute resolution, or IDR, framework. Basically it's about dealing with all customer financial disputes about products and services provided by any financial services firms, including superannuation disputes.

What is EDR, or external dispute resolution? EDR schemes are designed to provide a cost-free, relatively quick and independent service to resolve disputes between consumers and providers of financial services or credit. EDR schemes represent an alternative to the often costly and time-consuming effort of going to court. They may assist in resolving complaints through the use of negotiation or conciliation and requests for further information in order to help a complainant deal with a dispute.

The outcome of an EDR process may be a decision that is binding on the financial services or credit provider, if it is accepted by the consumer. This may include ordering that compensation be paid to a consumer, if they have suffered a loss, or a dispute may be resolved in some other way. As mentioned before, there are two EDR schemes, FOS and the CIO.

The FOS is an independent dispute resolution service for individuals and small-business holders. Those of us who have been working with the victims of financial crime for some years now are very familiar with FOS. It is governed by an independent board of consumer representatives and financial service industry representatives. It is typically the larger banks and their insurance arms which are members of FOS. Basically, FOS can generally hear disputes if: the dispute is between an individual or small business and a bank or financial institution, including credit unions; the financial services provider is a member of FOS; or the dispute relates to an act or omission by a financial services provider in relation to a financial service in Australia; a claim whose monetary limit does not exceed $500,000; a dispute involving a claim for more than $500,000, if all parties in FOS agree; and the event to which the dispute relates occurred no more than six years earlier. I note that the bill before us under the new AFCA structure improves outcomes in relation to FOS's current powers and limits on disputes on claims, which is a good thing.

The Credit and Investments Ombudsman, CIO, operates in a similar manner to FOS. Its key goal is to provide consumers with a cost-free alternative to legal proceedings for resolving disputes they may have with their financial service provider. Participants in the scheme include credit unions, building societies, non-bank lenders, mortgage and finance brokers, financial planners, investment managers, debt services and a wide range of other financial services and product providers. CIO operates mainly in the credit sector. Its member profile consists of nearly 24,000 members, about 97 per cent of which are sole traders and small businesses. That membership is mainly comprised of the group that I've just mentioned.

Lastly, the Superannuation Complaints Tribunal is an independent statutory tribunal. It's not subject to ASIC's approval, and only deals with complaints against trustees and certain insurers in relation to superannuation funds, annuities, deferred annuities and retirement savings, by virtue under the relevant provisions of the Superannuation (Resolution of Complaints) Act 1993. As explained by the industry super funds in submissions to this legislation, complaints about superannuation that are dealt with by the SCT are different to complaints about the financial products and services dealt with by other financial service external dispute resolution schemes.

That is the basic background on what we're dealing with here tonight. We're dealing with legislation that merges all three entities. The intent of that legislation is to improve outcomes for consumers, to make things quicker, to have a new funding model, to provide a one-stop shop and to get through a backlog of complaints and disputes in this country. I want to acknowledge Minister O'Dwyer and the work she has done to bring this legislation forward. The Greens have had constructive discussions and conversations with the minister over recent weeks. While we haven't yet reached a satisfactory accommodation on the inclusion of the SCT in this new AFCA, we do support the intent of merging the CIO and the FOS and improving outcomes for consumers.

We support the merger of the Financial Ombudsman Service, FOS, with the Credit and Investments Ombudsman, CIO, but we're still not convinced of the need to bring in the Superannuation Complaints Tribunal under the umbrella of the merged authority. We acknowledge—indeed, others opposed to the inclusion of the SCT in this new body, such as the CPSU themselves, also acknowledge—the need for the SCT to be reformed and to have better resourcing and funding. But a number of important stakeholders throughout the consultation process—indeed, even in the hours and days leading up to this legislation—still disagree that the inclusion of the SCT in the AFCA model is the way to solve problems with the SCT, and I will come back to that later.

This legislation can be related directly to the Ramsay review, as I mentioned earlier, but the origin of this bill stems from the government's unwillingness over this term of government to call for a royal commission into the banks and financial services sector. It was brought together quickly to reduce the volume of calls for a royal commission. In fact, the new AFCA was first floated as an idea to head off demands from Liberal MP Warren Entsch, to satisfy his concerns and prevent him publicly supporting a royal commission. It has since been spun, including by a large number of Liberals in this chamber, in debates and in the media, as an important part of their frame and a reason for not having a royal commission—or at least as a reason for the government not acting on implementing their own royal commission.

I often say that good legislation is a bit like baking a cake. We have the politics and we have the policy. The policy includes the ingredients that you need to make the cake edible, but the politics is what sets the oven at the right temperature to actually bake the cake. I think the government was hoping that they would get widespread support for this scheme as a substitute for having a full, in-depth royal commission looking at misconduct, but, as we know now, that changed after the Prime Minister's magnificent double-twist with a full pike backflip, which we saw last week. We now actually have an in-depth inquiry into financial misconduct in this country.

I want to talk a little bit about the royal commission and the terms of reference. It is very clear in the terms of reference. Item 1e) states that the commissioner will examine

the effectiveness of mechanisms for redress for consumers of financial services who suffer detriment as a result of misconduct by a financial service entity.

We know that other aspects of the industry super bodies will be looked at by the royal commission. As I've said in here before, the Greens' bill that passed this place, which had the support of Senator Williams and the support of Labor in the House, also had broad enough terms of reference to have a similar inquiry by the commissioner. This issue will be looked at by the royal commission. We're now dealing with legislation before us which has been in train for some time, and since only a few days ago we have a commissioner looking at similar issues relating to disputes and the same body that was looking to merge into the AFCA.

The government has also been talking recently about a last-resort compensation scheme. It has been said—indeed, this was hinted at in the Ramsey review—that this would be ideally bolted onto the Australian Financial Complaints Authority. I haven't been involved in discussions with anyone about a last-resort scheme. I know that Senator Xenophon certainly talked a lot about that when he was in this place, and Senator Williams may have some light to shed on this. We know it was a live option for the government. There were active discussions on this until recent days. I don't know if it's still active and still under consideration. If a royal commission does recommend compensation or grounds for compensation for victims of financial crime, as I hope it will, then this scheme is going to be really important. If the royal commission is going to last only 12 months, why aren't we dealing with that in the legislation here tonight? That is clearly going to be an important part of any new financial complaints authority.

I'm not really sure that we've got the ingredients right here tonight. I don't believe that the SCT, the Superannuation Complaints Tribunal, should go into this body at the moment and I don't believe that the politics of this has set the temperature right for this to pass the Senate. I may be proved wrong in just a few minutes. What we have, when you think about it, is a confusing spaghetti bowl of ideas, policies, legislation and spin around financial complaints.

Senator Seselja: Now you're mixing your metaphors.

Senator WHISH-WILSON: The spaghetti got you excited, Senator? Yes—you probably haven't had dinner yet. It's a quarter to seven. We aren't quite sure how it's all going to fit together at this stage, yet we're dealing with putting architecture in place to set up a one-stop shop, a super mechanism for dealing with victims of financial crime and financial complaints.

Let's talk a little bit about superannuation. We know that complaints are significantly lower in number than those about banking or other financial advice, and there is a chance that superannuation oversight could be pushed off to the side in relation to the avalanche of banking complaints. That's certainly been one of the key issues that's been raised in relation to this. We also know that there's a different subculture in relation to superannuation and other financial services. There are some fundamental differences in the products and their nature, and we're not convinced that due consideration has been given to the merging of the different cultures and stakeholders at this stage. We are concerned about job losses and whether the merger is driven purely by wanting to get more efficiencies and cost savings than necessarily driving through a larger mountain of complaints, and we haven't been able to secure any guarantees that there won't be job losses, especially from the SCT when it's merged into the new entity.

We have some really basic legislation here tonight, but we actually don't have any detail. There is considerable uncertainty around this legislation because there is no detail around the terms of reference. The minister herself has been quite open that they are under negotiation and they may take some time. She wanted to get the legislation in place before the terms of reference were sorted out, but that's one of the key reasons that we have such uncertainty on this legislation, especially in relation to the superannuation scheme.

Very quickly, I want to talk a little bit about the SCT. I want to acknowledge that I got a letter from Choice. Choice are a stakeholder that I've worked very closely with since I've been a senator on issues like the watering-down of the FOFA laws. Choice were brilliant, as they were in providing a lot of good advocacy work around the dangers of the Trans-Pacific Partnership Agreement. They are an organisation I respect. They have made it very clear to me, as they have to other senators, that they don't want to see the SCT removed from AFCA. They say the goal of a properly-functioning external dispute resolution scheme is to provide fast, fair and free resolution. On these grounds, the case for moving away from a rigid tribunal structure, which they believe the SCT is, to a more responsive ombudsman-style scheme is clear.

As outlined in the report of the Ramsay review, it took an average of 796 days for disputes that reached determination to be resolved by the existing Superannuation Complaints Tribunal, the SCT. This contrasts with an average of 62 days for the Financial Ombudsman Service, the FOS, in 2015-16. They highlight that some stakeholders have argued that these delays could be addressed through more funding, but repeated funding injections have failed to have any impact on delays. This is due to the inherent limitations of the tribunal model, where processes are determined by legislation, appointments of tribunal members are often delayed and any change to funding is dependent on the government cycle. They talk about the contrast of the flexibility around the ombudsman schemes. So they are a clear supporter of the government's legislation.

As I said earlier, I don't believe that Industry Super Australia or other stakeholders, like ASFA, the voice of super, which is for both the retail and the industry super funds, have the same clear view, and nor do the union, the CPSU, that represent the workers. I have a letter from them as well, with the signatures of the workers who currently work for the SCT. They believe the current bill actually weakens current appeal rights and protections for complainants, specifically around appeal rights and privacy. They have raised these issues in numerous letters, and they don't believe there has been anywhere near enough consultation. They agree the SCT is not perfect. They believe it has been chronically underfunded for years, a fact that has been universally acknowledged by both friends and critics of the SCT: 'Over the last year, we've seen just under a third of our workmates made redundant, and those of us who have remained have struggled with a growing backlog of complaints. An increase in funding would be welcome and would ameliorate our current problems. However, a permanent solution is needed.' They don't believe merging into the AFCA is the permanent solution that they need. They go on to say: 'The current industry funding model for the SCT is opaque and indirect. The money received by the SCT is determined by government and then recouped from industry membership fees and regulated by APRA. The funding needs to be transparent and linked to the number of complaints we receive.'

They have been constructive as well, saying there is a better way forward for them, and they have also questioned why the minister has made sure that AFCA has very similar statutory powers to resolve disputes in superannuation, which was the reason that they were set up and that they were different. They are saying that, by default, the minister has admitted that they are unique, they deal with different issues to the FOS and the CIO and they should remain separate.

I've got a number of issues that have been raised with me by groups such as Industry Super. They say they have expressed concerns about the new arrangements and how they could result in superannuation trustees or members of these funds subsidising an EDR process primarily used by non-superannuation financial providers, and this would be in conflict with trustee obligations, including their obligation to act in the interests of all members. They believe this legislation will be tested in the Federal Court if it's passed. They've also talked about funding issues. They prosecute the case that superannuation fund members should not, and legally cannot, subsidise other financial service disputes and, further, that self-managed super funds must contribute to the scheme or pay on a cost-plus basis when utilising the scheme.

In relation to governance, they say they will argue that there should be a separate AFCA superannuation panel with expert representation, which, most importantly for them, must include not-for-profit representation, a debate that we've been having in this chamber on other superannuation bills in recent days. That is the beauty of their model. They believe it works and it gets good results for their members. They also highlight that there's no detail in this bill. The terms of reference haven't been sorted out. We've seen criticism around that.

Finally, that leads me to talk about ASFA. ASFA's position is quite interesting. They step out the key reforms. They talk about their positions. They agree the minister has worked to meet many of their concerns, but they still have many key concerns. I'd like to read one of them because it relates directly to the commencement and transition period. ASFA is concerned that the implementation process has been rushed because the government was trying to get legislation in place to ward off a royal commission. They're my words, but they do believe this has been rushed.

ASFA considers it preferable that the Bill nominates a specific commencement date - no earlier than 1 January 2019.

The commencement date in front of us is July next year. They don't believe that this can be done effectively with SCT in that time period. There hasn't been the consultation and this has been rushed. This is coming from the retail end of the superannuation market as well as from the industry super funds. They go on to talk about how the wind-down period is not sufficient and that the merging of the two entities should occur over a longer period of time.

When we get to looking at some of the key stakeholders in the super industry, they're clearly not happy with this bill. My advice to the minister would be: let's pass the merging of FOS and CIA tonight. Let's get the architecture in place for a new tribunal that looks at both those entities and delivers better results for consumers, as I believe it should. I support that and the Greens support that. But, given the uncertainty around the terms of reference and the need for extensive consultation, I'd suggest a way forward would be to talk with the industry body about a potential phase-out of the SCT or a merger over a longer period of time. That should be considered as an option. It's obvious to me there's no confidence or trust between super industry stakeholders and this government. This government has totally politicised the industry super issue. We talked about it this week. Minister Dutton was talking about it around the royal commission. There's no trust. There has to be a process that builds trust between superannuation stakeholders and any government before the SCT is merged into any AFCA. There's a process here for going forward— (Time expired)