Falinski Calls for Smarter simpler Regulations Implementation amid ME Bank Backflip and ASIC Deferral of mortgage broker obligations Commencements
Jason Falinski, MP for Mackellar - photo supplied.
By A J Guesdon
One Australian insurer CEO has confirmed that its policy documents are difficult to read and understand at the House of Representatives Standing Committee on Economics' Review Australia's Four Major Banks and other Financial Institutions.
“As if we needed confirmation, we now have it, that laws meant to protect Australian consumers are doing the opposite,” said Jason Falinski, Chair of the Tax and Revenue Committee.
Under questioning from Mr. Falinski at the House of Representatives Economics Committee on April 29th, Gary Dransfield, CEO of Suncorp Insurance and President of the Insurance Council and Chairman of the Board, stated that policy documents are not helping consumers understand what they are buying.
It's not a strong ability to communicate, clearly, through a dense PDS, a product disclosure statement. Even the existence of what's called the head guide—the premiums excesses and discounts guide, which does articulate some claims sample scenarios—again, is a six- or eight-page document that not everyone will have the financial capability to necessarily grapple with. So, again, I think for us as an industry we've got to be able to try to lift out of the disclosure regime and try to communicate the really key things for customers so they really get what they're buying and how it performs. I think that is probably the nub of the issue. Mr. Dransfield said
Commissioner Karen Chester released a report on October 14, 2019, calling a lot of financial products ‘sludge’.
Mr Falinski stated this week that this only tells half the story and that the Corporations Law and the National Credit Code are hurting Australians to get a better deal.
“The truth is that our laws and ASIC are creating this sludge. The largely forgotten Royal Commission interim report strongly makes the point that Australians are faced with a blizzard of financial products that give the appearance of competition without there being actual competition." Mr. Falinski said
“And now we have confirmation from one of Australia’s major insurers that this is the case, and we need to do something to fix it, and fix it now
“The truth is the Parliament and regulators have created all this sludge. We are making it more difficult for Australians to get a better deal. And we keep throwing taxpayer money at so called consumers advocates, who no one would fund if they were asked to do so voluntarily, who just argue for over-regulation that benefits them, their lawyer mates and the litigation funders.
“If the parliament and regulators really want to help Australians get a better deal then we should get on with implementing smarter regulations that make it easier, not harder, for Australians to make informed choices that make sense for them, not some taxpayer funded advocate in Melbourne.” Jason Falinski stated
The Standing Committee on Economics, of which Mr. Falinski is a Member, has been continuing its ‘Review of the Four Major Banks and other Financial Institutions’ via teleconferences. It announced on March 27th that it had deferred its hearings with the four major banks on June 12 and June 26 until later in 2020.
Its inquiry into the Superannuation sector continues this week though, with a Public Hearing on Thursday May 14th 2020 via Videoconference – (Webcast via aph.gov.au/live) - with Industry Super Australia and ME Bank scheduled to face the committee. ME Bank was in focus this week as it was disclosed this bank had ripped thousands of dollars from the bank accounts of clients, without prior notification, and offering a poor excuse for doing so.
In a report first published by Nine Newspapers on May 2nd, it became apparent that Members Equity Bank, a bank that is owned by 26 industry funds and markets itself as one of the country’s most trusted banks, had changed the rules during a global pandemic, which in itself was in very poor taste, but the way in which they did it drew fast and hard criticism.
Letters to customers outlining a change in policy were dated April 23, account adjustments to meet that change were made on April 27 and the letters were then posted on April 28, after the fact.
The ‘change in policy’ meant they had already removed money some customers had accumulated in their redraw facilities and transferred it to their mortgage accounts, leaving those customers without access to their own funds. In some cases it was tens of thousands of dollars.
One customer said she had been using the draw down from her ME home loan to pay staff in a small business she runs until JobKeeper came through. This customer said she had $80,000 in the redraw but the unilateral decision by the bank to change its policy meant she couldn’t access any of it.
Instead of having staff available to answer their queries, customers were left hanging on the phone for hours, only to be told someone would call them back within 48 hours. Few received a follow up call in the promised timeframe.
Then Australian journalists got involved and a raft of statements streamed from their Client-customers, the ME Bank shareholders and the bank itself and were published far and wide.
The bank denied the move had anything to do with the liquidity positions of its super fund shareholders, some of which are facing mass withdrawals from customers under a government scheme allowing Australians suffering from hardship to access their retirement savings ahead of schedule.
The bank’s failure to respond to customers resulted in the Australian Financial Complaints Authority wading in to say it would look into the matter.
Even ME Bank Shareholders felt compelled to express their displeasure, publicly saying they wanted answers.
On May 5th, ME CEO Jamie McPhee finally posted a "we are sorry" and "we messed up" on ME’s website.
By Friday May 8th Mr. McPhee said in a statement that management had decided to change back home loan redraw limits for any customers who wanted it.
The statement reads;
ME Bank to change back redraw limits on home loans
08-May-2020 • Corporate
In response to customer feedback ME Bank has decided to change back home loan redraw limits for any customers who want it.
The bank recently made changes to some older, legacy home loan products which resulted in around 4 per cent of customers having their redraw limit reduced.
The bank acknowledges that this was poorly communicated and has upset customers.
Mr Jamie McPhee, CEO of ME Bank, said, “Some of our customers have told us they want their redraw limits changed back to what they were before. We are going to do that.
“We have set up a dedicated hotline for any customer who would like their redraw limits changed back or, if they prefer, they can request it online.
“We are deeply sorry; we were trying to do the right thing but we went about it the wrong way.
“I would like to reassure customers that at no point did the bank ‘remove funds from customer accounts’ or ‘transfer’ any customer funds. Nor was the adjustment made for liquidity reasons.
“Our priority now is to help, support and service our customers. We recognise that we need to do better, we can and we will.”
Affected customers can visit the bank's site for more information: mebank.com.au/changebackredraw - Hotline: 1300 308 357
In related news, Mr. Falinskis’ comments were expressed just prior to Friday’s announcement from ASIC that it will defer the commencement date of the mortgage broker best interest duty and remuneration reforms and the design and distribution obligations for six months from their original commencement dates, given the significant impact of COVID-19 on the Australian economy, especially on the financial system and consumers.
ASIC announced in a statement that; -
ASIC will defer the commencement date for the mortgage broker reforms until 1 January 2021. ASIC will defer the commencement date for the design and distribution obligations until 5 October 2021. The deferral of these reforms follows, and is consistent with, the Government’s announcement today to defer by six months the implementation of commitments associated with the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry as a result of the significant impacts of COVID-19.
ASIC has deferred the commencement dates so industry participants can focus on immediate priorities and the needs of their customers at this difficult time. In making this decision, ASIC also had regard to the important protections for consumers that these requirements introduce. We expect entities will continue preparing for commencement on the extended timeline. ASIC has also conveyed our expectations of meeting consumer needs at this time, including directly to lenders and insurers.
The new mortgage broker obligations were legislated by Parliament in response to Recommendations 1.2 and 1.3 of the Royal Commission. These obligations were to commence on July 1st 2020. The design and distribution obligations were originally to commence on April 5th 2021, following a two-year transition period.
So it may be worth tuning in this Thursday, and see what gets said, and to hear how Australia may get closer to 'getting on with implementing smarter regulations that make it easier, not harder, for Australians to make informed choices' and hopefully find resolutions to that experienced by ME Bank Clients during recent days, where customers weren't informed - until after the fact.
Notes:
Royal Commission
into Misconduct in the Banking, Superannuation
and Financial Services Industry
All documents including Final Report at: https://financialservices.royalcommission.gov.au/Pages/reports.aspx#final
Review of the Four Major Banks and other Financial Institutions
On Thursday, 1 August 2019, The Treasurer, The Hon. Josh Frydenberg MP, asked the Standing Committee on Economics to Review Australia's Four Major Banks and other Financial Institutions. The sectors that will be reviewed are the:
- Four Major Banks
- Superannuation Sector
- Smaller Banks
- Insurance Sector
- Financial Advice Sector
Standing Committee on Tax and Revenue
Current Inquiries
Inquiry into the Commissioner of Taxation Annual Report 2018-19
Status: Accepting Submissions
Date Referred: 05 March 2020
Submissions Close: 28 May 2020
Inquiry into the Development of the Australian Corporate Bond Market
Status: Accepting Submissions
Date Referred: 06 February 2020
Submissions Close: 28 May 2020
Inquiry into the Tax Treatment of Employee Share Schemes
Status: Accepting Submissions
Date Referred: 06 February 2020
Submissions Close: 28 May 2020
More at: https://www.aph.gov.au/Parliamentary_Business/Committees/House/Tax_and_Revenue
ASIC 'calls time' on disclosure reliance
October 14, 2019
In a joint report published today, ASIC and the Dutch Authority for the Financial Markets (AFM) looked at the effectiveness of disclosure for financial products on consumer outcomes. The report covers a decade of case studies across a broad range of financial products and services in Australia, the Netherlands, the UK and the US. It finds that reliance on mandated disclosure and warnings has often proved ineffective, and at times even backfired contributing to more consumer harm.
'It's time to 'call time' on disclosure as the default consumer protection. It's not the 'silver bullet' once thought, nor should it be relied upon as one. Disclosure can and has backfired in unexpected and harmful ways,' said Deputy Chair, Karen Chester.
The report highlights that the limits of disclosure are not new. Once considered the backbone of consumer protection regulation in the (1997) Wallis Inquiry, disclosure's effectiveness has been questioned and discounted by both the 2014 Financial Systems (Murray) Inquiry and more recently the Financial Services Royal Commission (FSRC).
'The over reliance on disclosure in some ways proved an enabler of the poor conduct and poor consumer outcomes revealed by the Financial Services Royal Commission. Importantly, the Royal Commission represents more than a tilt away from disclosure. The overwhelming majority of the Commission's recommendations – over 50 – are about better firm conduct', said Deputy Chair Karen Chester.
'Our report highlights the need to rebalance the onus from consumers to firms – to become a shared responsibility. To do this, firms need to understand, measure and deliver on consumer outcomes', said Ms Chester. 'This aligns with the Royal Commission and the ensuing legislative reform program the Government has underway'.
The report also reveals how firms can work around and undermine disclosure. The report identifies unnecessary product complexity and 'sludge' that can get in the way of consumers switching products or making complaints. For example, in one of the 33 supporting case studies, only 2/5 of Australian consumers given a 'simple' key fact sheet (KFS) selected the objectively best home insurance product. Whilst almost 3/5 of consumers given the KFS or longer product disclosure statement selected suboptimal products.
'Put simply, disclosure has been asked to do too much. It cannot solve the complexity of the financial system. Especially when that complexity, in the form of thousands of barely differentiated products, is firm induced', said Ms Chester.
Going forward ASIC is taking a more consumer outcome-focused approach, making the most of our enhanced regulatory tool kit. This includes the use of our new product intervention powers (PIP) when warranted and setting expectations for firms to deliver good consumer outcomes under their design and distribution obligations (DDO).
'Ideally this report will be a must read for corporate Australia, especially financial firms with near term design and distribution obligations. These obligations have real potential to be a game changer for both firms and consumers. Firms meeting these obligations will also restore trust where they design and offer products and services that deliver value, not surprises, and are sold fairly. Recent 'sunlight' has demonstrated this is not only in the consumer’s best interests, but ultimately in the interests of firms that want to be consumer centric and better manage their non-financial risks.'
Mandated disclosure still has an important role to play. It contributes to market transparency and can enhance competition. But its value as a consumer protection tool cannot be assumed. 'The evidence shows that it is necessary but not sufficient', said Ms Chester.
The report
ASIC has, over a number of years, questioned the 'myth' that if consumers are given mandatory disclosure documents, they will be sufficiently armed to protect themselves from harm. Now, in this report ASIC in collaboration with our Dutch counterpart – the AFM – spotlight the multiple cases where disclosure has been less effective than intended, ineffective or has actually backfired, contributing to consumer harms.
Key limits of disclosure identified in the report, and supported by 33 case studies, Include that:
1. Disclosure does not 'solve' the complexity in financial services markets (8 case studies from Australia and the Netherlands about insurance, investments, financial advice and credit)
2. Disclosure must compete for consumer attention and influence (12 case studies from Australia, the Netherlands, the US and the UK about credit, insurance, investments, superannuation and banking)
3. One size disclosure does not fit all – the effects of disclosure are different from person-to-person and situation-to-situation (4 case studies from Australia and the Netherlands about investments, insurance and superannuation)
4. In the real world, disclosures can backfire in unexpected ways (3 case studies from the Netherlands, US and the UK about financial advice, credit and investments)
5. And a warning about warnings (6 case studies from Australia, the Netherlands, US and the UK about credit, financial advice and investments).
The report also identifies that these limitations are not confined to longer forms of disclosure, or traditional paper-based disclosure, but also apply to warnings and 'simplified' disclosure.
Read the report https://asic.gov.au/regulatory-resources/find-a-document/reports/rep-632-disclosure-why-it-shouldn-t-be-the-default/
Retrieved from: https://asic.gov.au/about-asic/news-centre/find-a-media-release/2019-releases/19-279mr-asic-calls-time-on-disclosure-reliance/
ASIC defers commencement of mortgage broker reforms and design and distribution obligations
May 8, 2020: ASIC
ASIC today announced it will defer the commencement date of the mortgage broker best interest duty and remuneration reforms and the design and distribution obligations for six months from their original commencement dates, given the significant impact of COVID-19 on the Australian economy, especially on the financial system and consumers.
ASIC will defer the commencement date for the mortgage broker reforms until 1 January 2021. ASIC will defer the commencement date for the design and distribution obligations until 5 October 2021. The deferral of these reforms follows, and is consistent with, the Government’s announcement today to defer by six months the implementation of commitments associated with the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry as a result of the significant impacts of COVID-19.
ASIC has deferred the commencement dates so industry participants can focus on immediate priorities and the needs of their customers at this difficult time. In making this decision, ASIC also had regard to the important protections for consumers that these requirements introduce. We expect entities will continue preparing for commencement on the extended timeline. ASIC has also conveyed our expectations of meeting consumer needs at this time, including directly to lenders and insurers. More information regarding ASIC’s response to COVID-19 is available at ASIC’s website.
The new mortgage broker obligations were legislated by Parliament in response to Recommendations 1.2 and 1.3 of the Royal Commission. These obligations were to commence on 1 July 2020.
The design and distribution obligations were originally to commence on 5 April 2021, following a two-year transition period.
ASIC released draft guidance on the mortgage broker best interests duty for consultation on 20 February 2020. Consultation closed on 20 March 2020. Draft guidance for the design and distribution obligations was released for consultation on 19 December 2019, with consultation closing on 11 March 2020. We accepted a number of submissions after these dates due to COVID-19 disruption. ASIC will continue to work towards releasing final guidance on both reforms in mid-2020 responding to industry requests for that guidance to be finalised as soon as possible.
Gary Dransfield appointed President of Insurance Council
October 31, 2019
The Insurance Council of Australia Limited (ICA) Board today appointed Mr Gary Dransfield, Chief Executive Officer Insurance, Suncorp, as President of the Insurance Council and Chairman of the Board.
The two-year appointment, effective on January 1, 2020, was made during a Board meeting held in Sydney. Mr Dransfield was previously Deputy President, and replaces Mr Richard Enthoven. Ms Sue Houghton, General Manager, Insurance, BT Financial Group, was appointed Deputy President.
ICA CEO Rob Whelan thanked Mr Enthoven for his service to the insurance industry and the ICA Board.
“Richard Enthoven has been a highly effective and engaged leader of the Board for the past two years,” Mr Whelan said.
“He has helped steer the industry through many challenges, including the Financial Services Royal Commission, and he also achieved his three key objectives as President: Implement a new industry Code of Practice; initiate a climate change action plan; and increase Board diversity. His contributions will continue as a Director.
“The ICA is delighted Gary Dransfield has agreed to take on the role of President. He is a highly regarded industry leader with strong insights into the industry and consumers. We are also pleased Sue Houghton has been appointed Deputy President after almost two years on the Board.”
Mr Dransfield said: “It is a great honour to be elected President of the Insurance Council and Chairman of the Board during this critical time for our industry. We must, as an industry, embrace the Government’s reform agenda and focus on delivering good customer outcomes, including implementing our new General Insurance Code of Practice.”
The ICA Board also appointed a new director, Ms Natasha Fenech, CEO Medical Indemnity and Deputy Group CEO of Avant Mutual, and accepted the resignation from the Board of Ms Georgette Nicholas, Chief Executive Officer, Genworth Australia.
Mr Whelan said: “Natasha’s appointment adds further sector diversity to the Board. Her current role, combined with senior experience in the insurance and broader financial services sector, provides strong consumer-centric expertise.
“On behalf of the Board I also thank Georgette for her contribution during 18 months of service, and wish her well for her return to the United States.”
The ICA Board also ratified the membership application of Nib Travel Pty Ltd. The ICA now has 57 member companies.