Appendix 2 - Answers to questions on notice

QUESTION ON NOTICE 1

INTERNAL DISPUTE MECHANISMS WITHIN BANKS, p.4

Senator SHERRY—I raised an issue at estimates hearings last week. I have raised it both at estimates and here at joint committee on previous occasions, but I have not received any detailed response. The issue is the internal disputes mechanisms within banks, in this case, and within insurance companies, superannuation funds, et cetera. Can you give me any update—I have raised it before on a couple of occasions and have not received anything in any detail—about the operation of these internal disputes processes, their efficacy, timeliness, and the manner in which they deal with disputes?

Mr Cooper—Yes, I can. We take quite a bit of notice of how financial services licensees discharge these obligations and run their internal dispute resolutions schemes because it is a key part of having a licence that you have one. The statistic I have is that in 70 per cent of cases where we are undertaking a review or doing surveillance of a licensee, we will specifically look at the internal dispute resolution system; that is an important statistic.

Senator SHERRY—Frankly, that is not telling me much at all. What is the statistic contained within that general statement?

Mr Cooper—I am sure we can find that. There will be a statistic, so we can provide that for you.

ANSWER:

ASIC considers a variety of sources of information in assessing compliance risk levels in relation to IDR including:

Complaints received;
Reports from EDR schemes, such as the Banking and Financial Services Ombudsman;
Breach reports received from licensees; and
The results of our compliance reviews of financial services licensees.

In each of the last 2 years, ASIC has conducted over 450 reviews of financial services licensees (excluding our reviews in relation to shadow shopping which were confined to reviews of individual pieces of financial advice). Our current systems do not allow us to provide specific statistical information on the number of reviews undertaken of licensees' IDR procedures, as we do not collect separate statistics on individual issues that form part of each review. However, it is a routine part of most of these reviews to examine IDR procedures and their effectiveness by reviewing complaints registers, how complaints were resolved and referrals to the relevant EDR schemes.

The Corporations Act requires that all licensees, including banks and insurance companies, have an IDR system that complies with standards made or approved by ASIC – Corporations Act ss912A(1)(g) and 912A(2)(a).

ASIC Regulatory Guide 165 explains how ASIC administers the dispute resolution provisions of the Act. In part, RG 165 applies the Essential Elements of IDR set out in Section 2 of the Australian Standard on Complaints handling (AS 4269-1995) . RG 165 also provides guidance on the application of AS 4269-1995 to the financial services industry and outlines additional matters necessary for compliant IDR procedures.

RG165 states that any IDR procedure must be able to deal with complaints made by retail clients as defined in s761G of the Act.

To obtain an AFSL, an organisation that is subject to the dispute resolution provisions must self-certify to ASIC that its IDR procedures comply with our requirements as part of the licensing process.

When ASIC reviews IDR within a licensee we test whether the procedures meet the requirements of RG165. In particular we look at:

Whether the licensee has documented procedures that meet the requirements of RG165. We test whether the licensee has a policy for how they deal with complaints including how they identify, record, report to management, and set time limits on the handling of complaints.
Whether the licensee maintains a complaints register. We check to see whether the complaints register adequately records what a complaint was about, how it was resolved, and whether it warranted any other action or was indicative of a systemic failure within the licensee, and, if so, how it was addressed by the licensee.
How the licensee meets their complaints handling obligations in practice by implementing their policies including training staff.

Where we do find deficiencies we work with the licensees to remedy them.

Based on complaints received by ASIC, reports from EDR schemes, breach reports received from licensees, and the results of our compliance reviews of financial services licensees, we have not identified broad systemic issues in relation to internal dispute resolution mechanisms within Australian Financial Services Licensees.

QUESTION ON NOTICE 2

INTERNAL DISPUTE MECHANISMS WITH BANKS, p.5

Senator SHERRY—Specifically, when has ASIC examined the operations of internal disputes processes in the four major banks? When was the last time they were looked at in terms of their operational process?

Mr Cooper—I cannot answer that specifically but again we can take it on notice and give you the data on that.

Senator SHERRY—I have raised this issue on at least two or three previous occasions. I do not seem to be getting a clear, definitive, statistical, factual response about when ASIC looked at the efficacy and the operation of internal disputes processes in any leading Australian bank—or in any other bank for that matter.

Mr Cooper—Yes, we can certainly get that data. We have looked at this subject in relation to unit pricing errors and so on, but you need to remember that we have a very good line into ASIC in relation to complaints. When consumers are not getting what they want from internal dispute resolution, there is the external process and there is complaining to us, and our data is not showing over-the-odds levels of complaints about internal dispute resolution procedures, particularly with the majors. It is a key part of our surveillance, it is a key part of having a licence from us, but it is not flashing a red light, particularly because the next step from internal dispute resolution is generally to external. In the Safetli case, of course, it is way over the limit of $280,000; it is a matter of some millions, so it clearly is above the external dispute resolution threshold.

Mr D’Aloisio—Senator Sherry, you asked this very question at the last Senate estimates meeting. We are working on the answer, which we took on notice. I apologise that we have not had the answer back to you today, but we definitely will have the answer to you.

Senator SHERRY—I would not expect you to respond today to the questions I put at estimates last week; you may have been able to in some other areas. It is just that I have raised this issue with your predecessor, Mr Jeffrey Lucy, on at least one or two other occasions. I looked back through the transcript before today’s hearing. I want to get to the external disputes procedure in a moment in respect to banks, but you said ‘particularly with the majors’, which seemed to imply that you had observed something with the non-majors.

Mr Cooper—No, what I was saying there was that my impression is that in financial services where you have a very large brand to protect there is a pretty strong correlation between having that brand and wanting to resolve complaints. That is a pretty broad generalisation, but I think the data bears that out. I think what you are asking, Senator, is for ASIC’s view on the robustness of these internal dispute processes based on the reviews that we have done. You are looking for factual information about what we have done and what we have concluded.

Senator SHERRY—Correct.

Mr D'Aloisio—That is something that we will provide.

ANSWER

1.ASIC Examinations of IDR Processes in the Four Major Banks Over the Last Three Years

Over the last 3 years, ASIC has examined the operation of IDR processes in areas of 3 of the 4 major banks that fall within the Financial Services Licensing regime, or where matters have come to our attention in the context of exercising our more general consumer protection powers set out in the ASIC Act. In one case, that examination was as a result of a review in the bank's financial advice subsidiaries. We have found no significant issues with the IDR procedures in relation to financial advice in our most recent review. In another case, the bank self-reported an issue and identified some shortcomings in its complaint procedures which could have had implications for activity it undertook under its Australian Financial Services License. Remediation procedures in relation to those shortcomings have now been completed. The other matter is ongoing and largely involves a third party's offer of a bank product. These activities and their outcomes are summarised in the annexure to this answer.

It is important to note that because of its legislative mandate, ASIC plays a limited role in relation to IDR processes in banks. Credit is not a financial service for the purposes of Part 7 of the Corporations Act. ASIC's 'regulatory hook' in relation to credit is therefore limited to the consumer protection provisions of the ASIC Act. These provisions include prohibitions on misleading or deceptive conduct and unconscionable conduct.

The regulation of consumer credit primarily falls to the States under the Uniform Consumer Credit Code (UCCC). The UCCC does not currently mandate IDR and EDR processes for disputes. Some parts of industry voluntarily submit credit related disputes to existing EDR schemes such as the Banking and Financial Services Ombudsman.

2. What is an IDR?

The Corporations Act requires that all AFS Licensees, including banks and insurance companies, have an internal dispute resolution (IDR) system that complies with standards made or approved by ASIC – ss912A(1)(g) and 912A(2)(a).

ASIC Regulatory Guide 165 explains how ASIC administers the dispute resolution provisions of the Act. In part, RG 165 applies the Essential Elements of IDR set out in Section 2 of the Australian Standard on Complaints handling (AS 4269-1995)[1]. RG165 also provides guidance on the application of AS 4269-1995 to the financial services industry and outlines additional matters necessary for compliant IDR procedures.

RG165 states that any IDR procedure must be able to deal with complaints made by retail clients as defined in s761G of the Act. RG165 encourages licensees to develop IDR procedures that have broader coverage consistent with the nature of their business.

When ASIC reviews IDR within a licensee we test whether the procedures meet the requirements of RG165. In particular we look at:

Whether the licensee has documented procedures that meet the requirements of RG165. We test whether the licensee has a policy for how they deal with complaints including how they identify, record, report to management, and set time limits on the handling of complaints.
Whether the licensee maintains a complaints register. We check to see whether the complaints register adequately records what a complaint was about, how it was resolved, and whether it warranted any other action or was indicative of a systemic failure within the licensee, and, if so, how it was addressed by the licensee.
How the licensee meets their complaints handling obligations in practice by implementing their policies including training staff.

Where we do find deficiencies we work with the licensees to remedy them.

3. Connection Between IDR and EDR

External dispute resolution (EDR) schemes are another important part of the regulatory framework. The Corporations Act requires all financial services firms who do business with retail clients to hold membership of an EDR scheme approved by ASIC. An EDR Scheme is an independent mechanism for resolving disputes that cannot be resolved directly between the parties. EDR schemes provide consumers with a quick and easy alternative to taking disputes to the courts.

For a dispute resolution system to be fully effective, ASIC notes in PS165 that a licensee needs to establish appropriate links between individual IDR procedures and the relevant EDR scheme for those complaints that the licensee cannot resolve itself directly. IDR procedures must therefore provide that if a complaint has been through the IDR procedures but remains unresolved, or is not resolved within the appropriate time limits, the relevant complaints handling staff:

inform the complainant that they have a right to pursue their complaint with an EDR scheme; and
provide details about how to access the relevant EDR scheme.

PS165 also sets out how organisations, subject to the dispute resolution requirements, should comply with their obligations in relation to external dispute resolution. The key requirement is that an organisation must belong to one or more ASIC-approved EDR schemes that covers, or together cover, complaints made by retail clients in relation to financial services provided.

PS139 sets out our approach to approving EDR schemes. Our policy about the approval of EDR schemes reflects well-established and recognised principles of alternative dispute resolution, including that:

schemes are free to consumers
scheme governance arrangements must be independent of the industry or industries in which the scheme operates
organisations are bound by scheme procedures and decisions
schemes reach final decisions and can make financial awards
both providers and consumers are afforded procedural fairness
consumers who do not accept scheme decisions can initiate legal proceedings
schemes give written reasons for their decisions.

ASIC has approved 7 EDR schemes in the financial services sector. Most of these schemes originated as voluntary schemes established by industry associations and are paid for by industry through a combination of membership fees, annual levies and fees for dealing with individual complaints.

In relation to banks, the relevant EDR scheme is the Banking and Financial Services Ombudsman. The Ombudsman's terms of reference allow consideration of complaints about a wide range of financial products and services, including credit related products. The Ombudsman's process is to look at a complaint only after the institution complained about has looked at it. In this way, the Ombudsman encourages institutions to maintain and improve their IDR procedures.

PS139.62 requires that EDR schemes identify issues that are systemic or that involve serious misconduct and report such issues to ASIC. Failures to adequately deal with complaints at the IDR level are likely to result in systemic issues capable of being identified by the relevant EDR scheme, which will in turn be reported to ASIC.

ASIC also on occasion reviews the efficacy of IDR procedures when considering individual complaints made by or on behalf of consumers, or analyses complaints data provided by banks under statutory Notices in relation to particular issues.

4. Codes of Practice

Industry codes of practice have been developed by a number of industry associations in the financial services sector. A best-practice code sets out the standards of disclosure and conduct that you can expect when dealing with a company that has agreed to abide by the code. Although membership of an industry code is normally voluntary, many companies choose to adopt a code applicable to their sector.

In relation to banks, the Code of Banking Practice requires banks to have an internal process for handling disputes about all of their financial products and services, including credit related products. Thirteen Australian banks have adopted the Code of Banking Practice, including the four majors.

The Code Compliance Monitoring Committee monitors compliance with the Banking Code. The Committee also receives and deals with complaints about breaches of the Code. In its most recent annual report to March 2007, the Committee reported that it had dealt with 7 code breaches relating to IDR out of a total of 36 code breaches.

5. Complaints

ASIC's complaints data does not in our view reveal a systemic issue in relation to the operation of the major banks' IDR systems. ASIC has identified only two complaints received in the past 12 months that relate to IDR processes.

6. ASIC's IDR Compliance Strategy

When assessing compliance risk levels in relation to IDR processes, ASIC takes account of a range of information available to it, including:

Complaints received;
Reports from EDR schemes, such as the Banking and Financial Services Ombudsman;
Breach reports received from licensees; and
The results of its program of licensee reviews.

In ASIC's experience, consumer access to well run EDR schemes also assists in maintaining and improving the IDR complaints handling standards at individual licensee level. Giving consumers easy access to EDR, together with the significant cost to a licensee associated with a dispute escalating from IDR to EDR generally imposes an effective incentive for the licensee to ensure IDR works satisfactorily for their customer.

7. Conclusion

Banks' IDR

We note that a substantial part of the big 4 banks' IDR processes, including the credit related dispute issues that appear to have given rise to the question on notice, remain largely outside ASIC's jurisdiction. Our recent surveillances of financial services related IDRs within 3 of the 4 big banks, together with information from complaints received by ASIC, reports from the Banking and Financial Services Ombudsman and breach reports received from the 4 big banks, do not reveal a substantial breakdown in financial services related IDR systems.

Concerns about the provision of bank statements

The Chairman of the Parliamentary Joint Committee on Corporations and Financial Services Senator Grant Chapman has also raised with ASIC individual complaints involving the non-provision of bank statements, banks' IDR processes and related issues by letter dated 22 June 2007. ASIC's Chairman Tony D'Aloisio responded by letter dated 20 July 2007, stating that ASIC would review the complaints the Senator had provided and would, in light of our own experience and those of the Banking and Financial Services Ombudsman and the Code Compliance Monitoring Committee, further consider whether there are systemic issues in this area and would endeavour to report back within 4 months from the date of the Mr D'Aloisio's letter.

Annexure

Bank

Reasons for Examining IDR

Outline of ASIC's Examination of IDR Scheme

Outcomes from Examination of IDR Processes

Year Examined

Large Bank 'A'

In 2005, ASIC commenced a limited surveillance of two of Bank A's financial planning subsidiaries following receipt of a complaint.

As a complainant had raised concerns about the quality of retail advice provided by Bank A's subsidiaries, in 2005 we looked into the quality of retail advice provided at one of Bank A's branches and two of its advice practices. In addition, we looked at the complaints registers maintained by Bank A's advice subsidiaries to assess complaints handling processes.

Our 2005 examination of the complaints register of one Bank A subsidiary identified a significant number of instances (70 cases) where compensation had to be paid to clients. ASIC's 2005 examination did not raise any concerns about the way complaints were handled by Bank A's financial planning arms, but we did identify some concerns about the way in which complaints were recorded by the Bank.

Following communication of our concerns arising from the surveillance to Bank A, we received advice from the Bank that it and its advice subsidiaries were overhauling their compliance framework. Accordingly, we decided not to take further immediate action and to revisit the Bank following an appropriate interval.

This year (2007) we did an extensive surveillance of two Bank A advice subsidiaries. We again examined the complaints register of Bank A's advice subsidiaries. We did not identify any concerns about the way in which complaints were handled.

Our more detailed follow up work has not revealed serious issues in relation to complaints handling.

2005 & 2007

Bank

Reasons for Examining IDR

Outline of ASIC's Examination of IDR Scheme

Outcomes from Examination of IDR Processes

Year Examined

Large Bank 'B'

Bank B's breach notification to ASIC in April 2005 advised that a customer complaint referred to the Bank from the Banking and Financial Services Ombudsman revealed systemic overcharging in one of the bank's products.

Bank B's review of customer complaints since January 2004 revealed less than 1% related to duplicated product fees for that period. Bank B advised ASIC that these complaints were resolved at a branch level and therefore no correspondence had been sent to clients. This was identified as an area for improvement in Bank B's complaints handling processes, as the Bank's focus had been upon "resolving" rather than "referring" a complaint, which meant Bank B had overlooked recording of issues for complaints trend analysis and for systemic or recurring issues.

Ongoing monitoring of Bank B by ASIC followed up on breach reports received from the bank that identified need for minor improvements to the bank's complaints handling systems which could also assist the bank in future to more promptly identify and remedy process errors for the benefit of its customers.

Bank B commenced a review of its complaints handling processes. Bank B provided regular updates to ASIC of its progress as part of these initiatives and other breaches reported to ASIC. These updates formed part of consolidated updates from Bank B to ASIC.

As part of ASIC's ongoing monitoring of Bank B's remediation of the various overcharging errors reported to ASIC, we issued a direction under the Corporations Act in December 2005 which required Bank B to provide regular audited reports to ASIC on the process of compensating customers, further details of the causes of the overcharging errors, how the company remedied the errors and details of any relevant complaints handling activity. Bank B complied with ASIC's direction, and has now finalised the remediation process on these matters.

2005/2006

Bank	Reasons for Examining IDR	Outline of ASIC's Examination of IDR Scheme	Outcomes from Examination of IDR Processes	Year Examined
Large Bank 'C'	Bank C's complaints handling issues came to our attention when ASIC received two complaints in February 2007 in relation to a third party entity's offer of a product issued by Bank C.	In this instance, IDR requirements do not attach specifically to the product in question, as it is not AFS licensed conduct. Our issues in this matter in relation to the third party provider fall within our general consumer protection powers as set out in the ASIC Act. We nonetheless have examined the bank's complaint handling processes as part of our review as Bank C in this instance retained control of the complaints handling process.	This matter is ongoing. ASIC will emphasise in any discussions with Bank C that PS165.47, encourages all licensees "to develop IDR procedures that have broader coverage consistent with the nature of your business and your dealings with consumers."	Current: 2007

QUESTION ON NOTICE 3

FICS, p. 8

Senator SHERRY—We have discussed how the upper limit of $100,000 of FICS has been under review for some time. Do you have any update on how that has been progressed?

Mr Cooper—Not since we last spoke.

Senator SHERRY—I am asking it at every committee meeting. Do you have an indication of when we are likely to get an update of it?

Mr Cooper—No, we can take that one on notice and let you know.

ANSWER:

FICS is currently conducting a public review of its monetary limits and published a consultation paper in May 2007. Currently, FICS operates a monetary limit of $250,000 for life insurance complaints, $6,000 per month for life insurance (income stream) complaints and $100,000 for all other complaints (including financial advice). In the consultation paper, FICS has outlined a number of options for increasing the limits. FICS held stakeholder consultation meetings in Melbourne, Perth, Sydney and Brisbane during May and June, and the consultation period ends on 20 July 2007. ASIC has indicated to FICS that we consider the current limit for financial advice to be inadequate and we intend to make a submission to the review.

QUESTION ON NOTICE 4

ASIC PROCESSES IN DEALING WITH WRITTEN COMPLAINTS, p. 12

Senator MURRAY—When Mr Tanzer sent his comments to the Chair on 17 May 2007, the allegation was that ASIC has failed to act on complaints by three lawyers regarding Messrs Murray Nugent, Bill Szuch and Reward, lodged in 2005. Like the good lawyer he is, Mr Tanzer wrote:

ASIC neither confirms nor denies the existence, content or substance of complaints received from members of the public, including those received from third parties such as yours.

That is all very well but tells us nothing. He could have been a little more forthcoming to us. If ASIC have looked at this matter and have deemed—for whatever reasons, valid or otherwise—that there is nothing more you can do about it and people want to complain about that, they can go to the Administrative Appeals Tribunal, and say that ASIC failed to carry out its duties. Or they could go to a court and argue a mandamus, could they not?

...

Senator MURRAY—No, with respect to this issue. We are receiving lots of emails. By ‘we’ I mean lots of parliamentarians. I know of committee members, obviously, but I also know of other parliamentarians who are receiving them, with all the attachments. These people are very irritated by these events. In that environment, has ASIC said to these people: ‘We can’t find any grounds for your case; however, if you are dissatisfied with the way we are dealing with it, these are the routes you can go’? We have just discussed those three routes. Have you done that?

Mr Cooper—That wrap-up, if you like, is the standard way that we respond to anybody. When we are telling someone that we are not going to take action in relation to their complaint, there is a very nicely written great big bit of text that says, ‘You can go to the Ombudsman. If you don’t like that, you can do this’ and so on. As the regulator, we feel it is our duty to explain to people all the other avenues they can take. As a direct result of that, we probably get a lot more business going to the Ombudsman than we would otherwise get, but that is all part of the accountability. Although I cannot answer specifically—and we can certainly get this for you—that is our standard way of responding.

Senator MURRAY—I would like a specific answer, if you would not mind.

Mr Cooper—Certainly.

Senator MURRAY—That is helpful because I can foresee that the chair will have to respond to these people.

Mr D’Aloisio—We will give you the wording that we use as well.

ANSWER:

Complainants have a right to complain to the Commonwealth Ombudsman if they are dissatisfied with the outcome of ASIC's consideration of their complaint. It is ASIC's practice to advise complainants who have expressed dissatisfaction that they may lodge a complaint with the Commonwealth Ombudsman. Customarily, the text used is to the effect:

If you have concerns about ASIC's management of your matter you can lodge a complaint with the Commonwealth Ombudsman. You can contact the Commonwealth Ombudsman at:

Commonwealth Ombudsman

[Address of the Ombudsman in the relevant State or Territory]

[Telephone number]

Under the Administrative Appeals Tribunal Act 1975 (AAT Act) a right of review to the AAT exists only where legislation expressly confers that right (subsection 25(1) of the AAT Act). The AAT is empowered to review various decisions made under the Australian Securities and Investments Commission Act 2001 (ASIC Act) (see section 244 of the ASIC Act) and under the Corporations Act 2001 (Corporations Act) (see sections 1317B and 1317C of the Corporations Act). Section 244A of the ASIC Act and section 1317D of the Corporations Act set out ASIC's obligation to provide notice of a person's right to have a decision reviewed by the AAT. Where that notice is required it is customarily given in terms such as these:

You may have a right to seek to have the decision reviewed by the Administrative Appeals Tribunal (AAT) under [relevant section and Act].

The application for review should be made in writing and lodged with the AAT within 28 days of the date of this notice.

The application for review should be addressed to:

The Registrar

Administrative Appeals Tribunal

PO BOX 9955

[Capital City, State, Postcode]

There is a $639.00 application fee which must be enclosed with the application for review. If you want to apply for the application fee to be waived, you can obtain the application form for this from the AAT at the address above. You can call the AAT on 1300 366 700 for the cost of a local call.

The AAT is an independent body with power to, among other things, confirm ASIC's decision, vary or set it aside and replace it with its own decision.

The AAT has not been conferred jurisdiction to review ASIC's decision whether or not to commence an investigation (see s244 of the ASIC Act). Accordingly, this notice is not given in such cases. This accords with the general Commonwealth administrative law policy to the effect that decisions to investigate and take other enforcement action against alleged wrongdoers are to be taken by law enforcement authorities and are not suitable material for merits review initiated by the alleged wrongdoers or by interested third parties.

QUESTION ON NOTICE 5

REWARD INSURANCE LIMITED – APRA, p. 13

Senator MURRAY—You have mentioned that APRA has a role, and that is covered in Mr Tanzer’s letter. You cannot speak for them but, if they were aggrieved with APRA’s dealing with the matter, they have the same three avenues to pursue, do they not?

Mr Cooper—I could not answer it as confidently as I can in the case of ASIC, but I would be surprised—

Senator MURRAY—It would seem logical.

Mr Cooper—Exactly the same avenues were not available.

Mr D’Aloisio—We can answer that as well.

ANSWER:

This question has been referred to APRA.

QUESTION ON NOTICE 6

FINCORP – TRUSTEE, p. 23

Senator SHERRY—Do you know whether the trustee in that case, Sandhurst Trustees, inspected the financial records of the investment entity which raised money for investors or the Fincorp Property entities? My understanding is that they looked at the records of Fincorp Investments but not the records of the Fincorp entity.

...

Senator SHERRY—My question went to the role of whether or not the trustees, in this case Sandhurst, carried out such a comprehensive evaluation or inspection, however we want to term it.

Mr D’Aloisio—We will, as our own investigation into this, learn a lot more about that. The trustee could have relied on the Fincorp Investments Limited accounts. The reports in those accounts show that those loans were not impaired. It should have been able to have satisfied itself from that disclosure whether or not there was any impairment. Whether it then went further and that and talked about the group, I do not know; that would be something that would come through in our investigations.

Senator SHERRY—Obviously there is some way to go in that investigation. If it is not going to be specifically addressed at some point in time to this committee or estimates, you could just note it as whether or not that happened, because I am led to believe that it did not happen. If it did or it did not happen: if you could check on that.

Mr D’Aloisio—Yes.

ANSWER:

ASIC commenced its investigations of Fincorp on 26 May 2007.

The role of the trustee, including what action the trustee took to discharge its duties, is the subject of further enquiry in part of those investigations. As this is the subject of further enquiry, ASIC is unable to comment further at this time.

QUESTION ON NOTICE 7

REVERSE MORTGAGES, pp. 26-28

Mr Cooper—The key problem for us is that our data shows that the average age of a reverse mortgagor is 74; now there is a new term for you, reverse mortgagor.

...

Senator SHERRY—The thing you gave me, Mr Cooper, I was not aware of the 74 average age. Is that a result of the studies that have been done? I have not read it publicly in anything I have seen.

Mr Cooper—I can find out for you, Senator. It is just a number that is sort of in my grey matter. Whether it is an ASIC number or comes from somewhere else, we can get that for you.

Senator SHERRY—I suspect that one of the other profiles of this group is that they are much less likely to have other assets. It would seem to me reasonably rational.

Mr Cooper—We infer from the entry into the arrangement that liquidity was becoming an issue.

Senator SHERRY—Yes. It is just interesting. I would be interested if you could provide any sort of profile background that you have of this group. Just take this on notice.

ANSWER:

According to the SEQUAL/Trowbridge Deloitte Reverse Mortgage Study (Dec 06):

The average age of a reverse mortgage borrower is 74

the average age of new borrowers is 72

the under 70 age groups are the fastest growing segments (under 65s and 65-69s accounted for 20% and 25% respectively of new loans in 2006)

couples are the dominant segment (44%), followed by single females (41%) and single males (15%)

there are different borroing habits across age profiles - older borrowers are the biggest users of an income stream, with younger borrowers more likely to take a lump sum.

It is important to note that the study only covers SEQUAL members, however this will capture the bulk of the market and there is no reason to suspect that it would not be consistent with the entire market experience.

QUESTION ON NOTICE 8

EFT CODE REVIEW, p. 33

Senator SHERRY—Changing subjects totally, in February ASIC invited submissions on the Electronic funds transfer code and there were some media reports that I am sure you would have spied in the Australian Financial Review: ‘Banks warned on online liability shift’. It suggested some banks may seek to change the code to shift liability for internet banking scams onto consumers. That AFR report was on 9 May 2007. Could you just provide us with an update on the code?

Mr Cooper—Work in progress would be the expression that describes it. We have received a large number of over 30 submissions. Certainly we did see that report. That was I think attributing comments to some of these smaller financial institutions which I then understand were contradicted in letters to the editor and so on. The key point to bear in mind is ASIC’s very strong view of where that ought to sit and also I believe the ABA’s submission did not favour the model that was in the AFR.

Senator SHERRY—Yes, I just wanted to gauge—it seemed to me the media report was more about the internal debate that was taking place amongst a number of organisations about what they would or would not want to do in shifting liability, but that is not ASIC’s approach. When will there be an indicative date on conclusion?

Mr Cooper—I actually cannot provide you that. We can take that on notice.

ANSWER:

It is difficult to anticipate the time needed to complete the review of the Code at this stage. However, we expect to conclude the review in around 12 months.

QUESTION ON NOTICE 9

CONSUMER IDENTITY ISSUES, p. 34

Senator MURRAY—Just a couple of consumer orientated questions. Mr Cooper, I had an odd letter but it seemed to make sense to me. Do you have complaints or queries arising out of identity issues at all? I do not mean fraud; I mean people who have difficulty getting satisfaction from transactions because of their identities. There are two areas I want to cover: one is general assets and one is superannuation assets.

Mr Cooper—Do you mean they cannot prove to meet the 100 point—

Senator MURRAY—Perhaps I should be a bit more specific. This man wrote to me and he said his name was Lynn but he dropped the ‘n’ and had become Lyn. As you know, that is both a male and female name. His wife is Pamela and she used the name Pam just as Williams use the name Bill, et cetera. He said the problem is when they buy shares, or assets through the broker or the agent, asked for names he says Lyn or Bill or Pam or whatever it is; that is the name that is written on the share certificate. Later on when they try and redeem them and they say, ‘My name is actually Pamela Jane such and such,’ they say, ‘This is not you.’ This particular person said he had a fight for nine months with the ASX. You can understand whoever is the authority or the register owner being afraid of identity fraud, but the problem is it is a very common feature of Australian life that Johns call themselves Jacks and on it goes. Have you had this sort of issue raised with you before?

...

Mr Cooper—We might be able to have a word with our FIDO people and see whether there is some guidance and perhaps some corresponding newspaper articles or something.

ANSWER:

ASIC has not received any complaints in relation to this specific issue. While it is difficult to comment without full details, it should be noted that generally speaking there are other identifying details of share transactions, such as SRN on ASX transactions, which should help resolve confusion over names. We note too that with anti money laundering requirements becoming more widespread we would expect these types of problems to reduce.

QUESTION ON NOTICE 10

SUPERANNUATION TRANSFERS, p. 35

Senator MURRAY— The second question related to the issue of superannuation. As you know, this committee is examining matters to do with the superannuation industry and one of the concerns I have had is an allegation by people that some companies may be using devices to ensure that the transfer of funds is slower than it might otherwise be, which in the individual does not matter but in the aggregate might be very useful at year end or other times. There was an example recently with a very major company who you have had an interest in where somebody wrote about their superannuation with respect to an advice from a person. That person had left the company and they sent back the letter and said that person is not in the company. It is obviously an official letter. Those sorts of things are just a great irritant to people. The question is: do those irritations reach your ears, are you aware of them and are you doing anything to kind of monitor this area from a consumer’s perspective?

....

Senator MURRAY—I hesitate to ask you to do a shadow shopping thing across the industry but perhaps a snapshot of a particular major company just to see what happens and get down to the nuts and bolts so that you can get a feeling for it.

Mr Cooper—Generally our complaints department are a pretty good indicator of what is happening out there, so perhaps we will just see what that is telling us at the moment.

ANSWER:

With respect to complaints received about the delay in effecting transfers between superannuation funds, ASIC has received three complaints in the past twelve months (2006/07 period) and thirteen complaints for the year before (2005/06 period).

It is noteworthy that as at 1 July 2007, the time period in which funds must effect transfers reduces from the current 90 days to 30 days. We understand that the amendment was, for the most part, designed to address this particular issue.

QUESTION ON NOTICE 11

MARTIN VINK, p. 36

CHAIRMAN—I just want to ask about an issue that has been raised in some correspondence by Mr Martin Vink, who is complaining to us about ASIC’s refusal to investigate a possible breach of the Corporations Act. His allegation is that a liquidator destroyed business records. He raises concern that ASIC’s failure to investigate the matter potentially condones breaches to the Corporations Act. Can I ask whether you have looked into that matter?

Mr Cooper—The name does not ring a bell. Do you have the company name there? We would certainly be more than happy to take that on notice if we do not have the information with us. We will take that on notice and contact your office.

CHAIRMAN—Does he refer to the company? He talks about Creighton Brown, does he not? Anyway, we will give you the details.

Mr Cooper—Certainly we will take that on notice.

ANSWER:

ASIC has made enquiries into Mr Vink's allegation that a liquidator destroyed business records. Based on these enquiries ASIC determined that a formal investigation was not required.

QUESTION ON NOTICE 12

SMALL BUSINESS TAX DEBTS, placed on notice by Senator Murray

Is ASIC aware of reports that small business owes approximately $7 billion in tax debts. Does ASIC consider that this may be an indication of solvency problems with numbers of those small businesses. With respect to those small business entities that fall under ASICs jurisdiction, and with regard to ASICs MOU and formal interaction with the ATO, is ASIC examining the possibility that numbers of small businesses with tax debts are trading while insolvent, or have solvency problems. What action is ASIC taking, or does it propose to take, with respect to these matters?

ANSWER:

Following the recent revised MOU with the ATO, ASIC is liaising with the ATO with a view to implementing a formal referral process of matters which may be of interest to ASIC. The referred matters are intended to be assessed and if appropriate, reviewed through ASIC's National Insolvency Coordination Unit, which runs a compliance program focusing on directors' duties and the obligation under the Corporations Act to prevent insolvent trading. The program involves face to face discussions with directors and their advisors to ascertain whether directors are aware of their obligations and there are systems in place to enable directors to stay informed about their company's financial position. In particular, the program encourages directors to seek advice sooner rather than later to ensure that the appropriate steps are taken to deal with any financial difficulties.

QUESTION ON NOTICE 13

BANKING INDUSTRY OMBUDSMAN WEBSITE, p. 7

Senator SHERRY— ...if a consumer has a dispute about a general practice or policy of the financial services provider, where would they then go?

ANSWER:

As a general rule, the Banking and Financial Services Ombudsman is unable to consider a dispute about a financial services provider's general practice or policy, eg branch closures, general interest rate policy or fees and charges. However, the Ombudsman can consider a dispute which relates to practice or policy if it involves an alleged breach of a duty owed to a customer.

Where the Ombudsman cannot deal with the dispute, the consumer should still raise the matter with the financial services provider concerned for a response. Where the provider is covered by an industry code of conduct, they should also refer the matter to that code's overseeing body to investigate whether a breach of the code has taken place. Even where there is no breach of any current code, such intelligence is useful for future code reviews.

We would also encourage the consumer to refer the matter to ASIC for further consideration. If the matter involves an allegation of misconduct or illegal activity in relation to any of the laws ASIC administers, then we may be able to investigate it as a complaint. Even where there is no such allegation, again receiving such intelligence from the public is useful from an overall policy perspective.

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Appendix 2 - Answers to questions on notice