House of Representatives

Treasury Laws Amendment (Putting Consumers First-Establishment of the Australian Financial Complaints Authority) Bill 2017

Revised Explanatory Memorandum

(Circulated by authority of the Minister for Revenue and Financial Services, Minister for Women and the Minister Assisting the Prime Minister for the Public Service, the Hon Kelly O'Dwyer MP)
This memorandum takes account of amendments made by the Senate to the bill as introduced.

Chapter 2 Internal dispute resolution

Outline of chapter

2.1 Schedule 2 to this Bill will amend the Corporations Act, National Consumer Credit Protection Act 2009, Retirement Savings Accounts Act 1997 (RSA Act) and the Superannuation Industry (Supervision) Act 1993 (SIS Act) to introduce an enhanced IDR framework.

Context of amendments

2.2 The Ramsay Review was asked to examine the dispute resolution and complaints framework for consumers of financial products and services, including links between EDR and IDR. IDR plays a critical role in the financial dispute resolution framework and is the primary avenue for aggrieved consumers to seek redress.

2.3 Currently, it is a requirement for certain financial firms to have an IDR procedure in place which complies with ASIC standards and requirements. This requirement currently applies to all AFS licensees, unlicensed product issuers, unlicensed secondary sellers and credit providers.

2.4 Trustees of regulated superannuation funds (other than SMSFs) and approved deposit funds are also subject to separate IDR requirements under the SIS Act. Such requirements also extend to the trustee of an EPSSS that is treated as a regulated superannuation fund for the purposes of both the Superannuation Complaints Act and the IDR arrangements in section 101 of the SIS Act. These entities are required to establish arrangements for dealing with inquiries and complaints by beneficiaries, former beneficiaries and other interested parties.

2.5 RSA providers are subject to similar IDR requirements under section 47 of the RSA Act. RSA providers are required to establish arrangements for dealing with inquiries and complaints by holders of an RSA, former holders of an RSA and other interested parties.

Review of the IDR framework

2.6 The Ramsay Review found that:

·
transparency around IDR needs to be strengthened as there is no comprehensive, consistent, comparable and publicly available IDR data about the operation and effectiveness of IDR for consumers of financial services and products; and
·
ASIC does not currently have the power to collect recurring data about financial firms' IDR and firms are not legally required to report this information to ASIC.

Enhanced IDR framework

2.7 All financial firms that are required to participate in the enhanced IDR framework (IDR Firms) will be required to have IDR procedures in place that comply with ASIC regulatory requirements.

2.8 The enhanced IDR framework will also require IDR Firms to report their IDR activities in accordance with ASIC requirements. ASIC will be provided with the power to determine the content and form of IDR reporting by IDR Firms.

2.9 This new reporting requirement is necessary to improve both the data that is collected and the format and reporting of IDR dispute data. Improved information will assist ASIC in monitoring trends, identifying emerging issues and determining regulatory priorities in the dispute resolution system.

2.10 ASIC will be able to publish information (including firm specific data) that it receives under the new reporting requirements. Publishing such information will provide valuable information to consumers and drive firms to improve their IDR practices by increasing transparency about the performance of their firm relative to other firms.

Summary of new law

2.11 Schedule 2 to this Bill introduces an enhanced framework for IDR which ensures that IDR Firms report their IDR activities in accordance with ASIC requirements.

2.12 ASIC will also be provided with additional powers to determine the content and form of IDR reporting by IDR Firms and to publish this data at both the aggregate and firm level.

2.13 These amendments also allow ASIC to replace the requirements relating to the giving of written reasons for decisions about complaints (currently set out in the SIS Act) with new requirements which will be set out in a legislative instrument made by ASIC. This will provide ASIC with the flexibility to align the requirements that apply for trustees of regulated superannuation funds or approved deposit funds with those that apply to other financial firms under the enhanced IDR framework. Similar amendments will ensure ASIC may also specify requirements for RSA providers relating to the giving of written reasons for decisions about complaints.

Comparison of key features of new law and current law

New law Current law
IDR Firms are required to report their IDR activities to ASIC in accordance with ASIC requirements. No equivalent.
ASIC has the power to determine the content and form of IDR reporting by IDR Firms. No equivalent.
ASIC has the power to publish data relating to the IDR activities of IDR Firms. No equivalent.
RSA providers and trustees of regulated superannuation funds (other than SMSFs) and approved deposit funds must have an IDR procedure that complies with ASIC requirements. Such requirements also extend to the trustee of an EPSSS that has elected to join the AFCA scheme. RSA providers and trustees of regulated superannuation funds (other than SMSFs) and approved deposit funds are required to establish IDR arrangements for dealing with inquiries and complaints. Such requirements also extend to the trustee of an EPSSS that is treated as a regulated superannuation fund for the purposes of the Superannuation Complaints Act.
ASIC has the power to specify by legislative instrument the requirements to provide written reasons in relation to complaints that apply to trustees of regulated superannuation funds (other than SMSFs) and approved deposit funds and RSA providers. Such requirements also extend to the trustee of an EPSSS that has elected to join the AFCA scheme.

The SIS Act sets out the requirements to provide written reasons in relation to complaints that apply to trustees of regulated superannuation funds (other than SMSFs) and approved deposit funds. Such requirements also extend to the trustee of an EPSSS that is treated as a regulated superannuation fund for the purposes of the Superannuation Complaints Act.

No equivalent requirement to provide written reasons in relation to complaints that apply to RSA providers.

Detailed explanation of new law

2.14 Schedule 2 to this Bill introduces an enhanced framework for IDR which ensures that IDR Firms report their IDR activity in accordance with ASIC requirements and allows ASIC to publish information relating to the IDR activity of IDR Firms.

2.15 This Chapter outlines:

·
the financial firms that are subject to the new IDR framework (that is, which firms are IDR Firms);
·
new IDR reporting requirements;
·
ASIC's power to publish information relating to the IDR activity of IDR Firms (including firm specific data); and
·
ASIC's power to specify, by legislative instrument, requirements for trustees and RSA providers to provide written reasons for decisions in relation to complaints.

IDR Firms - financial firms subject to new IDR framework

2.16 Generally, the enhanced IDR framework will apply to an IDR Firm because the firm is an AFS licensee, product issuer for the purposes of section 1017G of the Corporations Act or an Australian credit licensee. [Schedule 2, items 2, 4 and 5, paragraph 912A(1)(g) and subsection 1017G(1) of the Corporations Act and paragraph 47(1)(ha) of the National Consumer Credit Protection Act 2009]

2.17 These amendments ensure that trustees of regulated superannuation funds or approved deposit funds and RSA providers are required to be part of the new IDR framework. Generally, these trustees and RSA providers will also be either AFS licensees or product issuers for the purposes of section 1017G of the Corporations Act. These amendments ensure that a trustee or RSA provider that is not an AFS licensee or relevant product issuer will also be required to be part of the new IDR framework. [Schedule 2, items 6 to 9 , subsections 47(1) and (2) and section 47 of the RSA Act and subsections 101(1) and (1A) of the SIS Act]

2.18 These amendments also ensure that if a trustee of an EPSSS has elected to join the AFCA scheme, that they are required to be part of the new IDR framework. [Schedule 2, item 11, subsection 101(3) of the SIS Act]

IDR reporting requirements

2.19 Under the enhanced IDR framework, a new requirement will be placed on IDR Firms to give ASIC any information specified in an ASIC legislative instrument relating to the operation of the firm's IDR procedures. [Schedule 2, items 2, 4, 5, 7 and 9, paragraph 912A(1)(g) and subsection 1017G(1) of the Corporations Act and paragraph 47(1)(ha) of the National Consumer Credit Protection Act 2009, paragraph 47(1)(c) of the RSA Act and paragraph 101(1)(c) of the SIS Act]

ASIC's power to determine content and form

2.20 ASIC will have the power to specify the information that IDR Firms must give about their IDR procedures and the operation of their IDR procedures through a legislative instrument. However, the type of information which ASIC may require IDR Firms to report cannot include 'personal information' within the meaning of the Privacy Act 1988. [Schedule 2, item 3, subsections 912A(2A) and (2B) of the Corporations Act]

2.21 This will allow ASIC to require IDR Firms to report information in a standardised manner about their IDR activity and determine the content and format for that reporting.

ASIC may publish IDR data

2.22 Under the enhanced IDR framework, ASIC will have the ability to publish IDR activity data (including firm specific data). Publishing IDR data will drive IDR Firms to improve their IDR practices, by providing industry benchmarks on how long it takes to resolve disputes by highlighting poor performing firms. This will also improve the ability to compare outcomes, identify product and service complaint trends and understand the number of complaints received by comparable firms.

2.23 These amendments ensure that ASIC may publish information relating to IDR that is given to it under the reporting obligations introduced by these amendments. ASIC may also publish information that is derived from such information. [Schedule 2, item 1, subsection 243C(1) of the Australian Securities and Investments Commission Act 2001]

2.24 ASIC may publish information that relates to a particular entity, or information from which a particular entity may be identified. However, ASIC must not publish 'personal information' within the meaning of the Privacy Act 1988. [Schedule 2, item 1, subsection 243C(2) of the Australian Securities and Investments Commission Act 2001]

ASIC's power to specify requirements for certain trustees and RSA providers to provide written reasons in relation to complaints

2.25 As is the case under the current law, trustees of regulated superannuation funds (other than SMSFs) and approved deposit funds will be required to provide written reasons for decisions about complaints made by beneficiaries, former beneficiaries and other interested parties.

2.26 These amendments ensure such trustees are required to provide reasons about decisions, despite trustees not generally being required to provide reasons for decisions under the general trust law.

2.27 Prior to the amendments made by this Schedule, these requirements were set out in detail under section 101 of the SIS Act. These amendments repeal the current requirements in section 101 of the SIS Act and allow ASIC to set requirements about providing reasons for IDR decisions in a legislative instrument. [Schedule 2, item 9, subsections 101(1), (1A) and (1B) of the SIS Act]

2.28 ASIC may also set requirements for RSA providers to provide written reasons for IDR decisions in a legislative instrument. [Schedule 2, item 7, subsections 47(1), (2) and (2A) of the RSA Act]

2.29 This provides ASIC with the flexibility to align the requirements around giving reasons for IDR decisions made by these trustees to those that apply for other IDR Firms under the enhanced IDR framework.

Application and transitional provisions

2.30 The amendments in Schedule 2 to this Bill commence on the day following Royal Assent. [Item 2, item 7 of commencement table]

Transitional provision for giving written reasons

2.31 Schedule 2 includes amendments which allow ASIC to replace the requirements relating to the giving of written reasons for complaints set out in section 101 of the SIS Act with new requirements set out in a legislative instrument. The requirements relating to the giving of written reasons for complaints set out in section 101 of the SIS Act continue to operate until the day the legislative instrument made by ASIC comes into force (which is on the day the instrument is registered). [Schedule 2, item 10]


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