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Annual Review2015-2016

About this ReviewThis Annual Review covers the 2014-2015 financial year (1 July 2015 – 30 June 2016). It follows the reporting requirements for external dispute resolution (EDR) schemes set out in ASIC Regulatory Guide 139.

The review is available in hard copy and on the Financial Ombudsman Service Australia website at www.fos.org.au/annualreview. To order print copies, please email [email protected].

All data in this review was correct at time of reporting.Minor discrepancies between this and previous annual reviews reflect the outcome of a review of our data and reporting frameworks.

Many of the charts and tables in this review use percentages. All percentages have been rounded to the nearest whole number. Because of this, the sum of the percentages in a chart or table might not add up to 100.

The 2015-16 Comparative Tables, which show dispute data about FOS members, will be available from October 2016 on our website at www.fos.org.au/comparativetables.

ContentsMission 3What we do 32015-16 at a glance 4Message from the Chair of the Board 6Message from the Chief Ombudsman 8How our new dispute process worked in its first year 9Our performance in 2015-2016 11Our strategic measures 14Our People 16Organisation chart 19Senior Leadership Group 20Our stakeholders 20Our members 21Stakeholder engagement 25Meet Paul Holmes 28Significant event response plan 35Who lodged disputes 36An overview of how we classify financial products 40Our dispute resolution process 47How our dispute resolution process works 48How we count disputes 49Total disputes received 51

2 | Mission

http://www.fos.org.au/comparativetables

mailto:[email protected]

http://www.fos.org.au/annualreview

Total disputes accepted 52Total disputes closed 53What the disputes were about 56Accepted disputes by sales and service channel 57Disputes 58Credit disputes 59General insurance disputes 64Payment system disputes 70Deposit-taking disputes 74Investments and advice disputes 78Life insurance disputes 86Traditional trustee service disputes 90Financial difficulty disputes 91Legal proceedings disputes 98Conciliation conferences 101Systemic issues & serious misconduct 103Code compliance & monitoring 109Code compliance and monitoring 110Code team: 2015-16 at a glance 114Corporate governance 116Glossary 124

Page 3

MissionOur mission is to fulfil an important community role by providing an independent dispute resolution service in which people can place their confidence and trust. This involves understanding all sides of a dispute and resolving it fairly and efficiently.

We aim to be:

» Respectful

» Efficient

» Trustworthy

» Forward thinking

What we doWe resolve disputes between consumers and financial services providers:

» in a cooperative, efficient, timely and fair manner

» with minimum formality and technicality

» as transparently as possible, taking into account our obligations for confidentiality and privacy.

This involves understanding all aspects of a dispute without taking sides, and making decisions based on the specific facts and circumstances of each dispute.

4 | Code team: 2015-16 at a glance

2015-16 at a glance

PERFORMANCE COMPAREDWITH LAST YEAR

Total disputes received 34,095 up 7%Total disputes closed 32,871 down 5%Financial difficulty disputes accepted 2,875 down 30%Systemic issues resolved 64

New investigations of alleged breaches of industry codes of practice 245

Number of members Licensees:

5,540Authorised creditrepresentatives:

8,036

up 14%

down 13%Phone calls handledby our contact team 214,439 up 1.9%Visits to our website 600,046 down 1%

Conciliation conferences | 5


Message from the Chair of the Board

As I reflect on the past 12 months at FOS, I am reminded of the unique and important role FOS performs in the financial services sector as an independent, impartial and accessible dispute resolution service for the Australian community. It is sometimes easy to take this role for granted.

However, the ability of consumers to access cost-effective dispute resolution is the result of the combined efforts of many people, industry participants, consumer and community organisations backed by governments and community support over the past 25 plus years.

This has been very much a collaborative effort, not without differences on the details at times, but with a shared goal of ensuring consumers can access free and fair dispute resolution. While we are very much part of the financial services industry, importantly we are also part of the broader system of access to justice for Australians.

I am pleased that the Financial Sector Inquiry recommendations, which were accepted by the Federal Government, confirmed this important role that consumer access to external dispute resolution plays as a key element in ensuring fair outcomes for consumers and supporting trust and confidence in financial services.

The FOS Board is mindful of the importance of the role we play for the Australian community and of the principles of independence, impartiality, fairness and efficiency that underpin the dispute service we provide. This has guided our efforts over the past few years to improve what we do.

This year FOS has successfully implemented major changes to our organisation, information technology and dispute processes that have occupied our efforts for the past few years. We did so in response to our own desire to improve our service, feedback from our members, consumer organisations and other stakeholders, and the impetus given to these changes by the findings from the independent review of FOS in 2013. Like all major improvement initiatives, we recognise that change is continuous and our efforts to improve do not stop here.

I would like to acknowledge the commitment and professionalism of FOS staff, together with the support and feedback from our members, community and consumer organisations and other stakeholders. This has been critical in helping us make the changes to improve our dispute service.

Dispute numbers

At a time when we were going through significant organisational change, a major challenge this year has been an unanticipated increase in the number of disputes we received.

This increase in disputes goes against the trend of the past few years and is higher than we forecast based on what we understood from our members about the improvements they were making to provide better customer service, claims handling and internal dispute resolution. The key component seems to be industry-specific issues in general insurance (see page 51) along with generally sustained dispute numbers in other areas.

We continue to strongly endorse the philosophy that it is better for everyone involved if disputes can be directly resolved between the customer and their financial services provider and our new dispute process was designed to support this approach.

In response to this unexpected rise in dispute numbers, the Board has approved an increase in staffing for 2016-17 and built in a contingency should dispute numbers continue to increase. The Board is committed to ensuring FOS is appropriately resourced to support our new dispute process, that we do not compromise on quality and that significant backlogs do not emerge on any sustained basis.


While we are very much part of the financial services industry, importantly we are also part of the broader system of access to justice for Australians

Board evaluation

In 2015-16, the Board undertook an internal self-assessment of how it is functioning. The self-assessment found that the Board was generally performing well and suggested some minor enhancements which will help build on the foundation that was established following the last external evaluation in 2014-15.

I would like to take this opportunity to thank Christopher McRae, who resigned in June 2016. He made a significant contribution to the FOS Board during his four years as an industry director on the Board.

Reviews and consultation on expanded small business jurisdiction

In April 2016, the Federal Government announced the establishment of an expert panel to review external dispute resolution. It also indicated its support of a review of increased limits that apply to our small business jurisdiction.

We look forward to sharing our expertise with the Review Panel and playing our part in enhancing the role of external dispute arrangements to deliver fair outcomes for consumers and small business.

We are currently consulting on proposed changes to FOS’s small business jurisdiction.

Meeting future challenges

As scrutiny of financial services increases, so does the Australian community’s expectations of dispute resolution services.

We operate in a dynamic and rapidly changing environment where new services and players emerge and current firms continue to innovate and adapt. The history of FOS, and of external dispute resolution schemes generally, has been one of change, adaption and innovation in response to the many challenges faced.

This ability to adapt and innovate is an essential characteristic we want to embed as part of FOS’s next five-year Strategic Plan.

I am confident that FOS is well placed to meet the challenges ahead given the commitment of the Board, FOS staff and continuing strong support from our stakeholders and the community.

Professor the Honourable Michael Lavarch AOChair of the Board


Message from the Chief Ombudsman

In 2015-16, we successfully completed a major transformation of our organisation to deliver a fair, fast and efficient resolution service while engaging more widely with stakeholders than ever before.

In what was another challenging but rewarding year, we implemented our new dispute process, which was designed to be quicker and simpler to use for consumers and financial services providers (FSPs).

Under our new process we continue to reduce dispute timeframes without compromising quality. We reduced average resolution times by more than one-third – from 95 days last year to 62 days in 2015-16.

The key initiatives that drove this performance included improved engagement with and between consumers and FSPs, a new process to fast track simpler and lower-value disputes and a more efficient financial difficulty process.

Importantly, we closed almost all pre-30 June 2015 disputes by the end of this year, enabling us to now focus on those lodged under our new process.

A major challenge was an unexpected and sustained 7% increase in dispute numbers received (from 31,895 to 34,095). This put pressure on our workloads and timeframes with the re-emergence of some queues. Given the hard work by FOS staff over the past few years to eliminate backlogs and their commitment this year in keeping pace with the number of disputes we anticipated, this has been challenging for everyone.

We responded by adjusting our process and moving staff to where they were most needed, and have increased resourcing to ensure we maintain our quality and time standards. We are also working with our members to understand the causes behind this increase in dispute numbers.

A key focus this year was on actively identifying and managing systemic issues. We identified and referred 129 possible systemic issues to FSPs for response and resolved 64 definite systemic issues. This area will continue to be a priority in 2016-17.

An open and accessible service

While dealing with disputes and systemic issues is the core of our work, we did a great deal in 2015-16 to communicate with our members and the broader community, and to make our service as open and accessible as possible. Initiatives in these areas included:

» Increasing community outreach across a broader range of events and organisations

» Engaging with members directly and in open forums in all capital cities

» Working closely with accountants to help them understand the new licensing regime that applied from 30 June 2016

» Making a record number of policy submissions, sharing FOS knowledge and expertise on issues ranging from digital (robo) advice to crowd-sourced equity funding

» Working with FSPs and ASIC on major remediation schemes that compensate consumers who suffer loss

» Progressing work on family violence with key stakeholders in response to the Victorian Royal Commission

» Seeking and valuing feedback from all our stakeholders in order to improve our service.

Supporting trust in financial services

As we have stated in various policy submissions, we believe unpaid FOS determinations is a key problem that needs to be solved to restore consumer confidence in financial services. We are working with our stakeholders on a cost-effective compensation scheme of last resort.

FOS has also established a team to provide information to the independent panel that will be reviewing external dispute resolution. This is an important development in the sector, highlighting the role that access by consumers to FOS and external dispute resolution plays in ensuring fair outcomes for consumers, and supporting trust in financial services.

A note of thanks

I would like to thank all FOS staff for their efforts, professionalism and commitment over the past 12 months. Their dedication was instrumental in everything we achieved. I also acknowledge the support of the Board and our stakeholders.

I consider we have strong foundations in place as we continue our efforts to improve the important service we provide to the Australian community. The five-year Strategic Plan we are developing with the FOS Board will map out how we intend to remain at the forefront of external dispute resolution in the coming years.

Shane TregillisChief Ombudsman


How our new dispute process worked in its first year

Meeting stakeholder needs

Our new dispute process, introduced on 1 July 2015, is designed to meet the needs of applicants and FSPs by delivering fair, fast and efficient dispute resolution.

Earlier resolution

A key change was the introduction of Registration and Referral – the first stage of our new process. Here we refer all disputes that we initially receive back to FSPs to provide them with a final opportunity to resolve the matter directly with their customers.

So the number of disputes we accepted in 2015-16 cannot be compared with the number accepted last year and in previous years because our processes were different.

More of the disputes we receive are now resolving earlier and quicker in Registration and Referral, rather than being accepted and progressing to Case Management.

In 2015-16, we received 7% more disputes than last year (see Total disputes received, page 54). This increase was unexpected and went against the trend of recent years, and led to an increase in accepted disputes which was also not projected.

For more information about the impacts of changes in our process, see page 47.

Key achievements

In 2015-16, the new dispute process enabled FOS to:

» Reduce the average time taken to close disputes from 95 days last year to 62 days

» Almost double the proportion of disputes closed within 30 days from 22% last year to 43%

» Reduce the average time taken to close disputes at Registration and Referral from 45 days last year to 29 days.


Our 2012-2017 Strategic Plan*

Our Strategic Plan aims to meet the six external dispute resolution (EDR) benchmarks prescribed by the Australian Securities and Investments Commission (ASIC).

Our focus continues to be on delivering an efficient and effective dispute resolution service, successfully managing our public role and stakeholder engagement, and further developing FOS’s organisational capabilities and infrastructure.

Strategicfocus

Delivering a more efficient and effective dispute resolution service

Enhancing our public role and stakeholder engagement

Ensuring organisational development and sustainability

WHAT WE WANT TO BE

A customer-centric service for consumers and financial services providers

An organisation that monitors and improves its performance

A trusted organisation

The authority on financial services dispute resolution and an influential voice on how to prevent disputes

A smart, efficient and responsible organisation

An organisation with passionate people, effective systems, clear plans and a conscience

2016-17 Business Plan priorities

Successfully embed and adapt our real-time dispute resolution operating model

Actively promote FOS services in the community and to stakeholders

Develop our capabilities to be a more outward-looking and adaptable organisation

WHAT WE NEED TO DO

» Set and meet time and service standards for all our dispute resolution services

» Improve user experience

» Maintain and enhance the quality of our dispute resolution services

» Promote our service, actively engage and maintain stakeholder support

» Share our knowledge, experience and insights

» Raise community awareness of FOS

» Routinely seek stakeholder feedback and act on it

» Embed new ways of working as part of our desired behaviours and culture

» Attract and develop highly skilled and engaged people

» Develop, maintain and enhance e-enabled solutions that improve performance and deliver operational efficiencies

*Our Strategic Plan 2012-16 has been extended by another year to reflect our continued focus on the three key priorities above, and as we prepare for our five-year Strategic Plan 2017-22.


Our performance in 2015-2016


Our 2015-2016 plans What we achieved

Improve the experience of users of our dispute process

» Developed and launched a new online dispute form.

» Implemented a new case management system and made a number of enhancements.

» Conducted a review of our dispute resolution process and identified areas for improvement.

» Finalised 99.6% of all disputes received before 1 July 2015, and significantly improved dispute resolution timeframes.

» Developed a number of publications (including a digital process map), webinars and presentations to better inform our stakeholders on the new dispute process.

» Identified a number of areas for improvement for our online member portal to enhance the exchange of information with members.

Meet time and service standards for dispute resolution and enhance our analytics

» Developed a suite of operational reports in line with the new dispute process and improved internal and external reporting.

» Developed and implemented new internal key performance indicators in line with our strategic objectives.

» Adapted our processes and shared insights with members for dealing with disputes arising out of major remediation programs, and developed materials that can be adapted to future events and remediation plans.

Maintain and enhance the quality of our dispute resolution

» Reviewed our quality framework and enhanced quality review practices, in line with feedback provided by applicants and members.

» Developed and implemented a new knowledge management strategy to better share and harness knowledge across FOS.

Enhance our systemic issues function and approach

» Enhanced our systemic issues process to provide for earlier identification and actioning of possible systemic issues.

» Reviewed and enhanced our analytics for identifying and reporting systemic issues and instances of serious misconduct.

Continue to develop the code and compliance monitoring function and processes

» Enhanced our analytics and reporting of code activities.

» Implemented an electronic document exchange process between the Code team, code compliance committees and Code subscribers.

» Developed and implemented a risk assessment model to align code monitoring activities with industry and other risk factors.





Review and enhance our stakeholder engagement strategy

» Expanded our community outreach program to include a range of events for Aboriginal and Torres Strait Islander peoples, older Australians, newly settled migrants and people with a disability.

» Strengthened partnerships with consumer representative organisations including community legal centres and financial counselling services, and built relationships with agencies providing support services for new arrivals.

» Established partnerships with government departments that provide information and support to vulnerable and disadvantaged consumers.

» Consulted with external stakeholders on our Reconciliation Action Plan.

» Developed an engagement strategy and action plan to enhance our relationships with existing, new and small business members.

» Held 24 industry sector forums across the country.

» Developed and implemented a comprehensive outreach campaign for accountants and limited licensees who were required to become a member of an external dispute resolution scheme by 30 June 2016.

» Provided benchmarking reports to members with large dispute numbers to provide insights into dispute trends and help members handle disputes effectively.

» Undertook a major stakeholder survey to better understand the needs of stakeholders.

» Published a number of submissions in response to government inquiries and consultations.

Improve the accessibility and awareness of FOS for consumers

» Attended 27 community outreach forums and events across the country, reaching diverse groups of consumers.

» Developed guidelines for staff to help applicants experiencing family violence.

» Launched an animation to reach culturally and linguistically diverse communities.

» Published a pocket-size outreach brochure explaining our role in 14 languages.

» Continued to improve our website accessibility, ensuring material is available in a variety of formats.

» Prepared new communications to improve our reach to small business, building new content for the website and undertaking liaison with the new Family Enterprise and Small Business Ombudsman.

» Promoted FOS to the professional and business community via social media using LinkedIn. We achieved more than 1,000 followers and have secured active engagement with the community.

Promote stakeholder understanding of code compliance

» Committees shared insights about code compliance activities, to improve monitoring activities across the financial sector.

» Formulated terms of reference for industry liaison groups for effective engagement with relevant industry sectors.

» Participated in a number of industry forums and shared insights on code compliance.

» Published a code of practice pamphlet, outlining the four codes of practice, as part of our outreach activity.

» Delivered information about codes of practice to a wide audience of consumer stakeholders and members of the public, in FOS’s community outreach forums.






Continue to attract and develop highly skilled and engaged staff

» Completed training needs analysis for dispute resolution teams.

» Redesigned FOS’s learning pathways program for dispute resolution teams.

» Cross-skilled staff to enable them to work across different dispute areas.

Embed our new ways of working as part of the FOS desired behaviours and culture

» Carried out change and management development training.

» Implemented a mentoring program.

» Conducted a touchpoint survey to measure the levels of staff engagement and opportunities for improvement.

» Developed and implemented a new performance development framework for FOS staff.

» Implemented a new Human Resources information system.

Develop, maintain and enhance e-enabled solutions that improve performance and operational efficiencies

» Developed a new Business Continuity Plan, and conducted scenario testing.

» Implemented a new purchasing and procurement policy and enhanced control of supplier and contract management.

» Reviewed and improved our information management practices and IT infrastructure in line with our e-enablement strategy.

» Implemented and enhanced our case management system to better support the dispute resolution process.

Deliver training programs to equip Code staff in new code compliance and monitoring processes

» Code training is now part of the FOS learning program and has been extended to dispute resolution staff. We will be focusing on increasing the number of referrals of code breach allegations from FOS dispute teams to the code Code Compliance and Monitoring team.


Our strategic measuresStrategic focus Success measures 2015-2016 targets


Applicant satisfaction

Percentage of applicants who report a satisfactory or better dispute resolution experience at FOS.

Implement measures to evaluate and improve the experience of applicants and FSPs in our new dispute process. Our aim is to lift overall applicant satisfaction levels as follows.

Registered disputes:95% satisfied

Closed disputes:80% satisfied

Discontinued disputes:70% satisfied

Clearance ratio

A retrospective indicator that compares how many disputes we closed with how many we received.

≥103%

Age profile of open disputes

2015-16 – Percentage of open disputes that are less than or equal to 180 days old.

≥95% are less than or equal to 180 days old.

Time to close disputes

The age profile of closed disputes.

For disputes received after 30 June 2015, 95% ≤180 days.

For disputes received before 1 July 2015, 100% closed by 30 June 2016.

Disputes closed per quarter per dispute FTE

This provides a measure of the dispute handling process at FOS. It does not account for changes in product type or dispute complexity.

≥26


Measure overall satisfaction that FOS is meeting the needs of stakeholders.

≥7.0 on a scale of 0 (extremely dissatisfied) to 10 (extremely satisfied) are satisfied that FOS is meeting their needs.


Staff engagement score

Survey responses measuring the level of staff engagement and alignment with our values and behaviours.

≥10% increase in the number of FOS staff who report feeling engaged in the workplace.

Environment audit rating

The National Australian Built Environment Rating System (NABERS) rating of the organisation’s impact on the environment.

≥5 star rating

Corporate Full Time Equivalent (FTE) to total FTE

The percentage of support staff (corporate) to staff directly involved win dispute

≤15%


Strategic focus Success measures 2015-2016 targets

resolution ≤15%.

2015-2016 performance 2016-2017 targets

Registered disputes:87% satisfied

Closed disputes:69% satisfied

Discontinued disputes:52% satisfied

New single measure for closed disputes (excluding matters that fall outside FOS’s jurisdiction and discontinued disputes).

70% of applicants are satisfied with how FOS handled their dispute.

Clearance ratio of 103% ≥103%

90% are less than or equal to 180 days old. 95% are less than or equal to 180 days old.

98% of disputes accepted after 30 June 2015 closed ≤180 days.

99.6% of disputes accepted before 1 July 2015 were closed by 30 June 2016.

95% of accepted disputes closed ≤180 days.

This target will no longer be required.

22.38 disputes closed per quarter per FTE ≥26

For consumers, 7.7 on a scale of 0 (extremely dissatisfied) to 10 (extremely satisfied) are satisfied that FOS is meeting their needs, and for FSPs 6.3.

≥7.0 on a scale of 0 (extremely dissatisfied) to 10 (extremely satisfied) are satisfied that FOS is meeting their needs.

2.1% increase in the number of staff who report feeling engaged in the workplace.

≥10% increase in the number of FOS staff who report feeling engaged in the workplace.

NABERS 5 star rating ≥5 star rating


2015-2016 performance 2016-2017 targets

14.8% corporate FTE to total FTE ≤15%


Our PeopleFOS staff are experienced professionals dedicated to resolving disputes fairly, impartially and efficiently.In 2015-16, we focused on equipping and supporting management and staff to operate within the new dispute process more effectively.

We introduced a human resource information system to improve our capability to manage resource planning and more effectively respond to changes in dispute flows.

This year we continued to enhance the leadership capability of staff, and provided training to increase the specialist skills and knowledge of staff.

Learning and development

Pilot mentoring program

This year, FOS delivered our first mentoring program. Six staff were selected for the program, which partnered them with a member of our Senior Leadership Group for six months.

The program provides the staff members with an opportunity to gain first-hand understanding of the strategic thinking that drives the organisation. For the mentors, it is an opportunity to use their skills and knowledge to guide future leaders.

Presentations with bite

FOS launched the Learning Bites program in 2015-16.

The program provides engaging bite-size presentations covering topics ranging from managing emergencies and challenging callers to different ways of communicating, and practical information about using computer programs and systems. Teams can choose from more than 20 half-hour training presentations that can be delivered as a part of a team meeting or as a standalone session.

Building our skills and knowledge

We are continuing to equip FOS staff with the specialist knowledge and skills required to deliver high-quality dispute resolution outcomes.

This year, we delivered targeted technical training to staff on the dispute process changes as well as key specialist knowledge requirements for banking and finance, investments and advice, and insurance.

We continued to develop our talent through the FOS Management Development Program. The program is divided into four streams:

» Foundations of Management (for staff with management aspirations) – developed with the Australian Institute of Management

» Aspiring Managers (for new managers) – developed with Deakin Prime

» Leading Managers (for experienced managers) – developed with Deakin Prime

» Senior Managers – a residential course at the Mt Eliza Business School.

The courses help participants build their leadership capabilities, and enhance knowledge sharing at FOS.

Occupational health and safety (OHS)

A safe and healthy workplace remains a key priority. OHS initiatives that we delivered this year include:

» OHS and Equal Employment Opportunities e-learning courses

» introducing standing workstations as part of ergonomic assessments of workstations

» training for FOS First Aid officers

» free flu vaccinations

» psychosocial (stress) management programs.

Workforce planning

We work closely with dispute teams to determine workforce demands, ensure adequete staffing and skill levels.

At 30 June 2016, FOS had a total workforce of 362 (293.2 full-time equivalent), the same as the workforce of 362 (288.1 full-time equivalent) one year earlier.

Gender equity

Our workforce consists of 207 (57%) women and 155 (43%) men across part-time and full-time roles. The table below shows the distribution of male and female employees.

Gender breakdown at FOS

Category F M TotalMiddle management 21 15 36Senior professional/technical 164 110 274Executive level (including Lead Ombudsmen) 2 5 7Ombudsmen (excluding sessional staff) 7 4 11Board 5 4 9Consumer or industry panel members 8 17 25

207 155 362



Recruitment, induction and demographics

In 2015-16, we welcomed 48 new employees. Through an induction and orientation program, our newest team members were briefed on our culture and values, and our business goals and processes.

Most staff recruited in 2015-16 were in the 21 to 30 and 31 to 40 age brackets.

Age of staff as at 30 June 2016

Years of service as at 30 June 2016

Ombudsmen

In 2015-2016, our full-time, part-time and sessional Ombudsmen were:

Shane Tregillis – Chief OmbudsmanJohn Price – Lead Ombudsman, InsurancePhilip Field – Lead Ombudsman, Banking and FinanceJune Smith –Lead Ombudsman, Investments and Advice

Katy AdamsMichael ArnoldRonald BeazleySarah-Jane Christensen

Evelyn HallsAlison MaynardChristine McCarthyNicole McCutcheonDenny MeadowsDon O’HalloranJusti Tonti-FilippiniMarita Wall

Adjudicators

Melinda CavalieriRachel ErlichQasim GilaniChris LiamosCharlotte MurphyRuth TalallaTeresa Willemsen

Panel members

Consumer

Stephen DuffieldPaul HolmesJustin MalbonWilliam MitchellAnna NightingalePaul O’SheaBrendan PentonyJoan Staples

Industry

Bruce BeakeyTom Brennan Mike Britton Phil Campbell Jennifer Diggle Robert Emery Marc Huinink Corin Jacka Richard King Alex Knipping Martin McIntosh Peter Roan Graham Slater Patrick Sweeney Terry Wakefield John Wall Tim Webber Matthew Wigzell Lachlan Wraith Gavin Wright Laura Younger

Recognising service excellence

FOS recognises and celebrates the achievements of our people through service excellence awards. In 2015-16, we presented awards to the following staff:

Kane Colgan – Registration OfficerGemma Cullinan – Dispute Information and Improvement AnalystLouise Halliday – Legal Counsel, Early AdviceBen Jaroenwong – Case Officer, Fast TrackWendi Nisbet – Case Manager, Flex teamElizabeth O’Brien – Case Manager, Fast TrackPortia Smith – Team Manager, Systemic Issues

Josephine Tan – Case Manager, Flex team



Organisation chartEffective 1 July 2016


Senior Leadership GroupFrom left, back:

Michael RidgwayExecutive General Manager – Corporate Strategy and Services*John PriceLead Ombudsman – General InsuranceShane TregillisChief OmbudsmanJenny PeacheyExecutive General Manager – Strategic Review*

From left, front:

June SmithLead Ombudsman – Investments and AdvicePhilip FieldLead Ombudsman – Banking and FinanceJamie OrchardExecutive General Manager – Resolution*

* Effective from 1 July 2016

Our stakeholders

FOS has a broad range of stakeholders – financial services providers (members of FOS), consumer representatives including financial counsellors and community lawyers, industry bodies, ASIC and other government bodies, and the Australian community. We engage with all these stakeholders in various ways


Our membersFOS is one of the largest industry-based external dispute resolution services in Australia. Our members are financial services providers (FSPs) that have chosen us as their external dispute resolution scheme. Every business with an Australian financial services licence or credit licence must be a member of an external dispute resolution scheme approved by the Australian Securities and Investment Commission (ASIC).

Our members include banks, credit unions, building societies, credit providers, general and life insurance companies and brokers, superannuation providers, fund managers, mortgage and finance brokers, financial planners, accountants, stockbrokers, investment managers, friendly societies, timeshare operators and authorised representatives. To see if your FSP is a member of FOS, go to www.fos.org.au/member.

Our members fall into two categories – licensees and authorised credit representatives (ACRs). Licensees are FSPs that hold an Australian financial services licence or credit licence from ASIC. ACRs are businesses that represent a credit licensee. Any complaint we receive from a customer of an ACR is referred to the dispute resolution area of its licensee.

FOS is a not-for-profit service and a significant proportion of our funding comes from case fees. The case fees paid by an FSP reflect the number of disputes it has at FOS and the progress of these disputes before reaching resolution. FSPs also pay an annual membership fee (see page 23).

The vast majority (94%) of our 13,576 members had no disputes lodged against them in 2015-16. When members did have disputes lodged against them, most had only one dispute. Of the FSPs with disputes lodged against them, the proportion of members with only one dispute decreased from 46% last year to 42% in 2015-16. There were 47 members with more than 100 disputes lodged against them compared with 54 last year.

Distribution of disputes across membership base in 2015-16

Number of disputes per FSP

Number of FSPs

Total number of disputes

1 351 351

2 120 240

3 69 207

4-10 142 848

11-20 43 611

21-50 41 1,252

51-100 22 1,645

>100 47 28,096

FSP not yet determined 845

Total 835 34,095

FSPs with no disputes 12,741

Total 13,576

Member numbers

1 July 2015

30 June 2016

Change (%)

Licensees 4,849 5,540 14.3Authorised credit representatives (ACRs)

9,258 8,036 (13.2)

Total 14,107 13,576 (3.8)

Our total membership base at 30 June 2016 was 13,576. The number of licensee members increased significantly to 5,540 in 2015-16, and the number of ACRs fell by a similar proportion to 8,036.

New members were predominantly accountants and financial advisors/planners.

The total number of members fell by 3.8%. The main reason for this decrease was the reduction in ACRs. Generally this happens when businesses modify their licence to no longer provide credit services and so no longer need to be a member of an external dispute resolution scheme.


Sharing knowledge and expertise with our members

We shared our knowledge and expertise to build skills and capacity in the sector and help members understand our new dispute process and how to avoid disputes. Key activities were:

» Hosting a total of 24 open forums in Adelaide, Brisbane, Melbourne, Perth and Sydney that brought together industry participants from banking and finance, general insurance, life insurance and investments and advice with key FOS managers to discuss FOS decisions, common and emerging issues and share industry insights. We engaged with a total of 1,169 members at these forums

» Holding face-to-face meetings with members with a high number of disputes

» Participating in industry conferences, panel discussions, seminars, training, meetings and workshops for industry associations, members and specialist financial services groups

» Providing benchmarking reports for banking and finance and general insurance members with large dispute numbers. We refined and enhanced these reports to identify insights into dispute trends to help members handle disputes effectively

» Holding a webinar on the new FOS dispute process, which was attended by 467 people across Australia.

Collaboration with members increased our ability to deliver the best possible service. Several dispute process improvements in 2015-16 were a direct result of feedback from our members.

Building trust through collaboration

FOS seeks to develop strong relationships with our members built on trust, collaboration and valued interactions.

In 2015-16, we worked with FSPs directly and industry bodies to explain our process and approach to dealing with dispute issues, and to ensure they maximise the benefits of membership.

One of the key benefits for members attending FOS industry forums and our national conference held every two years is the opportunity to share information and discuss industry developments and issues raised in disputes with members from other organisations and industry sectors.

Another benefit is the opportunity for education and training in areas such as information and guidance on how to avoid disputes, dispute decisions that we have made and in telephone conciliation.

Where our members come from

Key member industry types

FSP type % of membersFinancial advisors/planners 25General insurance brokers 14MIS operators/fund managers 11Credit providers 7Finance brokers 7Mortgage brokers 3Accountants 3Corporate advisors 2Securities dealers 2General insurers 2Banks 2Other 22


Working with accountants

FOS actively engaged with accountants throughout 2015-16, welcoming new members in the lead-up to forthcoming licensing changes.

Accountants without an Australian financial services (AFS) licence, or those who do not intend to become an authorised representative of an AFS licensee, need to apply for a limited AFS licence if they want to continue giving advice about self-managed superannuation funds after 30 June 2016. A requirement of holding a limited AFS licence is membership of an ASIC-approved external dispute resolution scheme.

We continued to strengthen relationships with professional accountancy associations and presented at 26 conferences and workshops in Adelaide, Brisbane, Gold Coast, Melbourne, Perth and Sydney, explaining how their members can meet their new licence requirements. FOS developed useful resources for accountants to support them in avoiding disputes and providing effective internal dispute resolution.

Working with small business

In April 2016, the Federal Government announced its support for an expansion of our small business jurisdiction and requested that ASIC work with FOS to review, among other things, financial limits that apply to dispute claims and compensation. FOS will work with ASIC and consult with stakeholders in the coming months.

FOS welcomed the initiative to assist and support small businesses through the newly established Australian Small Business and Family Enterprise Ombudsman, a service that will make a valuable contribution through its advocacy and dispute resolution. FOS is working with the Small Business and Family Enterprise Ombudsman to ensure that we have in place suitable arrangements for smooth referral between the ombudsman services.

Fees

Our funding structure consists of a membership fee, user charge and dispute fees. Our fee structure is unchanged with minor CPI-related adjustments from 1 July 2016.

Key issues discussed at FOS open forums

Sector Issues

Accountants » Key features of quality advice» How to avoid common risks in SMSF

advice» Ethics, professional standards and

effective dispute resolution

Banking and finance

» Responsible lending» Mistaken internet payments» Common and emerging issues in

financial difficulty disputes» Responsible lending» FOS approach to financial difficulty

disputes, misleading conduct

General insurance

» Pre-existing medical conditions» Non-disclosure and misrepresentation» Proximate cause» Fast Track disputes» FOS approach to fraud disputes,

insurance broker disputes, cancellation of instalment contracts, section 47

Investments and advice

» General v. personal advice» Conflicts of interest


Sector Issues» Systemic issues» Client goals v. risk tolerance» Risk profiling

Life insurance

» Income protection» Interpretation of insurance contracts» Common and emerging issues» Case studies and how these disputes

could have been better managed at IDR


Sharing our experience

Open forums are a key way for FOS to share our experience with members. Our Lead Ombudsmen discuss dispute numbers and trends, case studies and the reasons for particular determinations, explain our approach to important and topical issues and examine best industry practice.

The forums aim to provide members with information to help them avoid disputes by improving their internal dispute handling or broader business practices where applicable.

We also give members the opportunity to raise emerging issues and challenges, and hold open discussions to hear a range of viewpoints and answer questions. For example, in 2015-16 many insurance forums discussed discrimination claims and the approach insurers should take to handle these claims.

In 2015-16, a total of 1,169 members attended these forums, which also provide updates on process and organisational changes at FOS.

For FOS, the forums provide practical feedback from members; for example, by improving our understanding of how our process is working for FSPs. This collaboration increases our ability to deliver a better service. Some of our process improvements were a direct result of feedback from members.

This year, FOS continued to look at ways to help FSPs get the most out of their membership, and among other initiatives, we developed:

» a new member brochure

» a guide for members who have a dispute lodged against them

» an interactive process map

» a dispute process video and webinar

» top 10 tips for getting financial advice right (for accountants and other members new to external dispute resolution)

» six new FOS Approach documents (see page 25).


Stakeholder engagementIn 2015-16 we made significant changes to our dispute resolution process, which helped to make our service more accessible for vulnerable and disadvantaged consumers. Improvements included increased flexibility to take individual circumstances into account. We also focused on improving staff understanding of issues that may impact on people with additional needs bringing disputes to FOS, such as mental health, family violence, literacy and other matters, and providing a reference guide to help staff address the additional needs of these consumers.As part of our work to improve the accessibility of FOS and raise awareness about us, we:

» attended a diverse range of 27 community outreach forums, events and engagements across the country, often in collaboration with other external dispute resolution schemes

» offered our communications in a range of more accessible digital formats

» improved our print communications to make them clearer and easier to understand.

Other community engagement activities included:

» strengthening partnerships with consumer representative organisations such as community legal centres and financial counselling services (through their national and state associations)

» building and extending relationships with agencies providing support services for newly settled migrants

» establishing partnerships with government departments who provide information and support to vulnerable and disadvantaged consumers, including Centrelink and the Commonwealth Department of Human Services, and state government-run family and social services

» consulting on FOS’s Reconciliation Action Plan journey

» developing specific guidelines for staff to help applicants experiencing family violence (collaborating with the safe steps Family Violence Response Centre)

» launching an animation specifically designed to reach culturally and linguistically diverse communities

» publishing a pocket-size brochure explaining our role in 14 languages.

Developing new partnerships

We reviewed membership of the Consumer Liaison Group, consulting existing participants and stakeholders, and decided to invite new participants from organisations that support consumers with additional needs. This will complement existing participants from financial counselling and community-based legal services and help us develop new partnerships.

Record number of policy submissions

In 2015-16, FOS made a record number of policy submissions to a range of inquiries, reviews and consultations. These written submissions were in response to:

» the Parliamentary Joint Committee inquiry into the impairment of customer loans

» the proposed industry funding model for the Australian Securities and Investments Commission

» the Corporations Amendment (Professional Standards of Financial Advisers) Bill 2015

» legislation and regulations for crowd-sourced equity funding

» reforms of the NSW Home Building Compensation Fund

» the Australian Securities and Investments Commission’s proposed regulatory guidance for review and remediation programs (see page 35)

» the Victorian Access to Justice Review

» the Senate inquiry into the scrutiny of financial advice, as expanded to examine life insurance matters

» the provision of digital financial (‘robo’) product advice to retail clients (see page 80)

» the Senate inquiry into penalties for white collar crime.

See www.fos.org.au/publications/submissionsListening to our applicantsFOS made some changes this year to the way we assess applicant experience, with the applicant survey reflecting our new dispute process. As part of the new process, all disputes are referred back to an FSP to provide them with a final opportunity to resolve the dispute directly with their customer, before leaving Registration and Referral (and progressing to Case Management). We surveyed applicants across all parts of our dispute process.The survey showed that 87% of applicants whose dispute was resolved at Registration and Referral were satisfied with the experience and service delivered.Disputes that progress to Case Management are typically more complex. More than two-thirds (69%) of applicants were satisfied with their experience when their dispute was resolved at Case Management. The numbers at this stage rebounded after falling early in 2015-16.About half (52%) of our applicants with a discontinued dispute were satisfied with their experience.


Our focus is to continue improving our service through the most influential drivers of applicant satisfaction:

» listening to applicants

» informing applicants of potential dispute outcomes

» including applicants in the dispute resolution process.

Our average timeframe for resolving disputes has improved significantly (see page 56) and this is another important driver of satisfaction.

Compensation scheme gains support

FOS considers a compensation scheme of last resort is the missing element in reforms to professionalise the financial planning sector, so that when things go wrong, consumers will be compensated when a decision is made in their favour.

FOS has made several submissions in recent years calling for a compensation scheme of last resort for consumers to address the issue of unpaid determinations. We see this as a key initiative

to build consumer trust and confidence in financial services.

Unpaid determinations arise when FOS determines that consumers should be compensated, but FSPs are unwilling or unable to pay the compensation awarded. Consumers were owed about $16.7 million (including interest) in unpaid determinations as at 30 June 2016.

There is general agreement by participants in the financial sector, consumer organisations and the Australian Securities and Investments Commission that the issue of unpaid FOS determinations of compensation is a problem that needs to be addressed.

For example, the Consumer Action Law Centre has welcomed calls for such a scheme, and the Australian Bankers’ Association has also expressed support for the proposal.

Sharing our knowledge with the community

Media relations

The mainstream media provide FOS with an important opportunity to share the knowledge and experience of our Ombudsmen and other experts, and increase community awareness of dispute resolution services. We responded to inquiries about our service, and informed debate about consumer and financial issues.During the year, journalists interviewed FOS Ombudsmen on banking, fraud and credit issues such as Paywave and reverse mortgages, and insurance matters. For example, we explained how consumers can bring disputes to FOS following natural disasters if they cannot resolve them with their insurers.FOS Ombudsmen undertook media interviews about the requirements for accountants to obtain an Australian financial services licence when providing advice on self-managed superannuation funds.Our submissions on a compensation scheme of last resort for consumers (to address unpaid determinations) was also of media interest, as was our Annual Review and The Circular (see below).

Publications

FOS produces a range of publications and other communications to help people understand the dispute resolution service we provide, share our dispute experience, and discuss current and emerging industry trends or issues. In 2015-16 we updated all our publications with details of our new dispute process.Our publications can be found on the FOS website and include:

» The Circular, our quarterly online publication, which has a circulation of about 14,000. It provides an overview of disputes handled each quarter, information about the numbers and types of disputes we handle, case studies and analysis of particular issues from FOS’s perspective. In 2015-16, we released editions 22, 23, 24 and 25 (see www.fos.org.au/circular).

» The FOS Approach documents, which are designed to help members and consumers understand how we consider disputes and reach decisions. We now have 18 FOS Approach documents, which are available at www.fos.org.au/approach. In 2015-16, we updated many of the FOS Approach documents to meetthe requirements of an easier to follow template we developed with the Plain English Foundation. We published new or revised FOS Approach documents on:» non-financial loss claims

» awarding interest in insurance

» cancellation of instalment contracts

» fixed interest investments

» insurance broker disputes

» misleading conduct.


Helping people understand and use our service

Being more accessible online

FOS is committed to providing an accessible service that gives everyone in the community the information they need in a format that suits them.In 2015-16, we further improved the accessibility of our website and other communications for people with a visual impairment by adding new navigation assistance features for screen readers, improving mobile access to our contact centre, and increasing the number of publications available in accessible formats.We also expanded and improved our website content, adding new FOS Approach documents, key determinations and case studies, community language content, consumer guides and additional resources for members.We added the following videos to our online resources:

» How to resolve a dispute

» The FOS dispute resolution process (for consumers)

» The FOS dispute resolution process (for members)

» The benefits of FOS membership for accountants.

These videos are reaching more people online. The number of views increased by 73% to 6,615 in 2015-16, building on strong growth in previous years.There were fewer visits to the FOS website in 2015-16 compared with the previous year and fewer unique users.

Website visits by year

2014-15 2015-16 ChangeVisits 602,542 600,046 -0.4%Unique visitors 418,433 364,915 -12.8%

A single visit on a website may contain multiple page views, search actions etc and ends after 30 minutes of inactivity. A unique visitor is a person who has used the website at least once during the reported year.

Being more accessible by phone

On 1 July 2015, we introduced a freecall number: 1800 367 287 or 1800 FOS AUS. This number enables people to phone FOS free of charge from most phones.Our 1300 780 808 ‘local charge’ option will remain active for the time being, as members advise their customers of our new contact details. FOS received 214,439 phone calls in 2015-16, which was 1.9% more than last year. Per business day, we received an average of 854 calls, compared with 832 last year. The vast majority (95%) of our calls came from consumers with half (51%) of these ringing the freecall number. This proportion is likely to increase in 2016-17.

Since the introduction of the freecall number, we have experienced a significant decrease in the number of requests to call back consumers on their mobile. We had an average of 224 requests per month compared with 1,818 per month last year (before the introduction of the 1800 number).There were 255 calls to our natural disaster line in 2015-16, about half (49%) of last year’s number. This corresponds with the decrease in natural disasters compared with previous years.Consumers may lodge their disputes over the phone, or call FOS for general information about our process. If we cannot help, we try to refer the caller to the appropriate agency or service.See also How applicants lodged their disputes, page 39.

Calls to FOS in 2015-16

Consumer

Mem

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hip

1300

565

552

Loca

l13

00 7

80 8

08

Free

call

1800

367

287

Dis

aste

r18

00 3

37 4

44

Con

sum

er to

tal

Tota

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11,405 98,146 104,633 255 203,034 214,439

Consumer group provides valuable insights

Since its inception in 2012, the FOS Consumer Liaison Group (CLG) has helped to make our service more effective and accessible for vulnerable and disadvantaged consumers. The collaborative efforts of this group of consumer representatives is important to FOS, and we would like to formally acknowledge the contribution of Phil Powell, who stepped down from the CLG following his retirement from Anglicare Tasmania. In recognition of the changing environment, and the raised profile of issues such as elder financial abuse and family violence, FOS undertook a review of the CLG and is inviting new participants to broaden its experience. The CLG will still meet quarterly, with two meetings a year held interstate to allow for wider participation across the consumer sector in roundtable-style consultations. We will continue to liaise with the existing core group:

» Paul Holmes, Legal Aid Queensland (see page 29)

» Alexandra Kelly, Financial Rights Legal Centre

» Christine Raymond, Uniting Communities

» Brenda Staggs, Legal Aid NSW

» Agata Wierzbowski, Consumer Action Law Centre.


Meet Paul HolmesFOS Consumer Liaison Group member

“Often clients who come to us feel they haven’t been acknowledged or heard, and they simply want us to listen”

– Paul Holmes, Legal Aid Queensland

Listening with empathy

Listening without judgment is probably the most under-rated skill that good lawyers possess, according to Paul Holmes. He says he learned that from the now retired Queensland Supreme Court Justice John Helman, for whom he worked as a judge’s associate more than 10 years ago.

Paul puts his listening skills to good use in his role as a senior lawyer at Legal Aid Queensland, where he helps vulnerable clients tackle their banking and finance and consumer law problems.

Sadly, a lot of people need help with these issues, especially those who have lost their job, ended their relationship, are seriously ill or simply struggling to survive financially. And Paul is one of very few publicly funded consumer lawyers in Queensland.

‘Often clients who come to us feel they haven’t been acknowledged or heard, and they simply want us to listen,’ he says. ‘Each of their stories is unique and important – only that person has lived it.’

His clients fall into three categories – people he equips to manage their own case, those who have lost trust in the system and need Legal Aid Queensland to run their case, and others for whom no legal avenue is open.

The end of the mining boom in western and northern Queensland has left many clients in the third category. These people have lost their job, often have large mortgages and can’t sell their houses – as property prices are collapsing.

‘Often we are their last hope but sometimes people just want to know they’ve done everything they possibly can,’ he says.

Paul’s role includes case work, advice and educating community workers and he is one of the original members of the FOS Consumer Liaison Group (CLG). He engages with financial services providers and external dispute resolution services such as FOS, and aims to have sensible conversations about clients and their problems to prevent issues escalating.

‘I’m focused on working with the next person asking for help but also driving change in the process and law for people who don’t manage to get through the door,’ he says.

He has no doubt that his four years on the CLG has been a sound investment in time. It has given him insights into the way FOS works, which has helped him solve problems for clients. It has also given him the opportunity to put client problems on the table early, which has helped FOS identify and address systemic issues.


Educational events and conferences

In 2015-16, we participated in a number of educational events for consumer representatives including financial counsellors, community lawyers and financial capability workers. These events included:

» Financial Counselling Australia – conference and Twilight EDR Forum (see below)

» Annual conferences:

» National Association of Community Legal Centres

» Financial and Consumer Rights Council (Victoria)

» Financial Counsellors’ Association of NSW

» Financial Counsellors’ Association of Queensland

» Money Workers Association of the Northern Territory

» Financial Counsellors’ Association of Western Australia

» South Australian Financial Counsellors’ Association

» Financial Counselling Tasmania.

Twilight EDR Forum

We participated in nine conferences, including the national Financial Counselling Australia conference in Adelaide. In conjunction with this conference, we collaborated with other industry ombudsman schemes to present the Twilight EDR Forum with a theme of ‘Tell someone who cares’.

The workshop explained how external dispute resolution works, covered topical issues, and included tips for financial counsellors to get the most from external dispute resolution on behalf of their clients.

Our reconciliation journey

Following a presentation to staff during

NAIDOC Week in July 2015 by Lynda Edwards, Program Manager at CentaCare Wilcannia-Forbes, FOS lodged its intent with Reconciliation Australia to develop our first Reconciliation Action Plan (RAP).

We began our reconciliation journey by establishing the RAP Crew – a working group with participants from across our organisation – to drive the project. The group undertook varied research, followed by internal and external consultation, promoting conversations about reconciliation and what it means to FOS.

This work culminated in FOS’s Reflect RAP – a public statement of our commitment to grow as a culturally competent organisation, together with an action plan to improve the accessibility of our service for Aboriginal and Torres Strait Islander peoples.


Working in partnership

In 2015-16, we expanded our outreach activities to raise awareness and establish or strengthen relationships with a diverse range of stakeholders, including cultural and linguistically diverse communities, Aboriginal and Torres Strait Islander peoples, the LGBTQI community, people with a disability and older Australians.

We attended the following events for the first time:

» Yabun Festival – the largest one-day celebration of Aboriginal and Torres Strait Islander cultures in Australia

» Mardi Gras Fair Day – the signature community event of the annual Sydney Gay & Lesbian Mardi Gras season

» NSW Royal Easter Show (seniors days) – Australia’s largest annual event, attracting almost 900,000 people a year

» Our Choice Expo at the Having a Say Conference – an annual event which aims to empower people with a disability by creating connections with community service providers.

Providing a stall at public events gives FOS the opportunity to explain our role and how external dispute resolution can help people to resolve disputes in the financial services sector without the stress and expense of going to court.

At the Royal Easter Show, FOS shared a ‘justice marquee’ in collaboration with the NSW Ombudsman, ASIC, Credit and Investments Ombudsman, Energy and Water Ombudsman NSW, Telecommunications Industry Ombudsman, the Seniors Rights Service and the NSW Trustee & Guardian.

Helen Kapalos

Helping us understand additional needs

FOS invites speakers to address staff as part of our efforts to better understand the needs of vulnerable applicants. The type of additional assistance we can provide can be tailored depending on the circumstances.

In 2015-16, speakers were:

» Pam Ahern, Founder and Director, Edgar’s Mission, Victoria (rescued animal sanctuary – natural disasters)

» Lynda Edwards, Program Manager, CentaCare Wilcannia-Forbes, NSW (NAIDOC Week)

» Helen Kapalos, Chairperson, Victorian Multicultural Commission (A Taste of Harmony)

» Molly O’Shaughnessy, General Manager Operations, safe steps Family Violence Response Centre

» Kristen Papay, Instructor, Assistance Dogs Australia.

FOS staff giving

As part of the speaker series, we also heard from some of the charities that staff supported through fundraising efforts during the year.

We raised a total of $9,692 for:

» Arthritis Australia

» Assistance Dogs Australia

» Anzac Appeal

» Cancer Council

» Canteen, including the Support Joey campaign

» Edgar’s Mission

» safe steps Family Violence Response Centre

» Very Special Kids

» Walking Wounded.


Case studyWarning signs point to third-party threats

An applicant lodged a dispute with FOS claiming unauthorised withdrawals from a home loan account made by her former partner.

In the FOS determination, the Ombudsman found in favour of the applicant because the lender breached its obligation by allowing the co-borrower to change the signing authority and make withdrawals from the account without the applicant’s consent.

The joint home loan had been established about 10 years earlier and was secured by the then couple’s residential property.

The loan’s operating authority required a signature from both parties to withdraw funds from the account. The loan balance was in order, however the signing authority was changed without the applicant’s consent, allowing the co-borrower to withdraw a significant amount of funds, causing the loan to fall into arrears.

As a result of the arrears, the property was sold by the lender as mortgagee in possession late in 2015. The surplus proceeds were held in trust by the lender because the outcome of the dispute could change the amount the lender was to pay each borrower.

The FOS case worker became concerned when the applicant’s written and verbal instructions changed suddenly, from wanting the dispute to be decided by FOS, to asking for it to be withdrawn. Also of concern, although not unheard of, the applicant began communicating directly with FOS rather than through the authorised representative she had used from the start of the dispute.

The FOS case worker began to notice differences in the applicant’s written and verbal language, indicating that she may be under duress. On one occasion during a telephone conversation with the applicant, the case worker heard a third party in the background yelling aggressively, directing the applicant to withdraw the dispute.

FOS gave the applicant seven days to decide whether she wanted to proceed with the dispute, and during this time we contacted the authorised representative and the lender about our concerns. The lender agreed to provide interim assistance to the applicant and the co-borrower by releasing some of the frozen funds pending an outcome to the dispute.

The applicant’s authorised representative was able to contact her alone, and she explained that she was subject to violent and threatening behaviour from the co-borrower, but wanted to proceed with the dispute.

The dispute was expedited to the Ombudsman who found that while the applicant’s liability under the loan increased as a result of the unauthorised transactions, she did not receive any benefit. She also suffered financial loss as a result of the lender selling the property as mortgagee in possession and non-financial loss as a result of the lender’s error.

The Ombudsman awarded compensation to restore the applicant to the position she would have been in had the lender not changed the operating authority. These funds were in addition to the sale proceeds.


Guide shines a light on family violence

Family violence is sometimes described as a pattern of behaviour and tactics used by someone to dominate others. This pattern of power and control often includes financial abuse. Financial abuse can pose complexity in disputes; for example, where an abuser forces their partner to incur debt that may not be in their best interests.

We developed a new guide this year to help staff working with applicants experiencing family violence. The guide helps case workers identify signs of family violence and financial abuse even when applicants choose not to disclose their circumstances to us, and how to provide flexibility and support during the resolution of the dispute.

In disputes where FOS case workers suspect family violence, we may refer applicants to specialist support services including financial counselling, Legal Aid and community legal centres.

The FOS Access Working Group worked in collaboration with the safe steps Family Violence Response Centre to develop the guide, which explains:

» how to recognise the warning signs of family violence and financially abusive tactics» the importance of building rapport and trust» the sensitivities of sharing information between parties.

Consistent with the consumer sector’s collaborative approach to addressing family violence, FOS shared the guide with stakeholders at the Twilight EDR Forum in Adelaide in May.


Reaching out to our most vulnerable applicants

FOS is committed to being accessible to everyone. Some of the factors that may impact on applicants’ access to our service include:

» language barriers, including English not being a person’s first language

» hearing, speech, vision and other physical impairments

» medical conditions

» literacy barriers

» mental health issues

» social and economic barriers.

We work to remove barriers to people coming to FOS, for example by offering language assistance or alternative ways of communicating.

In 2015-16, we received 852 requests for additional assistance, which was a 4% increase from last year.

Received disputes by type of additional assistance

TotalMental health 337Hearing 106Cognitive condition 99Physical impairment 93Other help needed 84Literacy 79Sight/vision 32Text telephone 22Total 852

For more details about additional assistance, see our consumer fact sheet at www.fos.org.au/access

Lance Hately

Relaying the message to staff

The National Relay Service (NRS) empowers people who are deaf or hard of hearing and those with speech impediments to use the telephone.

FOS staff attended in-house training sessions this year to better understand how the NRS works, explore the user experience of applicants with a hearing impairment, and learn practical skills when taking calls through the NRS.

The trainer, Lance Hately – who is deaf – communicated using an Auslan interpreter.

Haylee Cooper-Maclean, of the FOS Registration and Referral team, said: ‘Lance set up a call so we could see it working in a live environment. I found the demonstration really insightful. I didn’t realise that the NRS operator had to type out the dialogue between the applicant and me, for example. I naturally speak quite quickly, so I’ll be mindful now to slow down when I get an NRS call.’


Translators provide extra support

When lodging disputes, applicants are given the opportunity to request the help of a translator. This can help the applicant explain the details of their dispute to FOS, possibly by translating correspondence.

Not all applicants who indicate they might need a translator end up using one, but if one is required, FOS will arrange and pay for the service.

In 2015-16, a total of 625 applicants requested a translator. This was a 6% increase from last year. The languages for which we received the most translator requests were Arabic (70) and Chinese (other than Cantonese and Mandarin) (64).

Received disputes by language requested

Language TotalArabic 70Chinese 64Mandarin 42Afrikaans 40Persian (Farsi) 34Cantonese 32Korean 30Vietnamese 27Hindi 24Punjabi 21Greek 20Spanish 18Turkish 17Russian 12Dari 10Urdu 10Italian 9Assyrian 8Macedonian 8Bengali 7Bosnian 7Nepalese 7Croatian 6Estonian 6Serbian 6Thai 6Amharic 5Filipino (Tagalog) 5Gujarati 5Portuguese 5Czech 4German 4

Language TotalIndonesian 4Polish 4Samoan 4Albanian 3Deaf-Oral 3Deaf-Sign 3French 3Khmer 3Maori 3Tamil 3Burmese 2Dutch 2Wolof 2Ashanti 1Bisaya 1Bulgarian 1Hakka 1Hindi-Fijian 1Japanese 1Karen 1Lao 1Malayalam 1Maltese 1Marathi 1Pakistani 1Pashto 1Romanian 1Sinhalese 1Taiwanese 1Tigrigna 1Total 625


Reaching out in 14 languages

In 2015-16, we spread the FOS word further with the launch of new outreach communications for a culturally diverse audience.We developed an animated version of our main dispute brochure, explaining our role and how we can help people. The animation is supported by a pocket-size brochure available in 14 languages. These are Arabic, simplified

Chinese, traditional Chinese, English, Filipino (Tagalog), Greek, Hindi, Italian, Korean, Persian (Farsi), Punjabi, Spanish, Turkish and Vietnamese. The new animation is available on our YouTube channel (www.youtube.com/FOSAustralia) along with our ‘How we can help’ animation, which is also available in several languages.


Significant event response planFOS has a significant event response plan in place to ensure we respond effectively to significant events. The main factors that determine whether an event falls into this category include the likely significant increase in our dispute numbers, and/or the impact of the event. The plan can be triggered by any type of event – for example, a natural disaster (bushfire, flood or cyclone), financial collapse or large FSP technology failure.

To ensure a quick response, we enact our plan even if it initially seems that the event may not generate a large number of disputes.

The key objectives of the significant event response plan are to ensure that we continue to provide the same standard of service to our stakeholders by:

» consistently identifying and assessing the likely impact of significant events for consumers and FSPs as quickly and effectively as possible

» effectively dealing with any disputes arising from a significant event, and managing and controlling any impact on FOS resources and workloads

» ensuring timely and appropriate internal and external communication and stakeholder engagement during a significant event.

In 2015-16, several financial institutions established review and remediation programs related to their service offerings such as financial advice. FOS takes an active and collaborative approach in our work with these FSPs. We aim to ensure their review and remediation programs work effectively and fairly for affected consumers.

We use our understanding of these programs to create a tailored process that supports timely resolution of disputes subsequently lodged with FOS by providing applicants with the most efficient and streamlined service possible.

For example, we seek all relevant information and documents from the remediation case so that when a dispute is lodged with FOS, it can progress directly to a decision by an Ombudsman or panel.

In 2015-16, we implemented our significant event response plan for these events:

November 2015Bushfires (South Australia)

December 2015Southern Sydney storm (New South Wales)Great Ocean Road bushfire (Victoria)

January 2016Yarloop bushfire (Western Australia)

Remediation guidance will protect consumers

Financial services providers need to operate remediation programs from time to time to compensate consumers who suffer loss, and the Australian Securities and Investments Commission is developing guidance to regulate these programs.

FOS agrees that this guidance is required and has contributed to its development.

In a submission on ASIC Consultation Paper 247, FOS supported ASIC’s initiatives to strengthen remediation arrangements, saying that the guidance would enhance consumer protection and consumers’ rights to independent, efficient, fair and accessible remediation.

In the March 2016 submission, we said remediation programs should be based on the current framework for internal and external dispute resolution, avoid undue complexity in dispute resolution and deliver timely outcomes for consumers.

To meet the tests of independence, impartiality, transparency and efficiency, FSP remediation programs should ensure:

» a robust process for ensuring all reasonable steps are taken to contact all potentially affected customers using clear and effective communication

» an efficient single process for internal review, consistent with normal IDR processes and timeframes once a customer has been contacted and requested a review of their matter

» independent review and decision by FOS after the FSP completes a single-step internal review

» the waiver of any time, monetary or other limits that might constrain our jurisdiction for dealing with the disputes, including for customers who may have previously entered into confidential settlements

» identification of any potentially affected clients in financial distress for early review and assistance

» support for, or covering the costs for, clients to obtain advice and assistance in reviewing and putting their case in a dispute to FOS.

See www.fos.org.au/publications/submissions


Who lodged disputesOur national, free service is available to consumers who have an unresolved dispute with a financial services provider (FSP) if the FSP is a FOS member. These consumers include individuals, partnerships of individuals, some small businesses and clubs or incorporated associations.

About our applicants

Geographic distribution

The geographic distribution of our applicants in 2015-16 was similar to last year, and to that of the Australian population.

Geographic distribution of our applicants

The applicant’s location was recorded for 96% of disputes.

The overall Australian population is a general proportion of Australia’s population per state which has been derived from Australian Bureau of Statistics (2011) data.

Gender

As in previous years, more men than women lodged disputes with us in 2015-16.

Received disputes by gender of applicant

Age

Almost two-thirds (63%) of people who lodged disputes in 2015-16 were aged over 30. This reflects the trend for consumers to increase the number of financial services and products they hold as they get older.

As in previous years, the largest percentage of disputes lodged in 2015-16 came from the 40-59 year age group (32%). Most of these disputes were about credit cards, home loans and personal loans.

People aged 18-24 lodged 891 disputes in 2015-16, which was 2.6% of all disputes. Most of those disputes were about personal loans, comprehensive motor vehicle insurance and credit cards.

Disputes about credit cards were the most common reason the 60+ age group came to FOS, which was the same as last year.


Received disputes by age of applicant

Applicant type

As in previous years, the vast majority (almost 95%) of disputes were lodged by individuals. More than 5% were lodged by small business, and 0.2% were lodged jointly by individuals and small business.

How applicants lodged their disputes

More than three-quarters of applicants (77%) lodged their disputes through the FOS website in 2015-16, which was an increase from 76% last year, 74% the previous year, 69% in 2011-12 and 63% in 2010-11. Applicants used our new online dispute form to lodge 13,185 disputes after its launch in December 2015.The new online dispute form is designed to be as easy for consumers to use as possible, while also collecting the information we need to resolve disputes in a timely and efficient manner. It also enables consumers to upload more information when they lodge a dispute.The new form also provides information about our jurisdiction, so that consumers are alerted to issues with their dispute immediately and referred to another agency if it will be better able to assist.Consumers can also lodge their dispute over the phone, by letter, email or fax.

How applicants lodged their dispute

Total %Internet 26,213 77Email 3,251 10Letter 3,108 9Phone 1,160 3Unknown 260 1Fax 84 0In person 19 0Total 34,095 100

Representation

The dispute resolution service FOS provides is a free and accessible alternative to court. Applicants do not need legal or financial advice or representation to come to us, nor do they need to pay anyone to represent them. But we recognise that some applicants may prefer to have someone lodge their dispute for them or act on their behalf during the dispute resolution process. In 2015-16, a total of 6,096 applicants used a representative to lodge a dispute with FOS. The type of representative applicants most commonly chose was a family member or friend (34%). The proportion of disputes lodged by representatives (18%) was the same as last year.Many people in financial difficulty seek the help of a consumer representative. This year, consumer representatives including financial counsellors, Legal Aid and community lawyers from 134 community-based organisations (131 last year) helped Australians lodge 484 disputes with FOS (472 last year).

Fee-for-service agents

In 2015-16 we saw another increase in the use of fee-for-service agents, who charge consumers a fee for providing representation. The number of applicants using a fee-for-service agent increased 5% following a 7% increase last year and a 59% increase the previous year.


We changed our Terms of Reference from 1 January 2015 regarding disputes lodged by fee-for-service agents. To better support FOS and FSPs to resolve financial difficulty disputes, FOS refuses to consider such disputes if the agent is engaging in inappropriate conduct or the dispute does not include information requested by FOS. Our Operational Guidelines clarify how this provision is applied (see www.fos.org.au/tor).

Received disputes by type of representative

TotalFamily member or friend 2,051Consumer advocate – private/paid 1,009Business director/owner 604Solicitor – private 479Financial counsellor 321Fee-for-service agent 308Solicitor 204Financial advisor 189Solicitor – community/pro bono 157Accountant 141Insurance broker 129Business employee 119Not listed here 111Power of attorney 77Consumer advocate – community/unpaid 63Legal guardian 38Trustee-affected party 32Executor 26Policyholder 18Co-trustee 12Member of Parliament 8Total 6,096

Disputes lodged by consumer representatives

About half (45%) of the disputes lodged by consumer representatives on behalf of applicants came from just 11 organisations in 2015-16. Legal Aid NSW again lodged the highest number of disputes on behalf of its clients.

TotalLegal Aid NSW 63The Salvation Army Moneycare 38Financial Rights Legal Centre (NSW) 22Anglicare Victoria 18Djerriwarrh Health Services# (Vic) 15Good Shepherd Australia New Zealand 13Care Inc. (ACT) 12UnitingCare Victoria & Tasmania* 12EACH Social and Community Health (Vic) 11Child & Family Services (Vic) 10Wesley Mission (NSW) 10

# Djerriwarrh Health Services generalist financial counselling and Djerriwarrh Health Services in partnership with CommUnity Plus through the Mortgage WellBeing Service

* Kildonan UnitingCare, Lentara UnitingCare, UnitingCare Regen, UnitingCare Wodonga, Wimmera UnitingCare


Overview of disputes

How we classify disputes

We classify disputes according to:

» the product/s the consumer is complaining about» the issue/s involved in the dispute» the sales or service channel the consumer used to purchase or get advice about the product in dispute» the outcome of the dispute (once it is closed).

This section details all the classifications within these categories.


An overview of how we classify financial productsPercentages below are for disputes lodged in 2015-16.

Credit 47%

Business finance

» Business credit card

» Business loans

» Commercial bills

» Hire purchase/lease

» Letter of credit

» Line of credit/overdraft

» Non-FSP debt

Consumer credit

» Construction loans

» Credit cards

» Equity release

» Hire purchase/lease

» Home loans

» Interest-free finance

» Investment property loans

» Line of credit/overdraft

» Non-FSP debt

» Personal loans

» Short-term finance

Guarantees

» Bank guarantee

» Business guarantee

» Consumer guarantee

Margin loans

General insurance 31%

» Domestic insurance» Consumer credit insurance

» Home building

» Home contents

» Motor vehicle – comprehensive

» Motor vehicle – third party fire and theft

» Motor vehicle – third party theft

» Motor vehicle – uninsured third party

» Personal and domestic property – caravan

» Personal and domestic property – domestic pet

» Personal and domestic property – horse

» Personal and domestic property – mobile phone

» Personal and domestic property – moveables

» Personal and domestic property – pleasure craft

» Personal and domestic property – trailer

» Personal and domestic property – valuables

» Residential strata title

» Sickness and accident insurance

» Ticket insurance

» Travel

Extended warranty

» Browngoods

» Motor vehicles

» Whitegoods

Professional indemnity insurance

» Medical indemnity

» Other professional indemnity

Small business/farm insurance

» Commercial property

» Commercial vehicles

» Computer and electronic breakdown

» Contractors all risk

» Fire or accidental damage

» Glass

» Industrial special risk

» Land transit

» Livestock

» Loss of profits/business interruption

» Machinery breakdowns

» Money

» Public liability

» Theft

Payment systems 5%

Direct transfer

» ATM

» Bank drafts

» Cheques

» Counter transactions

» Direct debits

» EFTPOS

» Electronic banking

» Foreign currency transfers

» Merchant facilities

» Telegraphic transfers

Non-cash

» Loyalty programs

» Non-cash systems

» Stored value cards

» Travellers’ cheques

Deposit taking 7%

Current accounts

» Business transaction accounts

» Foreign currency accounts

» Mortgage offset accounts

» Passbook accounts

» Personal transaction accounts

» Safe custody

Savings accounts

» Bank bills

» Cash management accounts

» First home buyer accounts

» Online accounts

» Term deposits

Investments and advice 5%

Derivatives/hedging

» Contracts for difference

» Foreign exchange

» Forwards

» Futures

» Options

» Swaps

Managed investments

» Australian equity funds

» Cash management accounts

» Charitable/educational schemes

» Film schemes

» Horse schemes

» International equity funds

» Investor direct portfolio services

» Managed discretionary accounts

» Managed strata title schemes

» Mixed asset funds


» Mortgage schemes

» Primary production schemes

» Property funds

» Timeshare schemes

» Trustee common funds

Real property

Securities

» Bills of exchange

» Bonds

» Debentures

» Exchange traded funds

» Promissory notes

» Shares

» Warrants

Superannuation

» Account-based pensions

» Approved deposit funds

» Corporate funds

» Industry funds

» Pooled trusts

» Retail funds

» Retirement savings accounts

» Self-managed funds

Life insurance 5%

Income stream risk

» Consumer credit insurance

» Income protection

Non-income stream risk

» Annuities

» Endowments

» Funeral plans

» Scholarship funds

» Term life

» Total and permanent disability

» Trauma

» Whole of life

Traditional trustee services <1%

Estate management

Estate planning

» Enduring powers of attorney

» Wills

Trusts

» Beneficiary

» Specific purpose

1. ProductsFOS handles disputes across many areas of financial services. Our classification system divides these disputes into product types.

There are seven main product types: credit, deposit taking, general insurance, investments and advice, life insurance, payment systems and traditional trustee services. There

are 23 product categories within these product types and 133 individual products.

As the diagram below demonstrates, we receive many disputes about some products, such as credit and general insurance, and receive only a very small number about other products, such as traditional trustee services.

Accepted disputes by product line in 2015-16


2. IssuesWe also classify disputes according to the issue/s involved.

For example, a person may lodge a dispute about an FSP declining their request for financial difficulty assistance (issue) in respect of their home loan (product).

Some issues, such as those relating to financial difficulty, are very common in the disputes we receive, while others are less frequent.

The table below provides the major issue types as well as the specific issues that fall under each type.

AdviceFailure to act in client’s best interestFailure to prioritise client’s interestsFailure to provide adviceInappropriate adviceIncorrect advice

ChargesBreak costsDeductible or excessIncorrect commissionsIncorrect fees/costsIncorrect interest addedIncorrect premiumsNo claim bonus

DisclosureBreak costs disclosureFee disclosureIncorrect product/service informationInsufficient product/service informationMisleading product/service information

Financial difficultyDecline of financial difficulty requestDefault noticeFSP failure to respond to request for assistanceRequest to suspend enforcement proceedings

FSP decisionCancellation of policyCancellation of refundClaim amountCommercial credit reportingDenial of applicationDenial of claimDenial of claim – applicant non-disclosureDenial of claim – driving under influenceDenial of claim – exclusion/conditionDenial of claim – fraudulent claimDenial of claim – no policy or contractDenial of claim – no proof of lossDenial of variation requestError in debt collection

Inappropriate debt collection actionInappropriate margin call noticeInterpretation of policy terms and conditionsLiability disputedMaladministration in lendingMaladministration in loan managementProduct terms/features/service

InstructionsDelayFailure to follow instructions/agreementIncorrectly processed instructions

Non-Terms of Reference issuesNon-Terms of Reference

Privacy and confidentialityConsumer credit reportingFailure/refusal to provide accessOther privacy breachesUnauthorised information disclosed

ServiceDelay in claim handlingDelay in complaint handlingFailure to provide special needs assistanceInappropriate portfolio liquidationIncorrect financial information providedLoss of documents/personal propertyManagement of applicant detailsService qualityTechnical problems

TransactionsDishonoured transactionsIncorrect paymentMistaken internet paymentUnauthorised transactions


3. Sales and service channelsWe also classify disputes according to the sales and service channel, or type of business, the FSP was conducting in providing the product or service that the dispute is about.

For example, where a dispute concerns a general insurance policy sold through a broker, and the dispute is lodged against the policy issuer, the sales and service channel is ‘general insurer’.

But if the dispute is lodged against the broker, the sales and service channel is ‘general insurance broker’.

Some FSPs operate through multiple sales/service channels while others operate through a single channel.

The table below shows a full list of the sales and service channels of our members.

Sales and service channelsAccountantAdministration services providerBankBuilding societyCharity/community fundClearing/settlement houseCorporate advisorCover holderCredit providerCredit reporting agencyCredit representativeCredit unionCustodial and depository servicesDebt collector or buyerDerivatives dealerFinance brokerFinancial advisor/plannerForeign exchange dealerFriendly societyGeneral insurance brokerGeneral insurerLife insurance brokerLife insurerMake a market

Managed discretionary account operatorMIS operator/fund managerMortgage aggregatorMortgage brokerMortgage managerMortgage originatorNon-cash payment system providerPooled superannuation trustPrivate health insurerProduct distributorProduct issuerProfessional indemnity insurerProvider of lender of record servicesReinsurer/reinsurance agentResearch houseSecurities dealerStockbrokerSuperannuation fund trustee/advisorTimeshare scheme operatorsTravellers’ cheques/foreign currency transfer providerTrusteeUnderwriting agencyWarranty provider


4. OutcomesWe use the term ‘closed dispute’ to refer to a dispute we have finished handling. A dispute can be closed:

» through an agreement between the parties involved

» through a decision or assessment by FOS

» because the dispute is discontinued or outside our Terms of Reference.

When FOS finishes handling a dispute, we classify it according to its outcome and outcome type. The possible outcomes and outcome types are listed on the following pages.

Resolved by agreement

These outcomes are reached by agreement between the consumer and the FSP. They can reach agreement by communicating directly with each other (resolved by the FSP) or with the help of FOS (conciliation or negotiation).

Conciliation involves a telephone conference between the FSP, the applicant and FOS. This technique allows both parties to talk about the issues in an attempt to come up with a mutually agreeable outcome. Our conciliators bring the parties together to guide the conversation to make it easier for everyone to talk about the issues involved (see Conciliation conferences, page 107).


Resolved by agreement

ConciliationApologyCapitalisation of arrearsHardship superannuation releaseMonetary compensation in full

Monetary compensation in partNo compensation or actionNot disclosedOther product, service or resolution providedPartial waiver of debt/interest/feesPolicy/contract altered/voided/cancelledRepayment arrangementTimeframe for refinanceTimeframe for sale/surrender of asset

NegotiationApologyCapitalisation of arrearsHardship superannuation releaseMonetary compensation in fullMonetary compensation in partNo compensation or actionNot disclosedOther product, service or resolution providedPartial waiver of debt/interest/feesPolicy/contract altered/voided/cancelledRepayment arrangementTimeframe for refinanceTimeframe for sale/surrender of asset

Resolved by FSPApologyCapitalisation of arrearsHardship superannuation releaseMonetary compensation in fullMonetary compensation in partNo compensation or actionNot disclosedOther product, service or commercial resolution provided

Partial waiver of debt/interest/fees

Policy/contract altered/voided/cancelledRepayment arrangementResolved by FSPTimeframe for refinanceTimeframe for sale/surrender of asset

Resolved by FOS decision or assessment

These outcomes are reached following a FOS recommendation or determination or other assessment about the merits of a dispute.

A preliminary view, which may be provided through a recommendation, is an assessment provided by FOS following a detailed investigation into the dispute. If the consumer or FSP reject the preliminary view or the FSP fails to respond, the dispute proceeds to the final stage in our process. At that stage, an Ombudsman or panel reviews the dispute and makes a formal decision called a determination, by which the FSP is bound, if the consumer accepts it.

Some disputes proceed directly to determination without a recommendation being made. These are known as expedited determinations. FOS applies criteria in deciding whether standard and complex disputes ought to be expedited.

Where a dispute is expedited to determination, FOS will usually provide the parties with a preliminary view through a telephone call, case conference or letter.

Preliminary view in favour of applicantCapitalisation of arrearsMonetary compensation in fullMonetary compensation in partNo compensation or actionOther product, service or resolution providedRepayment arrangementTimeframe for refinanceTimeframe for sale/surrender of asset

Preliminary view in favour of FSPCapitalisation of arrearsMonetary compensation in fullMonetary compensation in partNo compensation or actionOther product, service or resolution providedRepayment arrangementTimeframe for refinanceTimeframe for sale/surrender of asset

Decision in favour of applicantCapitalisation of arrearsMonetary compensation in fullMonetary compensation in partOther product, service or resolution providedRepayment arrangementTimeframe for refinanceTimeframe for sale/surrender of asset

Decision in favour of FSPCapitalisation of arrearsMonetary compensation in partNo compensation or actionOther product, service or resolution providedRepayment arrangementTimeframe for refinance


Decision in favour of FSP

Timeframe for sale/surrender of assetWe may provide the parties with guidance on the merits of a dispute after we have investigated and considered the issues raised. Disputes resolved through such guidance are recorded with an ‘Assessment’ outcome. We have reclassified these outcomes as Outside Terms of Reference where provided in writing following a recommendation made in the independent review of FOS in 2013. This reclassification improves transparency of our reporting.

AssessmentApologyCapitalisation of arrearsMonetary compensation in fullMonetary compensation in partNo compensation or actionNot disclosedOther product, service or resolution providedPolicy/contract altered/voided/cancelledRepayment arrangementTimeframe for refinanceTimeframe for sale/surrender of asset

Discontinued or Outside Terms of Reference

These outcomes reflect disputes that are outside our Terms of Reference (that is, not the kind of disputes that FOS can consider) or that are discontinued because the consumer chooses to discontinue the dispute or stops communicating with FOS.

Following a recommendation made in the independent review of FOS, we changed the way we classify disputes that have been finalised on the basis that further investigation is not warranted after considering the facts of the dispute. This may be because:

» it is clear that there was no loss

» loss has been appropriately compensated by the FSP

» there was clearly no error by the FSP.

In financial difficulty disputes this may occur when the FSP has met its financial difficulty obligations to the applicant and has proposed a solution that is fair in the circumstances, but has not been accepted by the consumer. In previous years, these disputes have been classified with an Assessment outcome. We now classify these disputes as Outside Terms of Reference. For more information on this change, please see Excluding disputes at www.fos.org.au/approach.

See also Disputes outside our Terms of Reference, page 58.

DiscontinuedBeneficiary legal proceedingsDiscontinued by applicantFailure to respondFee-for-service agent conductSale of assetBeneficiary legal proceedings

Outside Terms of ReferenceApplicant not eligible


Outside Terms of ReferenceDispute not under Australian lawType of dispute outside Terms of ReferenceNot a current FOS memberExcluded by general insurance policyPrivacy onlyLevel of fee/premium/chargeCredit risk assessmentUnderwriting/actuarial factors led to offer of non-standard lifeGeneral insurance premium ratings/weightingsInsurance cover refusalInvestment performanceTrustee decisionManagement of a fund as a wholeAllocation of benefitDispute previously dealt with by FOSDealt with by court/tribunal/schemeLegal proceedings previously commenced before lodgementLodged with other external dispute resolution (EDR) schemeClaim exceeds $500,000Related to body corporate >20/100Small business credit facility exceeds $2mExcluded traditional trustee company serviceAlleged capacity of testatorExcluded professional accounting serviceGeneral discretionMore appropriate placeNon-retail clientFSP practice/policyFrivolous/vexatious/lacking in substanceLegal proceedings commencedOutside two-year National Credit Code credit contract time limitOutside two-year National Credit Code credit contract internal dispute resolution time limitOutside six-year time limitOutside two-year internal dispute resolution time limit



Our dispute resolution processWhat is different?

Our dispute process, introduced on 1 July 2015, is designed to be simple, quick and efficient – for applicants and FSPs. The process has fewer ‘touchpoints’ than previously and includes:

» A Fast Track stage for simpler and low-value disputes

» A registration and referral process in which we refer disputes back to the FSPs if they haven’t already had an opportunity to resolve the dispute with their customer

» Provision of specialist expertise early in the process

» An efficient financial difficulty dispute process that includes early contact and flexible pathways

» A format for decisions that effectively communicates the outcome of disputes to applicants and FSPs.

Technology enhancements underpinning these changes include an improved document exchange portal and online dispute form.

Impact of our new process

Due to the changes we made to our process, the number and profile of disputes we accepted in 2015-16 cannot be directly compared with the number of disputes accepted last year and in previous years, because our processes were different. More of the disputes we receive are now resolving earlier and quicker in Registration and Referral, rather than being accepted and progressing to Case Management.

Prior to 2015-16, some disputes were registered and referred to the FSP to resolve directly with their customer and others were directly accepted and progressed to Case Management. Now, all disputes that we receive are initially referred to the FSP to resolve matters directly with their customer. This change has impacted on the number and profile of disputes that are accepted and progress to Case Management for consideration.

The table below shows the changes in how we received and accepted disputes in 2015-16 compared with 2014-15.

Change in dispute profile

2014-15 2015-16Disputes received and registered 14,053 34,095Disputes directly accepted 17,842 -Disputes closed at registration 8,645 12,316Total disputes accepted 23,344 20,298

At 30 June 2016, a number of disputes were open in Registration and Referral

How we are working with FSPs

It was encouraging to see that many FSPs took advantage of the process changes to resolve disputes directly with their customers without requiring our intervention.

We saw a higher number of banking and finance disputes resolve at Registration and Referral, and banks in general have continued to improve the resolution of disputes at early stages. We saw this particularly with financial difficulty disputes, with the number of financial difficulty disputes received in 2015-16 continuing to reduce and more resolve at Registration and Referral.

A number of FSPs have been continuing to adjust to our new process and we engaged with industry sectors in 2015-16 to ensure they are making appropriate changes in how they handle disputes lodged with FOS.


How our dispute resolution process works

For more information, see www.fos.org.au/resolving-disputes


htpp://www.fos.org.au/resolving-disputes

How we count disputesWhat we record about disputes referred for internal dispute resolution (IDR)

The initial stage in our process is known as Registration and Referral. Here we lodge all the disputes we receive, record basic information about the issue(s) in dispute and then send the details to the FSP.

Even those disputes that have already gone through the FSP’s internal dispute processes are referred back to the FSP to provide another opportunity for the parties to resolve their dispute.

What we record about disputes that we consider

Those disputes that the consumer and FSP cannot resolve are accepted by FOS and progress to Case Management. We assess whether a dispute is within our jurisdiction and record extensive information about it. We classify it according to the product(s) or services(s) it relates to, the issue(s) it raises, and the sales or service channels(s) through which the consumer bought the product(s) or service(s) in dispute.

Having detailed information helps us to select the most appropriate way to help the parties resolve the dispute. It also enables us to report accurately and thoroughly about the disputes we have dealt with. We continue to update our dispute data and information as the dispute progresses.

What we record about disputes involving multiple issues or products

Some disputes we receive are about more than one product/service or more than one issue. For example, a consumer might complain about their residential strata title insurance policy (Product A) and about damaged furniture they believe should have been covered by their home contents insurance policy (Product B), which is separate from their residential strata title insurance policy.

The approach we usually take is to establish one case file and to record the fact that more than one product has been complained about and that more than one issue has been raised. This is an important aspect of case management and dispute resolution. It ensures that all aspects of a dispute are considered and provides an accurate picture of the causes of consumer concerns.

However, it also means that there are two ways that we can count and report on disputes. We can count a dispute that involves multiple products and issues as a single dispute, because it comes from one consumer and we hold one case file on it. Alternatively, we can count it as multiple disputes: one for each product or distinct issue in dispute. Which of these counting methods we use depends on what we are reporting – as explained below.

Reporting the total number of disputes

When we report the total number of disputes we received or closed, we count each case as one dispute even if it is about multiple products and issues. This is the best way of presenting our overall dispute input and output in a year. We use this counting method in these sections of this Review:

» Total disputes received (page 54)

» Total disputes closed (page 53)

» Who lodged disputes (page 38).

Reporting about products, issues and sales and service channels

When we want to analyse the products, issues and sales and service channels involved in disputes, we exclude the cases we received and closed in Registration and Referral. We focus on accepted disputes – that is, disputes that we accepted and that reached the Case Management stage of our dispute resolution process.

For accepted disputes, a case that is about more than one issue will be counted as two disputes: one for each issue. This enables us to provide an accurate picture of the proportions of disputes that involve each product and issue.

We use this counting method in the following sections of this Review:

» What the disputes were about (page 59)

» Credit disputes (page 62)

» General insurance disputes (page 68)

» Payment systems disputes (page 74)

» Deposit-taking disputes (page 78)

» Investments and advice disputes (page 82)

» Life insurance disputes (page 90)

» Traditional trustee service disputes (page 95).

We use both counting methods for the remaining two sections: Financial difficulty disputes (page 96)and Legal proceedings disputes (page 104).

Disputes ‘not yet determined’

In this Annual Review, the category ‘Not yet determined’ refers to disputes we have only just received and about which we may not yet have all relevant information – such as the products, issues and sales and service channels involved.



Total disputes receivedFOS received 34,095 disputes in 2015-16. This was an unexpected 7% increase from last year, going against the trend of stable dispute numbers in the previous three years. This increase in disputes received was driven by industry-specific issues in general insurance including higher claims, corporate restructuring and other organisational changes that may have affected insurers’ internal dispute resolution.

The chart below shows this increase was apparent in the second half of the year, particularly from February onwards. This led to a corresponding increase in disputes accepted, especially from March (see page 52).

The number of general insurance disputes received increased by 1,721, almost 90% of the overall increase in disputes received.

In 2015-16, after several stable years, general insurance disputes received returned to the levels of 2011-12 when these numbers were affected by several major natural disasters.

Total disputes received by year (case count)

2009-10 23,7902010-11 30,2832011-12 36,0992012-13 32,3072013-14 31,6802014-15 31,8952015-16 34,095

The table below shows how the 34,095 disputes that FOS received in 2015-16 entered our dispute resolution process (see pages 47-48 for more information on our process).

More than one-third (36%) of the disputes we received in 2015-16 at Registration and Referral were closed after they were referred back to the FSP’s internal dispute resolution (IDR) process. These disputes are resolved by the FSP and the consumer working together. This highlights the value of FSPs considering disputes before FOS becomes involved.

Stage into which disputes entered FOS process in 2015-16

Number %Disputes received into IDR process 15,474 45.4Disputes received into post-IDR process 17,856 52.4

Other 765 2.2Total 34,095 100

IDR = the FSP has not had an opportunity to complete its IDR process when FOS receives the dispute.

Post-IDR = the FSP has had an opportunity to complete its IDR process when FOS receives the disputes.

Registration and ReferralFOS received an average of 2,841 disputes a month in 2015-16, up from 2,658 in 2014-15. Our busiest month was June 2016 (3,317) and our quietest was January 2016 (2,285).


Total disputes acceptedWe accepted 20,298 disputes in 2015-16. It was the first year in which all disputes lodged with us were first referred back to the FSP’s internal dispute resolution process. For this reason, disputes accepted in 2015-16 cannot be compared with previous years.

Accepted disputes were those that the FSP and consumers could not resolve and then progressed into Case Management at FOS. At the beginning of Case Management, we review and allocate disputes into one of the following work streams:

Fast Track disputes are generally low-value disputes with a single primary issue that do not require detailed investigation and are suitable for fast information gathering and negotiation or decision.

Standard disputes may require FOS to investigate, gather and consider more information to deal with the issues but generally involve straightforward matters and may be more likely to be resolved by agreement.

Complex disputes generally require detailed investigation and consideration, and may involve a number of issues. These disputes are less likely to resolve by agreement through negotiation or conciliation and are more likely to require a decision by FOS.

Disputes that may be outside our jurisdiction are allocated to our Terms of Reference team to assess and determine whether we can consider them.

Disputes accepted into Case Management by stream 2015-16

Number of accepted disputes

% of all accepted disputes

Total number of disputes accepted into Case Management

20,298 100

Fast Track 7,008 35Standard 5,630 28Terms of Reference 4,937 24Complex 2,662 13

As at 30 June 2016, 61 disputes were yet to be streamed.

Behind the numbers

With our process changes, we anticipated more disputes would resolve in Registration and Referral and fewer would be accepted to progress to case Management at FOS.

While many FSPs took advantage of the changes to resolve disputes directly with their customers, a number of FSPs have been continuing to adjust to our new process, and fewer disputes were resolved in Registration and Referral than we expected.

Together with the increase in the number of disputes we received, this led to more disputes being accepted into Case Management at FOS than we expected, especially from March.

We are working with our members to understand the causes and address the issues behind the increase in dispute numbers, and to ensure they are making appropriate changes in how they handle disputes lodged with FOS.

Accepted disputes by monthFOS accepted an average of 1,692 disputes a month in 2015-16. Our busiest month was March 2016 (1,955) and our quietest was July 2015 (948).


Total disputes closedIn 2015-16, FOS closed 32,871 disputes, which was 5% less than last year.

A dispute can be closed at different stages in our dispute resolution process (see page 48). It may close through an agreement between the parties involved, through a preliminary view or decision made by FOS or because the dispute is discontinued or outside our Terms of Reference.Of all the disputes we closed in 2015-16, more than one-third (37%) were closed during Registration and Referral and almost two-thirds (63%) closed after they were accepted into Case Management.

Total disputes closed by year

Stage at which disputes were closed 2015-16

2015-16During Registration and Referral 12,316

After being accepted into Case Management 20,555

Total 32,871

Time taken to close disputes

In 2015-16, we closed more than 4 in 10 disputes (43%) within 30 days. This is an increase of 21 percentage points over last year (22%) and 25 percentage points over the previous year’s 18%. We closed more than three-quarters (77% compared with 61% last year) of disputes within 60 days and 85% (72% last year) within 90 days. We cut the average time to close disputes to 62 days compared with 95 days last year, a reduction of more than one-third (35%).In addition, of those disputes lodged before 1 July 2015, we have now closed 99.6%.

Reducing the time taken to close disputes was a key objective of our new dispute process, and continues to be a priority for FOS in our efforts to deliver a fair, fast and efficient dispute resolution service.

Days taken to close disputes

Days 2012-13 %

2013-14 %

2014-15 %

2015-16 %

<=30 15 18 22 4331-60 40 38 39 3461-90 11 11 11 891-180 15 15 15 9181-270 8 7 6 4271-365 5 4 3 2366-730 5 5 3 1>730 1 1 1 0

Total 100 100 100 100

Outcomes of disputes closed

The possible outcomes of a dispute handled by FOS are listed on pages 46-48. The table below shows the outcomes of the disputes closed in the past four years. The chart groups the outcomes into the following categories – closed by agreement, closed by FOS decision or assessment, discontinued, or outside the FOS Terms of Reference.As part of our process changes, we introduced a new outcome of preliminary view (in favour of the applicant or FSP) in 2015-16. This outcome is recorded when a dispute is finalised through FOS providing a Recommendation or other assessment on the merits of a dispute after a detailed investigation is conducted. Prior to 2015-16, disputes finalised through a Recommendation were recorded as a decision in favour of the applicant or FSP.The proportion of disputes closed by agreement between the applicant and the FSP continued the reduction of recent years, from 63% last year to 61%. The proportion of disputes resolved through a FOS decision, preliminary view or other merits assessment – because an agreement could not be reached – was 15% compared with 13% last year. Collaborative resolutions are quicker and cheaper than resolutions achieved through a formal decision by FOS. They can be tailored to the specific facts of the dispute and are also more likely to maintain, or even improve, relationships between the consumer and their FSP.The proportion of disputes that were discontinued was 6% in 2015-16 (the same as last year). A dispute is recorded as being discontinued if the applicant decides not to proceed with their dispute or to pursue it through alternative means (for example, in court), or if the applicant fails to respond to requests from us for contact and information. FOS has a follow-up process in place for situations in which an applicant does not respond to communication from us.


Outcomes of disputes closed

2012-13 2013-14 2014-15 2015-16

Number % Number % Number % Number %

RESOLVED BY AGREEMENTResolved by FSP 18,785 56 18,252 55 18,273 53 16,894 51Negotiation 2,720 8 2,674 8 2,565 7 2,624 8Conciliation 857 3 829 2 878 3 592 2

RESOLVED BY FOS DECISION OR ASSESSMENTDecision in favour of FSP 1,576 5 1,667 5 2,078 6 1,558 5Decision in favour of applicant 1,400 4 1,381 4 1,478 4 878 3Decision confirming FSP’s offer/action 86 0 97 0 155 0 0 0Preliminary view in favour of applicant - - - - - - 521 2Preliminary view in favour of FSP - - - - - - 626 2Assessment 1,274 4 1,406 4 1,130 3 1,415 4

DISCONTINUED OR OUTSIDE TERMS OF REFERENCEDiscontinued 2,681 8 2,230 7 2,244 6 2,071 6Outside Terms of Reference 4,391 13 4,914 15 5,913 17 5,692 17Other 3 0 0 0 0 0 0 0Total 33,773 100 33,450 100 34,714 100 32,871 100

Decisions closed through a Recommendation being issued are now included in preliminary view outcomes. This means that decision closures in 2015-16 cannot be compared with those of previous years.

Proportion of disputes closed by outcome


FOS operations are governed by our published Terms of Reference, which sets out the principles for how we operate, our rules and processes (see www.fos.org.au/tor).The principles that underpin our operations and processes are that in dealing with disputes, FOS:

» must do what in our opinion is appropriate with a view to resolving disputes in a cooperative, efficient, timely and fair manner

» shall proceed with minimum formality and technicality

» shall be as transparent as possible, while also acting in accordance with our confidentiality and privacy obligations.

The Terms of Reference sets out who is eligible to lodge a dispute, the types of disputes that we can consider, how we resolve disputes, the types of remedies that we can provide and other related matters. In addition, FOS publishes Operational Guidelines to assist understanding of the Terms of Reference and to provide further detail about how we resolve disputes.The most recent version of our Terms of Reference was released on 1 January 2015 following stakeholder consultation and ASIC approval.

Disputes outside our Terms of Reference (OTR)

The proportion of disputes outside our Terms of Reference was 17% in 2015-16, the same as last year. This year, a total of 5,692 disputes were found to be outside our jurisdiction. The most common reasons were more appropiate place (19%), type of dispute outside our Terms of Reference (16%) and general discretion – investigation not warranted (14%).A more appropriate place to deal with a dispute may be, for example, a court, tribunal or another dispute resolution scheme.A type of dispute outside our Terms of Reference may, for example, be one that does not arise from the provision of a financial service by an FSP to an applicant. If FOS determines that an investigation is not warranted, it is usually our view that the dispute is without merit. Generally this is because we consider the FSP has made no error, the applicant has suffered no loss or the loss has been compensated. The following table categorises these disputes according to the reasons we could not consider them.

Outside Terms of Reference (OTR) by reasons*

Total %More appropriate place 1,078 19Type of dispute outside Terms of Reference 919 16

General discretion – investigation not warranted 790 14

Not a current FOS member 504 9FSP practice/policy 499 9Dealt with by court/tribunal/scheme 284 5Credit risk assessment 251 4Excluded GI policy 217 4Outside six-year time limit 216 4Level of fee/premium/charge 215 4Applicant not eligible 198 3Dispute previously dealt with by FOS 196 3General discretion – previously settled 125 2Claim exceeds $500,000 79 1Management of fund as whole 36 1Frivolous/vexatious/lacking substance 33 1Insurance cover refusal 32 1Outside two-year IDR time limit 20 0Dispute not under Australian law 17 0Small business credit facility exceeds $2m 15 0Privacy only 13 0Legal proceedings previously commenced before lodgement 12 0

Underwriting/actuarial factors led to offer of non-standard life 11 0

Lodgement not by party or without applicant's consent 8 0

Trustee decision 8 0Investment performance 7 0Legal proceedings commenced 6 0Related body corporate >20/100 5 0GI premium ratings/weightings 4 0Lodged with other EDR scheme 4 0Outside two-year NCC credit contract IDR time limit 4 0

Outside two-year NCC credit contract time limit 4 0

Non-retail client 3 0Allocation of benefit 2 0A commenced legal proceeding after lodgement 1 0

Alleged capacity of testator 1 0Excluded professional accounting service 1 0Total 5,818 100

* Some disputes may have more than one OTR reason

To learn more about our Terms of Reference, see www.fos.org.au/tor or www.fos.org.au/factsheets


http://www.fos.org.au/tor

What the disputes were aboutTotal number of disputes received by product line

Almost half the disputes we received in 2015-16 were about one product line: credit. Common issues within credit disputes included financial difficulty and financial services provider (FSP) decision. However, financial difficulty disputes overall have fallen in recent years (see page 92).

As the table below shows, the number of credit disputes received in 2015-16 is consistent with the past few years but the proportion (45%) of overall disputes received fell slightly. See pages 60-63 for a detailed analysis of credit disputes.

The number of general insurance disputes received increased significantly and represented 29% of the disputes we received in 2015-16, up three percentage points on last year. See pages 64-69 for a detailed analysis of general insurance disputes.

The proportion of payment system disputes (8%) was unchanged from last year. See pages 70-73 for a detailed analysis of payment systems disputes.

The number of deposit-taking disputes also increased significantly and represented 9% of overall disputes received. See pages 74-77 for a detailed analysis of deposit-taking disputes.

The number of investments and advice disputes fell by 9%, and the proportion of these disputes was also down one percentage point to 4% of overall disputes received. See pages 78-85 for a detailed analysis of investments and advice disputes.

The proportion of life insurance disputes (4%) was unchanged from last year. See pages 87-89 for a detailed analysis of life insurance disputes.

Received disputes by product line

2012-13 2013-14 2014-15 2015-16

Number % Number % Number % Number %Credit 16,358 49 16,544 50 16,458 48 16,491 45General insurance 9,468 28 8,643 26 8,867 26 10,588 29Deposit taking 2,457 7 2,348 7 2,754 8 3,146 9Payment systems 2,086 6 2,310 7 2,721 8 2,850 8Investments and advice 1,462 4 1,430 4 1,666 5 1,517 4Life insurance 1,268 4 1,420 4 1,485 4 1,365 4Traditional trustee services 88 0 54 0 53 0 34 0Products outside FOS Terms of Reference

324 1 500 2 455 1 197 1

Not yet determined 26 0 29 0 31 0 249 1Total 33,537 100 33,278 100 34,490 100 36,437 100

Note that the total of 36,437 in this table does not match the total of 34,095 in the Total disputes received by year chart on page 54. The total in this chart is based on counting cases about multiple products and issues as multiple disputes. For further explanation of this distinction, see How we count disputes on page 52.

Accepted disputes by product line

Accepted disputes are those that have entered the Case Management stage of our dispute resolution process (see page 47 for an explanation of our process).

In 2015-16, credit disputes accounted for 47% of all accepted disputes (slightly less than last year), followed by general insurance (31%, up significantly from last year).

Note that the total of 22,376 in the adjacent table does not match the total 20,298 detailed on page 55. The total in this chart is based on counting cases about multiple products and issues as multiple disputes. For further explanation of this distinction, see How we count disputes on page 49.

Accepted disputes by product line 2015-16

Number %Credit 10,438 47General insurance 6,858 31Deposit taking 1,546 7Payment systems 1,163 5Investments and advice 1,141 5Life insurance 1,095 5Products outside Terms of Reference 113 0.5

Traditional trustee services 22 0.1Total 22,376 100


Accepted disputes by sales and service channelMost disputes we accepted in 2015-16 were from the banking sales and service channel (44%). The most common issues were financial difficulty and FSP decision.

The second largest number of disputes came from general insurance (29%). The most common issues were FSP decision and service.

Channel Adv

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Cha

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Accountant 1 1 0 0 0 0 0 0 0 0 0 2Administration services provider 2 4 5 0 21 5 6 0 12 2 0 57Bank 94 864 515 2,412 2,057 1,037 15 884 730 1,226 24 9,858Corporate advisor 0 0 1 0 1 1 0 0 1 0 0 4Credit provider 7 133 77 582 411 82 3 247 61 112 4 1,719Credit reporting agency 0 14 7 2 81 14 7 336 31 17 2 511Credit representative 0 1 2 1 0 0 0 0 0 0 0 4Credit union 1 14 10 45 42 11 1 16 16 35 0 191Custodial and depository services 1 3 1 0 3 17 0 0 8 4 0 37Debt collector or buyer 0 8 1 82 67 3 4 49 4 0 4 222Derivatives dealer 5 5 13 0 19 18 0 0 14 5 0 79Finance broker 1 9 8 11 12 7 0 2 3 1 1 55Financial advisor/planner 341 50 51 29 59 50 9 6 49 14 0 658Foreign exchange dealer 1 3 4 0 2 10 1 0 6 4 0 31Friendly society 0 3 5 1 6 3 0 2 1 0 0 21General insurance broker 4 25 18 2 213 18 11 4 48 0 1 344General insurer 11 304 95 4 4,622 78 94 18 1,233 15 14 6,488Life insurance broker 0 0 1 0 0 1 0 0 0 0 0 2Life insurer 15 78 55 1 474 49 3 6 135 10 1 827Make a market 0 1 7 0 9 5 0 1 10 6 0 39Managed discretionary account operator 1 0 0 0 0 1 0 0 1 0 0 3

MIS operator/fund manager 23 18 22 10 51 28 10 1 29 0 0 192Mortgage broker 1 8 6 27 17 2 0 1 3 3 1 69Mortgage manager 0 3 1 3 3 2 0 1 0 0 0 13Mortgage originator 0 0 1 0 2 0 0 1 0 0 0 4Non-cash payment system provider 0 13 5 0 251 22 1 7 25 40 1 365Pooled superannuation trust 1 0 0 0 1 2 0 0 3 0 0 7Product distributor 0 3 6 1 16 7 22 4 15 1 1 76Product issuer 0 1 2 0 2 1 1 0 3 12 0 22Research house 1 2 1 0 3 2 1 0 4 0 0 14Securities dealer 18 1 13 0 3 10 0 1 7 1 0 54Stockbroker 71 6 15 1 12 26 0 2 25 1 0 159Superannuation fund trustee/advisor 4 17 7 0 29 31 7 0 39 3 2 139Timeshare scheme operator 0 0 2 0 2 0 0 0 0 0 0 4Travellers cheques/foreign currency transfer provider 0 0 1 1 1 0 0 0 1 1 0 5

Trustee 1 0 1 3 6 3 0 0 3 0 0 17Underwriting agency 0 4 2 0 29 0 0 0 6 0 0 41Warranty provider 0 3 0 0 3 0 0 0 1 0 0 7Not yet determined 1 3 2 6 7 7 0 0 8 2 0 36


Channel Adv

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Cha

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FSP

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Total 606 1,602 963 3,224 8,537 1,553 196 1,589 2,535 1,515 56 22,376


Disputes


Credit disputesThe counting method we use in this section (pages 62-106) focuses on accepted disputes, and excludes the cases we received and closed in Registration and Referral.

In 2015-16, we accepted 10,438 credit disputes. This is almost 47% of all disputes we accepted into Case Management, compared with 49% last year.As in previous years, the vast majority (88%) of credit disputes concerned consumer credit.

The most common issue in credit disputes was financial difficulty (31%). We examine financial difficulty disputes in detail on page 96.

Accepted credit disputes by product category 2015-16

Total %Consumer credit 9,159 88Business finance 1,005 10Guarantees 176 2Margin loans 5 0Not yet determined 93 1Total 10,438 100

Accepted credit disputes by product category and year

Due to the changes we have made to our dispute resolution process, particularly at our Registration and Referral stage, the number of disputes we accepted in 2015-16 cannot be directly compared with disputes accepted in previous years. In order to present some comparative analysis for readers, we have provided percentage comparisons, rather than raw numbers. For more information, see page 47.


Consumer credit

We accepted 9,159 consumer credit disputes in 2015-16. Of these disputes, 36% were about credit cards, 29% about home loans and 20% about personal loans.

The proportion of consumer credit disputes that were about financial difficulty disputes fell for the sixth consecutive year to 31%, from 54% in 2011-12 (see Financial difficulty disputes, page 96).

Banks were involved in almost three-quarters (73%) of consumer credit disputes in 2015-16.

Accepted consumer credit disputes by sales and service channel

Accepted consumer credit disputes by product

Accepted consumer credit disputes by issue


Business finance

We accepted 1,005 business finance disputes in 2015-16. Almost two-thirds of business finance disputes (62%) related to business loans, followed by hire purchase/leases (11%) and business credit cards (10%).

FSP decision (32%) and financial difficulty (30%) were the main issues within business finance disputes.

Banks were involved in about two-thirds (64%) of disputes relating to business finance.

Accepted business finance disputes by sales and service channel

Accepted business finance disputes by product

Accepted business finance disputes by issue


Guarantees

A guarantee is a promise to pay a debt of another if they do not pay. For example, a business guarantee is a guarantee offered by a company or an individual as security for the borrowings of a business.

In 2015-16, there were 176 guarantee disputes. Almost half of these disputes (48%) related to consumer guarantees, 42% to business guarantees and 9% to bank guarantees.

More than half (56%) of these disputes related to a decision made by an FSP.

Accepted guarantee disputes by issue

Accepted guarantee disputes by sales and service channel

Margin loans

Margin loans are loans that allow an investor to borrow money against the value of listed shares or units in managed funds.

There were five margin loan disputes in 2015-16. Of these disputes, three related to an FSP decision.

Accepted margin loan disputes by issue

Accepted margin loan disputes by sales and service channel


Case studyPrudent lender should have noticed ‘red flags’An FSP that approved a $25,000 car loan to a young applicant lacking stable employment and with discrepancies in her address details engaged in irresponsible lending, a FOS Ombudsman determined.

The determination was made substantially

in favour of the applicant.

The dispute was about a five-year car loan made in March 2014. As part of the loan application, the only liability noted was monthly board of $600.

Three payslips that were provided showed 38 work hours per week (some with unpaid sick leave), but the applicant who had been working on a casual basis for only about two months lost her job a few weeks later. In addition, her address was not the same as that on her driver’s licence.

When she could not make the repayments, the applicant had a choice of:

» keeping the car, selling it and paying the proceeds to the FSP, or

» surrendering the car to the FSP for sale and repaying a lower amount.

FOS calculated this reduced amount as the purchase price of the car ($21,000) less net repayments (including the deposit) of $6,000 less a reasonable assessment of the car’s retail value, of $10,000. This left $5,000 as the amount owing.

In the January 2016 determination, the Ombudsman said FSPs are obliged to exercise the care and skill of a diligent and prudent lender in assessing whether a customer has the ability to repay a loan.

The Ombudsman said that as part of the loan assessment process, an FSP should:

» request documentation to support the loan application

» make further inquiries where there are obvious inconsistencies in the information

» ensure there is sufficient information and supporting documentation provided to demonstrate capacity to service the loan.


Case studyInvestors wrong to pay deposit directly to vendoApplicants who used a loan from an FSP to pay a deposit directly to the vendor of an incomplete investment property lost their money when the vendor went into receivership. The deposit for the ‘off the plan’ purchase was not held on trust.

The applicants lodged a dispute with FOS, saying that the FSP should not have given them the loan because:

» it did not meet their needs and objectives

» the FSP knew that it was unusual to pay the deposit to the vendor

» the FSP knew the vendor was in financial trouble.

The FOS Ombudsman found that the FSP did not cause the applicants’ loss and did not have to compensate them.

The Ombudsman determined that the loan was made with the applicants’ authority, met their needs and objectives, and they could afford to repay it without substantial hardship.

The loan was secured by a mortgage over the applicants’ home because the title to the investment property was not available to use as security when they signed the contract to buy the property.

The vendor went into receivership before the contract could be completed and the applicants never obtained title to the property.

The Ombudsman said the applicants should never have agreed to pay the deposit directly to the vendor, and should have obtained legal advice before agreeing to such a proposal.

FOS said the transaction structure was a matter for the applicants and not the FSP, given that the FSP was not at that time taking title to the investment property.

The Ombudsman said that when lending money to a borrower, an FSP does not generally owe a higher (or fiduciary) duty and can act in its own interests. But if an FSP advises on the wisdom of a particular investment and the applicant relies on it, the FSP may become liable for that advice.


General insurance disputesWe accepted 6,858 general insurance disputes in 2015-16. In keeping with previous years, the vast majority (93%) of disputes accepted in 2015-16 related to domestic insurance. More than two-thirds (71%) of general insurance disputes concerned the financial services provider (FSP) decision, which in most cases related to an FSP’s decision to decline a claim.

Accepted general insurance disputes by product category 2015-16

Total %Domestic insurance 6,411 93Small business/farm insurance 311 5

Extended warranty 47 1Professional indemnity insurance 38 1

Not yet determined 51 1Total 6,858 100

Accepted general insurance disputes by product category and year



Domestic insurance

We accepted 6,411 domestic insurance disputes in 2015-16. The type of insurance policies most people complained about were motor vehicle comprehensive (34%), home building (26%) and travel insurance (12%).

In more than two-thirds (71%) of domestic insurance disputes, consumers complained about the insurer’s decision.

In the domestic insurance category, the vast majority of disputes (94%) were lodged against an insurance company and 4% involved general insurance brokers.

Accepted domestic insurance disputes by product

Accepted domestic insurance disputes by sales and service channel

Accepted domestic insurance disputes by issue


Emerging issue

Provide actuarial data in mental health cases, insurers told

A case in which an insurer was found to have breached the Victorian Equal Opportunity Act for denying an applicant’s claim due to her depression highlights the need for the industry to have actuarial data relating to the risk associated with mental health conditions.

The case was heard at the Victorian Civil and Administrative Tribunal (VCAT) in December 2015.

The Equal Opportunity Act 2010 allows for discrimination by an insurer where it is based on actuarial or statistical data on which it is reasonable for the insurer to rely.

In this case, VCAT was not satisfied by the actuarial data for the exclusion or refusal of cover. Data referred to by its actuary was developed only in response to the applicant’s claim.

The applicant had enrolled in a school study tour to New York in December 2011, when she also took out travel insurance. The tour was due to begin in March 2012.

In January 2012, she began experiencing symptoms of anxiety. It is not disputed that this was the first time in her life she had experienced such symptoms. The symptoms worsened, eventually leading her to cancel the trip on medical advice.

The claim was lodged in April 2012 and rejected. The insurer relied on the general exclusion of the claims arising from mental illness.

The policy was broad and provided a general exclusion for claims arising from most, if not all, forms of mental illness including dementia, anxiety, panic attacks, stress, bipolar, mania, schizophrenia or other nervous disorder.

The policy also defined ‘mental illness’ in a very broad way as being a condition characterised by the presence of symptoms of delusion, hallucinations, disorder of thought form, disturbance of mood or sustained or repeated irrational behaviour which impairs the mental functioning of a person temporarily or permanently.

FOS has discussed these issues with industry and consumer groups. Lead Ombudsman John Price told audiences at industry open forums that these types of discrimination cases are within its Terms of Reference. If issues of discrimination are raised, FOS will ask insurers to provide actuarial data and satisfy FOS that information was relied on.

He said the case highlighted that once discrimination is established, the onus is on insurers to prove exceptions.

In the case, VCAT ordered the insurer to reimburse the applicant almost $4,300 for her cancelled air ticket, and pay her $15,000 for hurt and humiliation plus costs for her appearance at VCAT.


Small business/farm insurance

We accepted 311 small business/farm insurance disputes in 2015-16, which accounted for 5% of total general insurance disputes. Almost three-quarters (73%) related to an FSP decision.

Small business owners and farmers take out insurance policies to cover such things as property and vehicle damage, machinery breakdowns, public liability, theft and loss of property.

In 2015-16, most small business/farm insurance disputes related to commercial property (35%) and commercial vehicles (22%).

Of small business/farm insurance disputes, the majority (83%) involved general insurers and their customers, and 15% involved general insurance brokers and their customers.

Accepted small business/farm insurance disputes by product

Accepted small business/farm insurance disputes by sales and service channel

Accepted small business/farm insurance disputes by issue

Professional indemnity insurance

We accepted 38 professional indemnity insurance disputes in 2015-16. Of these disputes, almost two-thirds (63%) were due to decisions made by the FSP. Two-thirds of professional indemnity insurance disputes involved a general insurer.

Accepted professional indemnity disputes by issue

Accepted professional indemnity disputes by sales and service channel


Extended warranty

Extended warranties are available for motor vehicles, whitegoods and browngoods (for example, TVs, radios and computers). We accepted 47 disputes about extended warranties in 2015-16.

Almost half (49%) involved general insurers and 39% involved general insurance brokers. Almost two-thirds (62%) were about decisions made by the FSP.

Accepted extended warranty disputes by issue

Accepted extended warranty disputes by sales and service channel

General insurance brokers

In 2015-16, there were 344 disputes between general insurance brokers and their customers.

The most common insurance products in these disputes were personal and domestic property, home building and motor vehicle (comprehensive). The main issue was denial of claim.


Case studyInsurer entitled to greenhouse exclusionAn applicant lodged a dispute with FOS after an insurer refused his claim for storm damage to a greenhouse on his property.

The applicant held a farm insurance policy which provided cover for a number of listed properties including those described as a greenhouse and a hothouse.

In December 2014, the applicant lodged a claim through his broker for storm damage sustained to the property, in particular to a pump shed and greenhouse.

The insurer accepted for the damage to the pump shed but declined the claim for damage to the greenhouse because it was excluded under the terms of the policy.

The applicant disputed the insurer’s decision and maintained that the greenhouse did not specifically fall within the exclusion.

The policy provided cover for loss or damage arising from defined events including storm or water damage. There is no dispute that the applicant’s greenhouse was damaged by storm and water or that the greenhouse was covered under the terms of the policy.

In the September 2015 determination, the FOS Ombudsman found that the insurer was entitled to rely on the general exclusion because the commercial intent of the policy was to exclude cover for storm or water damage to structures such as the greenhouse.

The Ombudsman accepted that the various structures referred to in the insurer’s exclusion, including glasshouse, shadehouse, tunnelhouse and igloos, are forms of greenhouse.

‘While I accept the policy is ambiguous given the failure to refer to the term greenhouse in the exclusion, I am satisfied that, on a reasonable construction of policy, the intention was to exclude cover for storm and water damage sustained to greenhouses and hothouses,’ the Ombudsman said in the determination.


Case StudyHouse fire dispute: broker breached its duty of careA dispute lodged with FOS over an insurer’s refusal of a landlord insurance claim after a property burnt down centred on the applicants’ relationship with their insurance broker and an exclusion based on occupancy of the house.

The applicants’ original home and contents policy was arranged by their solicitor in 2005 through an insurance agent. The agent issued a policy stating that the property was to be tenanted but empty for six months. The solicitor informed the agent that he needed to make changes to the schedule to identify the property was not tenanted.

The agent sent renewal notices via the solicitor to one of the applicants, who arranged payment, but no alterations were made to the cover. When the agency ceased with the insurer in 2010, an insurance broker took over from the agent. A new policy was issued with a different insurer in September 2010.

In November 2011, the applicants through their broker contacted their insurer to lodge a claim for destruction of the house following a fire.

The insurer refused the applicants’ claim because the property had been unoccupied for several years before the fire, and because it was not informed of this fact before the policy was taken out or renewed.

The applicants disputed this decision with FOS because they believed the insurer was aware that the property was unoccupied and provided cover on this basis.

A FOS panel found that the insurer was not liable to meet the applicants’ claim. The panel determined that if made aware that the property had been unoccupied when the policy was taken out or renewed, the insurer would not have offered cover.

The panel considered the applicants’ insurance broker:

» breached its duty of care to the applicants by failing to ensure the policy met their needs

» did not exercise the reasonable care required of it.

FOS determined that the broker be joined as a party to the dispute to help resolve it more efficiently and effectively.

The panel considered that it was unlikely that the applicants could have obtained insurance for fire and malicious damage to the property if the property remained untenanted. But if they had been told that no insurance was available, they could have sold the property or arranged for it to be tenanted. They were denied this opportunity due to the breach of duty of care.

The panel invited the broker and the applicants to make further submissions concerning the loss. The matter was subsequently resolved by an offer from the broker to settle the applicants’ claim.


Payment system disputesIn 2015-16 we accepted 1,163 payment system disputes. Two-thirds of the disputes were about direct transfer systems and the rest were about non-cash systems.Accepted payment systems disputes by product category 2015-16

Total %Direct transfer 771 66

Non-cash 361 31

Not yet determined 31 3

Total 1,163 100

Accepted payment systems disputes by product category and year



Direct transfer

We accepted 771 direct transfer disputes in 2015-16.

Of these disputes, 36% were about electronic banking, 17% about merchant facilities and 12% about ATMs.

Mistaken internet payments (27%) and unauthorised transactions (24%) were the most common issues within electronic banking disputes. However, in terms of the rapid increase in electronic banking transactions, these dispute numbers are very small.

Banks are the main supplier of direct transfer payment systems and were involved in 85% of direct transfer disputes.

Accepted direct transfer disputes by sales and service channel

Accepted direct transfer disputes by product

Accepted direct transfer disputes by issue


Non-cash

Disputes in this category involve non-cash facilities, which are often internet-based. The category includes loyalty programs, stored value cards and travellers’ cheques.

We accepted 361 non-cash payment system disputes in 2015-16. Two-thirds of these disputes involved an FSP decision. Of the non-cash disputes, 90% were about non-cash systems and 9% were about stored value cards.

Accepted non-cash disputes by issue

Accepted non-cash disputes by product

Accepted non-cash disputes by sales and service channel


Case StudyApplicants not liable for fraudulent withdrawalsA dispute in which a fraudster gained control of the applicants’ bank account and tricked them to reveal an SMS code, resulting in withdrawals totalling almost $10,000, was determined in the applicants’ favour.

The applicants claimed reimbursement of the funds from the FSP following the two disputed transactions, which occurred in April 2015.

The FSP said it was not required to compensate the applicants because they voluntarily disclosed the SMS code to the fraudster, even though the SMS contained a warning not to disclose the code to anyone, including the FSP.

The FOS Adjudicator determined that the applicants’ disclosure of the SMS code to the fraudster could not be voluntary because they reasonably believed him to be a bank employee.

The ePayments Code regulates electronic payments by consumers in Australia, including transactions made by internet banking.

Under this code, if a customer disputes liability for an electronic payment, the FSP must prove that the customer authorised the transaction or, if not, that the customer breached security provisions of the code.

In this case, FOS determined that even if the applicants breached security provisions by disclosing the SMS code to a third party before the disputed transactions, the FSP did not show that this security breach was more than 50% responsible for the losses.

FOS found in the September 2015 determination that in order to perform the disputed transactions, the fraudster needed the applicants’ internet banking password and the SMS code. The applicants did not voluntarily disclose their internet banking password to the fraudster.

The fraudster rang the applicants, purporting to be a bank employee. He said there had been suspicious activity on their credit card and, according to the applicants, provided his name and an employee number and told them to log on to their internet banking to check their account.

The fraudster used key stroke software to discover the applicants’ internet banking user ID and password (a disclosure which the Adjudicator found was not voluntary).

The fraudster then asked the applicants to read him out an SMS code sent to their mobile telephone. This enabled him to make the withdrawal from the applicants’ accounts.

The fraudster told the applicants they did not have to provide their internet banking number, card number or any other details because he already had those.

After the call from the fraudster, the applicants rang the local branch of the FSP to check that their credit card had not been compromised. The FSP said that it was in order. However, the disputed transaction came from another account.

The FSP conceded that had it checked the other account, it could have stopped the first disputed transaction. FOS determined that it follows that the FSP could also have stopped the second disputed transaction.

The Adjudicator determined that the applicants were not liable for the disputed transactions and that the FSP should repay them plus the interest they would otherwise have been paid.

Even if the disclosure of the SMS was voluntary, the disclosure of the password was not. The ePayments Code requires that the voluntary disclosure has to be more than 50% of the cause of the loss for the applicants to be liable. Here, it is only 50% of the cause.


Deposit-taking disputesIn 2015-16 we accepted 1,546 deposit-taking disputes. These disputes comprise two main product categories: » Current accounts including business transaction, foreign

currency, mortgage offset, passbook and personal transaction accounts

» Savings accounts including bank bills (which are short-term money market investments), term deposits, cash management, first home buyer and online accounts.

Accepted deposit-taking disputes by product category 2015-16

Total %Current accounts 1,218 79Savings accounts 255 16Safe custody 15 1Direct transfer 4 0Not yet determined 54 3Total 1,546 100

Accepted deposit-taking disputes by product category and year



Current accounts

FOS accepted 1,218 current account disputes in 2015-16. The most common issues in dispute were transactions (33%), FSP decision (18%) and service (16%).

The vast majority (96%) of current account disputes involved banks, which is to be expected because banks are the main supplier of deposit-taking products.

Accepted current account disputes by issue

Accepted current account disputes by sales and service channel

Accepted current account disputes by product

Savings accounts

FOS accepted 255 savings account disputes in 2015-16. Of these, 67 disputes (26%) were about instructions and 52 disputes (20%) were about transactions.

The products consumers complained about most were term deposits (45%) and online accounts (38%). The vast majority (96%) involved banks.

Accepted savings account disputes by issue


Accepted savings account disputes by sales and service channel

Accepted savings account disputes by product

Safe custody

Safe custody is the storage of valuable possessions, such as jewellery and important documents, in a secure vault at a bank.

We accepted 15 safe custody disputes in 2015-16. These disputes were mainly about loss of documents/personal property.

Service and failure to follow instructions were the main issues in these disputes, and almost all (13) involved banks.


Case studyDisputed funds helped patient return to AustraliaA dispute in which an FSP transferred funds to the mother of an applicant from his account without his permission when he was in hospital overseas was determined in favour of the FSP.

The FOS Ombudsman determined that special circumstances applied in the dispute.

The applicant told FOS he did not authorise the transfer and argued that the FSP should pay the amount of the transfer into his account.

The FSP agreed that it did not have the applicant’s authority to make the transfer, nor did his mother have authority to make transactions on his behalf.

The FSP made the transfer in September 2015 following several discussions with the applicant’s mother about his health and the situation he was in.

The Ombudsman found that she used the disputed funds directly or indirectly for his benefit. Most of the funds were spent on flights for her daughter and herself to collect him from hospital and return him to Australia.

His treating doctor requested via the Australian Embassy that a member of the applicant’s family be present at his discharge from hospital.

Statements from his mother’s account showed that she could not have travelled overseas to be present at the applicant’s discharge from hospital without the FSP making the transfer.

The FOS Ombudsman determined in March 2016 that:

» It was fair and reasonable for the FSP to make the transfer

» The transfer was a significant contributing factor in allowing the applicant to be released from hospital for his overall health and wellbeing at the time

» The FSP was not required to pay the funds into the applicant’s account as he requested.


Case StudyConcerns should have been raised earlier about withdrawalsA dispute involving unusual and large withdrawals from an elderly applicant’s account should have led to the FSP raising concerns with police sooner than it did, a FOS Ombudsman determined.

The applicant’s son, who held power of attorney, said the FSP should have acted to stop her making these transactions.

In the December 2015 determination, which was found partly in favour of the applicant, the Ombudsman said there was no basis for the FSP to ignore her instructions and it had no right or responsibility to advise her how to manage her savings.

However, the FSP should have taken action to prevent the applicant from depositing some of the withdrawals to third party accounts and should refund those transactions.

In February 2015, she made several large withdrawals over a short time. The withdrawals were unusual and out of character with prior transactions. When the applicant presented at the branch, she was alone.

Staff became concerned about the transactions after the applicant presented for the second time in two days. They contacted the FSP’s investigation and security experts who said that because the applicant was operating on her own account, little could be done. However, if staff were concerned they could contact police.

The following day, the applicant came into the branch again and withdrew more funds. The staff member asked the applicant if she was going on holiday and she replied: ‘Yes.' She seemed confused but assured the staff member that ‘everything was fine’.

In the determination, the Ombudsman said that during this transaction, the FSP should have asked the applicant to speak to a family member, and after this transaction, the FSP should have contacted police.

The FSP eventually notified police one week after this transaction, and as a result, the son became aware of the issue and visited the branch eight days later.

If the FSP had alerted police on the day of the transaction, it was reasonable to conclude that no further transactions would have occurred. In the event, the applicant made two further withdrawals in the interim.

‘The FSP should therefore refund those transactions on the basis that a diligent and prudent banker would have reported their suspicions sooner than they did,’ the Ombudsman said.

The determination said frontline staff were trained to be on the lookout for signs that a customer, particularly elderly customers, are not the subject of financial abuse. These signs included withdrawing large sums of cash while being accompanied by a stranger or making unusual, erratic or uncharacteristic transactions.

‘Where the customer is alone, they might ask questions to see if the customer understands the transactions, refer the matter to police or ask for the customer’s permission to talk with a family member about the transactions,’ the Ombudsman said.


Investments and advice disputesFOS accepted 1,141 investments and advice disputes in 2015-16. Almost two-thirds of these disputes were about managed investments and superannuation.

The most common issues in investment and advice disputes were inappropriate advice (28%), failure to follow instructions/agreement (10%) and misleading product/service information (7%).

Accepted investments and advice disputes by product category 2015-16

Total %Managed investments 427 37Superannuation 324 28Securities 204 18Derivatives/hedging 118 10Real property 16 1Not yet determined 52 5Total 1,141 100

Accepted investments and advice disputes by product category and year


Managed investments

We accepted 427 managed investment disputes in 2015-16. These accounted for more than one-third (37%) of investments and advice disputes.

Mixed asset funds (investing in multiple asset classes such as cash, bonds, shares and property) continued to be the most common managed investment product about which people lodged disputes. In 2015-16, mixed asset funds represented 250 disputes or 59% of managed investment disputes. The main issue related to mixed asset funds was inappropriate advice.

Advice accounted for more than half (58%) of the issues in managed investment disputes followed by failure to follow instructions (10%). Many investors complained that the advice they received was not suitable for their goals, objectives or risk tolerance, or that risks were not always adequately disclosed or explained.

More than half (55%) of managed investment disputes involved a financial advisor/planner and 18% involved a managed investment scheme operator/fund manager.


Accepted managed investment disputes by issue

Accepted managed investment disputes by product

Accepted managed investment disputes by sales and service channel


Emerging issue‘Robo’ businesses must focus on client needsThe emergence of digital financial product advice (also known as ‘robo’ or automated advice) poses several opportunities and risks for the financial services industry and consumers.

This advice uses algorithms and technology without the direct involvement of a human advisor.

The Australian Securities and Investments Commission says digital advice has grown rapidly in Australia since 2014, with several start-up and existing Australian financial services (AFS) licensees developing digital advice models. It expects this growth to continue.

In a submission on ASIC Consultation Paper 254 and draft guidelines for the regulation of digital advice, FOS emphasised the importance of putting client needs first in the robo advice models.

In the submission to ASIC, FOS said:

» The quality of digital advice provided must be consistent with that expected from traditional AFS licensees to ensure consumer and stakeholder trust and confidence

» Digital advice businesses, whether established or start-up, should be well positioned to build effective cultures that ensure fair service, fair conduct and fair treatment of consumers

» While it supports innovation and initiatives to help consumers access quality, cost-effective financial advice, digital advice will still require significant human interaction, engagement, oversight and accountability.

‘Digital advice services will require human interaction and engagement in several ways,' the submission said. 'This starts with the governance, organisational and technical competencies of the responsible managers of the licensee and extends to the responsibilities and accountabilities of those who enter data into the algorithms, review the digital advice, operate help desks or call centres, provide other services to consumers and handle complaints and remediation when something goes wrong.’

FOS suggested that specific guidance be provided to manage systemic issues and in providing managed discretionary account services.

The submission also called for adequate compensation arrangements for digital advice to be carefully considered.

The FOS submission notes the potential for aggregated claims resulting from digital advice and indicates that traditional professional indemnity insurance may not cover all such losses. ‘We consider that the growth of digital advice in Australia increases the need to establish a compensation scheme of last resort,’ FOS said.

See www.fos.org.au/publications/submissions


Superannuation

In 2015-16, we accepted 324 disputes about superannuation, representing more than one-quarter (28%) of investments and advice disputes.

Most of these disputes concerned self-managed funds (43%), retail funds (19%) and industry funds (15%). The most common issue in disputes relating to self-managed funds was inappropriate advice (34%). For retail funds, the most common issues were failure to follow instructions/agreement (16%) and incorrect fees/costs (15%). For industry funds, the most common issues were failure to follow instructions/agreement (22%) and service quality (20%).

Accepted superannuation disputes by issue

Accepted superannuation disputes by product

Accepted superannuation disputes by sales and service channel


Securities

FOS accepted 204 securities disputes in 2015-16, with the vast majority (90%) relating to shares.

Securities disputes account for almost one-fifth (18%) of investments and advice disputes,

The key issues in this category were advice (25%), instructions (22%) and service (19%).

Of all securities disputes, 40% involved a stockbroker, 15% involved a financial advisor/planner and 11% a securities dealer.

Accepted securities disputes by issue

Accepted securities disputes by product

Accepted securities disputes by sales and service channel


Derivatives/hedging

Derivatives and hedging products include contracts for difference, foreign currencies, forwards, futures, options and swaps.

In 2015-16, we accepted 118 disputes about these products, accounting for 10% of investments and advice disputes. The most common issues in this category were disclosure (20%), FSP decision (20%) and service (19%). Almost two-thirds (64%) involved foreign exchange transactions.

Accepted derivatives/hedging disputes by issue

Accepted derivatives/hedging disputes by product

Accepted derivatives/hedging disputes by sales and service channel

Real property

Real property is land and the residential or commercial property on it. We accepted 16 disputes about real property in 2015-16.

Half of these disputes were about advice and one-quarter about disclosure. Half involved a financial advisor/planner and 38% an MIS operator/fund manager.


Case StudyPre-GFC advice reasonable for longer-term objectivesAn applicant lodged a dispute with FOS over an investment strategy put in place for his self-managed superannuation fund just before the beginning of the global financial crisis.

The dispute was about financial advice provided to the applicant by an advisor, a representative of an FSP, in October 2007.

As a result, the applicant established an account-based pension through a self-managed superannuation fund, which adopted a strategy of investing about 20% in defensive assets and about 80% in growth assets.

The applicant said that the advisor’s ongoing advice from 2008 until early 2012 – to maintain the investment strategy, ride out the volatility of the GFC, avoid crystallising his losses by selling his investments and wait for markets to recover – was inappropriate.

The applicant said:

» his personal circumstances changed since the October 2007 advice because his initial pension income stream was not sustainable and he needed to protect his superannuation base so his investments could recover in future

» the history of sharemarket volatility relied on by the advisor was not relevant to his small diversified portfolio

» he should have been advised to convert his investments to cash.

A FOS panel found that the advisor was in contact with the applicant between 2008 to 2012, during which time they discussed what was happening in the markets, how the applicant felt about that and how he should respond to it.

In February 2012, he advised the applicant to rebalance his portfolio to 40% defensive and 60% growth. The advisory relationship ended later that year.

In its August 2015 determination, the panel said it was satisfied that the advisor was mindful of the applicant’s concerns for his income stream to be sustainable and for his superannuation base to be protected.

‘Apart from his concerns about the impact of the downturn on his investments, there were no relevant changes to the applicant’s personal circumstances since the original advice in October 2007,’ it said, noting that the applicant was not disputing the original advice.

‘The applicant’s submission that he should have been advised to convert to cash in early 2008 relies on the wisdom of hindsight. At the time it was not known how long the downturn would last or how low the market would go. It was reasonable for advisors to recommend to clients that they maintain their long-term strategy.’

The panel found that the ongoing advice to the applicant was appropriate, and that the applicant made informed decisions. It determined the dispute in favour of the FSP.

The determination said frontline staff were trained to be on the lookout for signs that a customer, particularly elderly customers, are not the subject of financial abuse. These signs included withdrawing large sums of cash while being accompanied by a stranger or making unusual, erratic or uncharacteristic transactions.

‘Where the customer is alone, they might ask questions to see if the customer understands the transactions, refer the matter to police or ask for the customer’s permission to talk with a family member about the transactions,’ the Ombudsman said.


Case StudyInappropriate advice caused losses of $262,000An advisor who recommended that an inexperienced investor with a moderate income buy a highly speculative portfolio of investments using mostly borrowed funds caused the applicant to suffer a loss of more than $262,000, according to a FOS panel.

The dispute, lodged by the applicant, was about investments recommended to her by a representative (the advisor) of an FSP from 2004 to 2008.

The advisor’s Fact Find showed that, in 2002, the applicant earned an annual income of $62,000, owned a home valued at $165,000 with a mortgage of $145,000 and a few shares through her employer’s share scheme. Her only goal was to pay off her home.

According to the Fact Find, she was willing to take ‘greater risk’, was comfortable borrowing and agreed to reduce tax and create an investment strategy.

The applicant said she should have been classified as a balanced investor but the advisor assessed her as an assertive investor (one level down from aggressive). However, she was placed into an aggressive strategy that involved taking out loans and lines of credit for investments in tree farms, mixed asset managed funds and ‘absolute return’ international funds.

At one time, agricultural investments comprised about 60% of her portfolio, which the panel described as very poorly diversified.

‘The high level of borrowing increased the aggressiveness and magnified the risk of the overall strategy,’ it said.

The panel found that the advisor:

» gave alternative strategies insufficient consideration» inadequately explained the risks of the overall strategy and some individual investments» provided insufficient or no cash flow analysis and projections» provided statements of advice that were unnecessarily limited in scope or failed to meet the standard of being

clear, concise and effective or were misleading.

The determination, made in November 2015, recompensed the applicant's loss plus interest.


Life insurance disputesFOS accepted 1,095 life insurance disputes in 2015-16. We split life insurance disputes into income stream and non-income stream (lump sum) risk products.Income stream risk typically involves income protection insurance products and non-income stream risk products are typically paid on death, total and permanent disability or critical illness.Denial of claim (26%) was the most common reason consumers came to FOS with life insurance disputes. Denial of claim was a more common reason in income stream risk disputes (29%) than non-income stream risk disputes (24%).

Accepted life insurance disputes by product category 2015-16

Total %Income stream risk 603 55

Non-income stream risk (lump sum) 462 42

Not yet determined 30 3

Total 1,095 100

Accepted life insurance disputes by product category and year



Income stream risk

We accepted 603 disputes relating to income stream risk products in 2015-16. Of these disputes, 534 (or 89%) involved income protection insurance.

Income protection insurance pays an income if the policyholder is unable to work due to injury or illness (as defined in the policy).

Disputes about denial of claim, delays in claim handling and claim amounts were key themes associated with income protection insurance. Common issues in income protection disputes were that FSPs gave insufficient warning before ceasing benefits, did not provide enough explanation about why benefits would cease or requested too much information of beneficiaries.

FOS continues to be concerned that FSPs are relying on incorrect policy provisions and are not providing relevant documentation to FOS at the time of disputes.

We accepted 67 disputes about consumer credit insurance in 2015-16. This insurance is designed to cover the policyholder for their obligations under a loan agreement. The life insurance portion of consumer credit insurance protects the borrower in the event of disability or death.

Accepted income stream risk disputes by issue

Accepted income stream risk disputes by sales and service channel

Accepted income stream risk disputes by product


Non-income stream risk (lump sum)

There were 462 non-income stream risk (lump sum) disputes in 2015-16. Almost half of these disputes (47%) related to a decision made by the FSP.

In this category, almost one-third (31%) of the disputes related to term life insurance products. The most common issues for term life products were incorrect premiums and denial of claim.

More than one-quarter (29%) of these disputes concerned total and permanent disability insurance. Denial of claim was the most common reason people lodged disputes about this product, followed by claim handling delays.

We also accepted 77 disputes related to trauma insurance products in 2015-16. Denial of claim was the most common issue.

Accepted non-income stream risk disputes by issue

Accepted non-income stream risk disputes by sales and service channel

Accepted non-income stream risk disputes by product


Case StudyInsurer failed to prove fraud in income protection disputeAn applicant lodged a dispute when the insurer of his income protection policy decided to avoid the policy because it said the applicant had fraudulently not disclosed the true nature of his medical history. The FOS panel determined in favour of the applicant.

The applicant ceased work in June 2014 as a result of a back injury. The insurer approved his claim and paid benefits until it decided to avoid the policy.

The insurer said that it would have issued the policy with exclusions if the applicant had disclosed his ‘extensive history of left hip pain’, ‘history of left elbow/arm pain’ and ‘history of left shoulder pain’. It had to prove the applicant’s non-disclosure was fraudulent, to avoid the policy.

The applicant had applied for the policy over the phone. He said that he had understood from the telephone conversation that he was being asked about current injuries rather than those that had happened within the past two or three years.

At the time of the application, he said he did not have injuries apart from his ongoing back injury (which he disclosed). He said he had forgotten about the painful spur in his left elbow, because he did not think of it as being something he needed to disclose.

The applicant said the pain in his left hip was due to the nerve or disc injury in his back, and that after he had received treatment (a spinal microdisectomy) in July 2013, the hip problem was ‘fixed’. In medical records contained in a letter from the insurer, references to the applicant’s hip pain appear with references to his back pain and neck pain.

The applicant recalled the telephone conversation occurred at night, when he may have taken medication that could have affected his memory and concentration. He also said he thought he would be sent a copy of the application showing the questions and responses recorded, so that he would have the opportunity to see if he had forgotten or misinterpreted anything. That did not occur.

In the absence of clear medical evidence to the contrary, the panel accepted that the applicant did not disclose his recent left hip pain because it was caused by or related to his back condition, which he did disclose. In those circumstances, the panel was not satisfied that the failure to disclose his left hip pain was fraudulent.

The FOS panel listened to a recording of the application.

The panel found that the application process was confusing and the insurer’s representative may have led the applicant to provide inaccurate and incomplete information.

The panel determined that the insurer was not entitled to avoid the policy and must pay the applicant income protection benefits and interest.

Case StudyTrauma payment made correctly on diagnosis dateA dispute about the amount of a trauma benefit paid to an applicant and whether he should also be paid a loyalty bonus under his life insurance policy was determined in the insurer’s favour.

The applicant’s life insurance policy, which included trauma cover, began on 17 November 2009.

The applicant was diagnosed with a serious and covered illness on 8 September 2014, and submitted a claim on 3 December 2014.

The insurer accepted the claim and on 17 December 2014 paid the applicant the trauma benefit of the sum insured at the date of diagnosis. It also refunded the premiums paid by the applicant since 8 September 2014.

The applicant said that the date a trauma condition was suffered or diagnosed was irrelevant, and the date the claim was paid should determine the benefit amount. The applicant claimed he should be paid $40,000 more.

The applicant also said he was entitled to a loyalty bonus of about $68,000 because he had not made a claim for five years.

A FOS Ombudsman determined that:

» The insurer paid the correct sum because the applicant suffered his condition in September 2014, and the insured event was within the cover period of November 2013 to November 2014

» The applicant was not entitled to the loyalty bonus because he suffered the claimed condition in September 2014, before the fifth anniversary date (17 November 2014).

‘The payment of a benefit is dependent on an insured suffering a defined condition. I am satisfied that the amount of the trauma benefit is the amount as increased by indexation at the date the condition is suffered,’ the Ombudsman said.

‘The policy does not define the benefit amount by reference to the payment date.’


Traditional trustee service disputesOur first full year of dealing with traditional trustee service disputes was 2012-13 and we continue to see a very small number of such matters. In 2015-16, we accepted 22 traditional trustee service disputes. Of these disputes, 11 related to estate management products and 10 related to trusts.

Accepted traditional trustee disputes by product category

Total %Estate management 11 50Trusts 10 45Not yet determined 1 5Total 22 100

The key issues in estate management disputes were service (55%) and instructions (36%).

Accepted estate management disputes by issue

Accepted estate management disputes by sales and service channel

The key issues in trust disputes were FSP decision and service (both 40%).

Accepted trust disputes by issue

Accepted trust disputes by sales and service channel


Financial difficulty disputesFinancial difficulty occurs when consumers unexpectedly cannot meet their repayment obligations. This can be as a result of an accident, separation, death of a family member, medical or funeral expenses, business downturn, reduction of work hours, redundancy or other factors.FOS can consider financial difficulty disputes from individuals and small businesses.

In 2015-16, we accepted 2,875 disputes relating to financial difficulty, which was a 30% reduction from last year, 39% less than 2013-14 and 44% less than 2012-13.

Almost all financial difficulty disputes (99%) related to credit products.

The reduction in financial difficulty disputes received in recent years is mainly due to:

» improvements financial services providers (FSPs) have made in managing hardship requests and complaints from customers in financial difficulty

» consistently low interest rates, which have reduced repayment pressure for many borrowers.

In 2015-16, the reduction in financial difficulty disputes accepted was impacted more greatly by the changes FOS made to our dispute resolution process, which were implemented from 1 July 2015.

Financial difficulty disputes accepted by year

Accepted financial difficulty disputes by major product category (issue count)

Total %Consumer credit 2,857 89Business finance 303 9Other 64 2Total 3,224 100

Before these changes were made, financial difficulty disputes may have progressed directly to Case Management at FOS because:

» the applicant had already raised the issue with their FSP

» debt recovery legal proceedings had begun before the dispute was raised.

This meant that a large proportion of financial difficulty disputes were previously accepted without an FSP’s internal dispute resolution team first having an opportunity to resolve the matter directly with their customer.

From 1 July 2015, all financial difficulty disputes lodged are now initially referred to the FSP to provide another opportunity for the parties to resolve their dispute. Many financial difficulty disputes can be resolved quickly through parties working together – the changes to our process encourages this to happen.

Due to these changes the number of financial difficulty disputes we accepted in 2015-16 cannot be directly compared with the number accepted last year and in previous years.

Fewer matters now progress to Case Management at FOS. However, those that do progress, require a FOS independent specialist case worker to facilitate information gathering, problem solving and negotiation between the parties.


Electronic statement of financial position

FOS has developed an online option for applicants to enable them to provide more details of their financial position electronically.

Our electronic statement of financial position was launched in July 2015 to help applicants provide accurate financial information about themselves. The form completes calculations for applicants, and also provides options to help solve financial difficulty matters.

The form is available at: www.fos.org.au/consumers/financial-difficulty/how-to-use-foss-statement-of-financial-position.jsp

Why disputes are lodged

In 2015-16, the most common financial difficulty disputes were those involving an FSP declining financial difficulty assistance to consumers (44% compared with 47% last year).

The proportion of disputes lodged due to an FSP failing to respond to a request for assistance increased to 33% from 30% last year.

Financial difficulty disputes where a default notice

» was issued decreased to 5% from 9% last year, while

» a request to suspend enforcement proceedings increased to 15% from 14% last year.

If a consumer requests an FSP to provide financial difficulty assistance, the FSP is required to communicate the outcome of its assessment of the request. This may be a decision to decline further assistance. If this occurs and the loan facility is regulated by the National Credit Code, the consumer must be provided with reasons and the name and contact details of the FSP’s approved external dispute resolution scheme.

It is then up to the consumer to initiate contact with the dispute resolution scheme if they want the decision to be reviewed. Our data illustrates that this is the major reason for financial difficulty disputes being lodged with FOS.

Three-quarters of financial difficulty disputes involved banks and 18% credit providers.

How new dispute process performedThe key features of our new process for dealing with financial difficulty disputes introduced on 1 July 2015 are:

» a single case owner to handle disputes

» early over-the-phone engagement with dispute parties

» increased support and resources for applicants to help prepare financial information, including an electronic statement of financial position (left)

» FSPs to provide a summary of credit facilities at the beginning of the process to enable FOS to immediately hold targeted discussions with applicants

» early identification of appropriate resolution pathways

» increased use of early telephone conciliation conferences where a dispute is not resolved quickly

» using formal written decisions where negotiation or conciliation is inappropriate or unsuccessful.

We are pleased with how this process is performing. Financial difficulty disputes are being resolved more efficiently, with FOS providing greater contact and support to parties throughout the dispute resolution process, with a more interactive dispute resolution process.

We have introduced several safeguards to ensure our process is tailored to the circumstances of the parties involved. The changes we have made support applicants who may require greater assistance in gathering information and identifying viable options.


Accepted financial difficulty disputes by sales and service channel

Accepted financial difficulty disputes by issue

Financial difficulty – products

Consumer credit

Most financial difficulty disputes are lodged with FOS by individuals, and most of the financial difficulty disputes we accepted in 2015-16 related to consumer credit facilities (89%). Of these, 36% related to home loans, 27% to credit cards and 23% to personal loans.

It is not uncommon for applicants to lodge financial difficulty disputes in relation to multiple loan facilities, with one or multiple FSPs. For this reason, it is important that FOS is aware of all the facilities applicants hold to ensure that options being considered are appropriate and consistent with the level of difficulty the applicant may be experiencing. It is also important that applicants are willing to share information about their financial position with their FSPs, because this can help to resolve disputes earlier.

Accepted consumer credit financial difficulty disputes by product

Business finance

Business finance disputes accounted for 9% of all financial difficulty disputes accepted in 2015-16. Of these, 62% related to business loans and 14% to hire purchase/leases.

While the volume of financial difficulty disputes involving business facilities was small compared with consumer credit facilities, we have found that dealing with financial difficulty disputes involving business finance facilities can be complex. The applicants may represent multiple entities and the value of some facilities can be high.


Accepted business finance financial difficulty disputes by product

Financial difficulty outcomes

Most financial difficulty disputes are resolved when both parties work together, with FOS’s assistance, to reach agreement. An agreed outcome can include initiatives such as:

» repayments placed on hold for a reasonable period to allow the applicant time to return to work

» credit contracts varied to capitalise arrears so that they can be repaid over the term of the loan

» a reasonable timeframe to sell a property if it appears that the applicant/s will not be able to meet their repayment obligations.

In 2015-16, almost one-third (30%) of financial difficulty disputes were resolved through a negotiated outcome facilitated by FOS. Conciliation was used to reach an outcome in 10% of disputes.

Disputes that were outside the FOS Terms of Reference represented 29% of financial difficulty disputes closed. The actual number of disputes outside the Terms of Reference, however, was lower than 2014-15.

The proportion of financial difficulty disputes which were outside the FOS Terms of Reference was higher in 2015-16 than previous years due primarily to the process changes outlined above.

More financial difficulty disputes were resolved directly by FSPs at the initial Registration and Referral stage in 2015-16 without needing to progress and be accepted into Case Management. This has changed the proportion of other outcome closures in Case Management in 2015-16.

The most common reason why financial difficulty disputes were outside Terms of Reference was due to debt recovery legal proceedings progressing beyond a point where FOS can consider the dispute. This is also reflected in legal proceedings disputes (see page 98) because most of these disputes relate to financial difficulty.

Outcomes of accepted financial difficulty disputes


Financial difficulty – about our applicants

State by state

In the tables below, we align the total number of financial difficulty disputes with the population data on page 38.

Victoria, New South Wales and Queensland residents were the most likely to lodge financial difficulty disputes in 2015-16. This is consistent with the overall geographic distribution of disputes received.

A higher proportion of applicants from Victoria, Queensland and Western Australia lodged financial difficulty disputes compared with other issues.

In financial difficulty disputes, more than three-quarters of applicants (78%) lodge their dispute with FOS through our website. Applicants are also twice as likely to lodge a financial difficulty dispute by phone compared with other disputes at FOS.

Received financial difficulty (FD) disputes – geographic breakdown

FD % FD All All excl. FD

% all excl. FD

ACT 43 1 469 426 1NSW 1,036 24 10,765 9,729 33NT 25 1 179 154 1QLD 846 20 5,794 4,948 17SA 276 6 1,917 1,641 6TAS 47 1 448 401 1VIC 1,438 34 10,062 8,624 29WA 441 10 2,860 2,419 8Not provided 96 2 1,225 1,129 4

Other country 27 1 376 349 1

Total 4,275 100 34,095 29,820 100

How applicants in financial difficulty heard about FOS

More than one-quarter (27%) of applicants in financial difficulty had already heard about FOS. Others found out about our service through their financial counsellor (10%) or the internet (8%).

In 2015-16, more than half (52%) of all dispute referrals to FOS from financial counsellors and 37% of dispute referrals from a charity or church organisation were for reasons of financial difficulty.

Received financial difficulty disputes by how applicants heard about FOS

Total %Already knew about FOS 1,170 27Financial counsellor 440 10Internet 332 8Family/friend/colleague (word of mouth) 245 6

Legal aid/free legal service 184 4Solicitor/legal professional 151 4FSP I have a dispute with 123 3Another dispute resolution scheme 112 3

Government agency 53 1Community centre/consumer representative 49 1

Charity/church organisation 37 1Financial planner 34 1Industry association 23 1Phone directory 15 0Member of Parliament 13 0Media (newspaper/magazine) 14 0Welfare/migrant service 4 0Event/trade fair/presentation 3 0Not provided 1,273 30Total 4,275 100

Characteristics of financial difficulty applicants compared with all applicants

Applicants in financial difficulty disputes are most likely to be in the 40-59 age bracket.

Where applicants in financial difficulty disputes appoint a representative, the representative is less likely to be a family member and more likely to be a financial counsellor compared with other disputes. This reflects the important role financial counsellors play in helping consumers deal with financial difficulty.

Where a financial difficulty dispute is lodged by a single applicant, it is more likely to be a male applicant compared with other disputes.

Our records also show that applicants in financial difficulty disputes are more likely to report that they have a mental condition/illness compared with applicants in other disputes.

During the year we continued to work to improve support and access for applicants who need additional assistance (see page 32).


Received financial difficulty (FD) disputes by age of applicant

Age FD % FD All All excl. FD

% all excl. FD

0-17 42 1 338 296 118-24 93 2 891 798 325-29 196 5 2,288 2,092 730-39 698 16 6,421 5,723 1940-59 1,536 36 11,021 9,485 3260+ 400 9 4,028 3,628 12Not provided 1,310 31 9,108 7,798 26

Total 4,275 100 34,095 29,820 100

Received financial difficulty disputes by type of representative

Received financial difficulty disputes by type of special assistance


Case StudyAdapting our service to protect the most vulnerable applicantsAn applicant had been unable to make repayments to his home loan for two years after a series of adverse life events, including involuntary redundancy, relationship breakdown, several serious injuries, mental health issues and his elderly mother’s ill health.

His only income was a Centrelink benefit, and because of ongoing mental health issues, he had no clear prospect of being able to afford the loan repayments, but he did not want to give up the family home. He was suffering a major depressive episode and throughout the dispute was at high risk of suicide.

To manage this risk and help the applicant access our service, we adapted our methods of contacting him. We also encouraged him to seek appropriate external support.

The steps we took included:

» Seeking the applicant’s advice on the timing and length of our telephone conversations to minimise his stress

» Inviting him to appoint a representative for the dispute

» Referring him to financial counselling and legal advice services

» Developing a strategy with his psychiatrist and social worker on how and when to deliver our determination, which did not give the applicant his desired outcome.

We also tailored our process to suit the applicant’s circumstances, such as:

» Allowing him extra time to see a financial counsellor and provide information about his current and likely future circumstances

» Choosing not to conduct a telephone conciliation conference because a conference seemed highly unlikely to yield a negotiated agreement and was likely to be stressful for all parties, particularly the applicant

» Giving him extra time to consider and accept the determination.

This was a difficult dispute for our team to manage, but illustrates our willingness to adapt our process to suit the circumstances of applicants. This flexibility is likely to have reduced the risk of the applicant harming himself.

Case StudyDecline of early super release appropriateAn applicant who had been unemployed for several months and was experiencing difficulty meeting repayments on his home loan wanted to apply to the Department of Human Services to withdraw funds from his superannuation on compassionate grounds.

He intended to deposit these funds into his home loan, and asked his FSP to support his application for an early release of superannuation.

In considering the applicant’s financial circumstances, the FSP found that the applicant was about to start a new job and was likely to be able to meet ongoing repayments.

It felt that more appropriate solutions were available for the applicant that would not require him to withdraw funds from his superannuation. For this reason it declined to support the applicant’s superannuation release. Instead, it offered to explore other options for providing financial difficulty support, such as a serviceability test followed by capitalising the arrears.

The applicant rejected the FSP’s proposal and lodged a dispute with FOS.

Following our review, FOS determined that the FSP’s decision was appropriate, because superannuation release should be considered only as a last resort. We were satisfied that other suitable options were available to help the applicant overcome his financial difficulty.

The FSP’s proposed options were reasonable, and it was entitled to decline the applicant’s superannuation release request.


Legal proceedings disputesIn 2015-16, FOS accepted 1,166 legal proceedings disputes. Legal proceedings disputes are where a financial services provider (FSP) has begun debt recovery legal proceedings against an applicant in court before the dispute is lodged with FOS. We can consider these disputes as long as the applicant has not taken a step beyond lodging a defence or a defence and counterclaim in those proceedings.FOS has been able to consider these disputes since January 2010. Before then, the FOS Terms of Reference excluded such disputes.We have a process to help us identify disputes where legal proceedings disputes have begun, however, from 1 July 2015 we changed our process for how we are managing these disputes. Before then, these disputes progressed directly to Case Management. But we observed over several years that this was the first opportunity for many FSPs to engage with the customer in relation to their financial difficulty – many applicants were reluctant to contact their FSP until debt recovery legal proceedings had begun. From 1 July 2015, all legal proceedings disputes are referred back to the FSP to provide another opportunity for the parties to resolve their dispute. Legal proceedings disputes relate to debt recovery, so financial difficulty remains the most common issue in these disputes. See page 91 for an outline of the reasons behind a reduction in financial difficulty disputes in recent years.

Legal proceedings disputes by year

Accepted legal proceedings disputes by sales and service channel


Products

The vast majority (92%) of accepted legal proceedings disputes in 2015-16 were about credit products, with the vast majority of these relating to consumer credit products. Almost half (47%) of those related to home loans.

In these disputes, the legal proceedings generally seek judgment for possession of the family home so that the property can be sold and the proceeds applied to repay the outstanding debt.

A smaller proportion of legal proceedings disputes related to unsecured facilities – 14% to credit cards and 9% to personal loans (some personal loans may be secured by vehicles or equipment).

Legal proceedings disputes by product

Issues

In 2015-16, the predominant issue category in legal proceedings disputes was financial difficulty (60%). Within this category, 21% related to an FSP declining a request for financial difficulty, followed by 18% for applicant requests for an FSP to suspend enforcement proceedings, and 18% for failure of an FSP to respond to a request for assistance.

Accepted legal proceedings disputes by issue


Outcomes

During 2015-16, we determined that 41% of legal proceedings disputes were outside our jurisdiction. The most common reason for this was that a court order had been issued before the dispute was lodged. For this reason it is important for applicants to contact their FSP quickly if they are experiencing difficulty repaying their loan. If the applicant is not satisfied with the consideration given by their FSP following this contact, it is equally important that they lodge a dispute with FOS as soon as they can.

Of the legal proceedings disputes that FOS considered, a significant number were resolved when FOS negotiated settlements (19%) or conciliated outcomes (9%). A further 14% of these disputes were resolved between FSPs and applicants.

In 2015-16, we closed 1,167 disputes.

Legal proceedings disputes by outcome

Demographics

People aged 40 to 59 were most likely to lodge legal proceedings disputes with FOS.

As in previous years, most disputes involving people in this age bracket related to debt recovery legal proceedings in which the FSP was seeking to take possession of the family home. This adds a deal of complexity because the timeframes for a loan to be repaid, before applicants retire, is shorter than for people in younger age brackets.


Conciliation conferencesFOS has a team of specialist conciliators who conduct telephone conferences to resolve disputes involving financial difficulty, general insurance, investments, superannuation, life insurance, stockbroking and banking and finance issues.

Conciliation conferences provide an informal forum in which FOS facilitates a discussion between the FSP and applicant of all issues, and helps the parties develop and assess potential options for resolving the dispute.

In 2015-16, FOS conducted 924 telephone conciliation conferences. Of the disputes that went to conciliation, 61% were resolved by conciliation.

Resolution rate

The resolution rate varies depending on the issues in dispute. For example, financial difficulty disputes tend to have a higher resolution rate than disputes involving banking and finance products where financial difficulty is not a factor. In complex disputes, a conciliation conference can help resolve some of the issues so that any further investigation is limited in scope.

This year, we undertook detailed quality reviews of conciliation conferences to ensure our approach is consistent.

Our focus was on the benefits gained by maintaining dialogue between the parties including the opportunity:

» for a shared understanding of issues involved and the alternative viewpoint

» to reveal new information and clarify existing information

» develop a pathway to negotiation.

Key benefit

In quality reviews and consultation with members, we emphasised another key benefit of conciliation conferences: an opportunity for applicants to be heard and to be involved in the development of potential outcomes.

At the same time, we put in place further protection for applicants, which included recording resolutions.

In 2016-17, we intend to focus on improving understanding of the benefits of conciliation with members and their staff while continuing to develop the skills of our conciliators and other staff through advanced negotiation training. We will strive to increase the number of conciliations conducted given the benefits to all parties in the dispute.

Case StudyConference overcomes written language barriersTravel insurance claims made by applicants who lost or had one of their bags stolen on an overseas trip were partly declined because the insurer considered their evidence was insufficient to establish all of their claim.

The bag contained electronic goods, jewellery and other valuables.

The applicants argued that they had acted in accordance with the policy requirements for providing evidence of their loss and notified police as soon as possible.

The insurer believed the applicants did not contact police or another authority within a reasonable timeframe.

The dispute was unlikely to be negotiated because the parties’ positions had become entrenched and language issues had arisen with the written correspondence.

At conciliation, the applicants explained the circumstances around the loss or theft of the bag, saying that it had been reported to police the evening it had occurred but that no formal report had been made until they had time to go to a police station.

The conciliation conference enabled the applicants to express themselves clearly and not concern themselves with a legalistic submission, which they had been attempting.

The dispute was resolved through conciliation in May 2016 without any significant increase in the payout that had already been made by the insurer.


Case StudyMisrepresentation dispute resolved after private sessionApplicants who took out a loan with an FSP that was secured by two properties, the second of which they intended to sell, lodged a dispute with FOS.

The FSP told the applicants they would use an 80% loan to valuation ratio on the second property after it sold, and the applicants said that they based the sale price on this understanding.

At settlement, the FSP applied a 70% loan to valuation ratio and indicated that their loan documents gave them authority to elect when or when not to release security when properties are cross-secured.

The FSP acknowledged that the applicants were given incorrect information but said the applicants did not suffer a loss as a result of the actions.

In conciliation, the parties discussed all issues relating to the loan discharged. In individual sessions, the FOS conciliator spoke to each party about their approach to these types of disputes. The applicant raised additional concerns about interest rates and service issues. These were managed in the individual sessions by the FOS conciliator.

The dispute was resolved in February 2016 when the FSP offered the applicants $2,000 and waived a $150 discharge fee (if and when the loan was paid out).


Systemic issues & serious misconduct


Systemic issues & serious misconductFOS is required by ASIC Regulatory Guide 139 to identify, resolve and report on systemic issues and to notify ASIC of cases of serious misconduct. A systemic issue is defined in our Terms of Reference as an issue that will have an effect on people beyond the parties to a dispute. Serious misconduct is defined as conduct that may be fraudulent or grossly negligent or may involve wilful breaches of applicable laws or obligations.

Identifying systemic issues gives FOS the chance to assist financial services providers (FSPs) to fix the issues, raise industry standards and help consumers obtain fair compensation for financial losses.

Our systemic issues process

1 IDENTIFY a possible systemic issue (1,635 referrals in 2015-16)

During their handling of a dispute, FOS staff consider whether any issues arise that could affect a wider group of people. Systemic issues can be identified by staff at any stage of the dispute resolution process.

2 REFER the issue to the FSP (129 cases in 2015-16)

Once a possible systemic issue is identified, we provide details of the issue to the relevant FSP, ask for further information and invite the FSP to respond formally.

3 ASSESS whether it is a definite systemic issue (58 cases were definite systemic issues in 2015-16)

We assess the FSP’s response and determine whether the issue is definitely systemic. Our systemic issues staff carry out investigations in consultation with the relevant Lead Ombudsman.

If we decide that it is a systemic issue, we manage its resolution in conjunction with the FSP.

If we decide that an issue is not systemic (61 cases in 2015-16), the matter is concluded, although we may reconsider it if new information becomes available.

4 RESOLVE the issue through collaboration with the FSP (64 cases in 2015-16)

We work with the FSP to resolve the systemic issue. This requires the FSP, where appropriate, to:

» identify all affected customers

» compensate the affected customers fairly for any financial loss

» implement a strategy to prevent the problem from recurring.

5 REPORT the issue to ASIC

We provide quarterly reports to ASIC on the numbers of possible and definite systemic issues we have identified, and on the nature, progress and resolution of definite systemic issues. FSPs are not named in these reports.

FOS identifies an FSP in a report to ASIC only if the FSP has not dealt with a definite systemic issue to the satisfaction of the relevant Ombudsman or if it is a case of serious misconduct.


Systemic issues and serious misconduct cases this year

The Systemic Issues Team received 1,635 referrals of possible ystemic issues from FOS dispute handling teams in 2015-16 (compared with 2,137 last year). This included multiple referrals involving the same FSP raising the same issues. Dispute handling staff are regularly reminded of FOS’s systemic issues obligation and encouraged to refer disputes that may involve matters adversely affecting a group of customers beyond the parties to the dispute.

The Systemic Issues Team uses a detailed assessment process to decide whether a matter should be referred to an FSP for further information. This means that some referrals are escalated but that no further action is taken in other cases. In 2015-16, we identified and referred 129 possible systemic issues to FSPs for response (compared with 173 last year), and resolved 64 definite systemic issues (compared with 52 last year).

A total of 99 systemic issue investigations closed at preliminary investigation in 2015-16.

Some of the possible and definite systemic issues identified in 2015-16 were still under investigation at the end of the year.

It is always difficult to quantify how many customers have been affected by systemic issues and remediated. We seek this information from FSPs but it is not always specifically available or the identification and remediation is ongoing. Nevertheless, our record of information from systemic issues that were considered resolved during 2015-16 found that more than 400,000 customers were identified by the FSPs as having been affected by FOS systemic issues. This does not include the wider class of customers who may have been affected by indirect issues such as poor disclosure or misleading information and cannot be definitively identified.

Completed outcomes

Identifiable completed outcomes for 2015-16 include:

» Monetary refunds following direct FOS involvement (or in some cases the issues identified from FOS disputes may have already been remediated by the FSP or been subject to ASIC involvement) – more than $12.75 million

» Credit listings – more than 4,500 amended or removed

» Amendments and improvements to online disclosure on a number of FSP websites to more accurately explain the interest payable on various savings products

» Improvements in an FSP’s compliance with the requirements of the National Consumer Credit Protection Act 2009, in particular the credit limit increase provisions

» Removal of content from customer account statements that breached FOS’s prohibition on continuing collections activity (as set out in clause 13.1 of our Terms of Reference)

» Collections fees refunded that had been charged in error after a regulatory complaint had been raised

» Declined claims reconsidered by an insurer following concerns about reliance on incorrect policy wording

» Client investment portfolios reviewed to ensure that authorised representatives gave advice in accordance with obligations under the Corporations Act 2001

» Improvements to online banking processes and platforms.

Improvements and amendments

We determined that 61 referred issues were not systemic but in many cases a positive outcome was achieved from the referral, including:

» Improvements to claims handling processes and culture to embed FOS’s preferred methodology about the calculation of quantum of benefit in life insurance and general insurance claims

» Amended foreign exchange fee descriptions in contractual documentation to improve clarity and transparency for credit card customers

» Improvements to internal processes for staff to be better able to identify complaints made under the ePayments Code and deal with these in accordance with FOS’s approach

» Amendments to policies, procedures and training to ensure best practice with an FSP’s external dispute resolution obligations

» Improvements made to an FSP’s internal financial hardship policies to ensure that customers who incurred arrears or default fees when complying with a hardship arrangement had these funds refunded promptly.

We reported 5 cases of serious misconduct to ASIC in 2015-16 compared with 14 cases last year.


Common issues continue to be:

» errors in credit listings

» failure to account for a Reduced Income Tax Credit entitlement

» whether FSPs have sufficiently robust policies and procedures to ensure compliance with the ePayments Code

» incorrect claims denial and poor claims handling culture in life insurance and general insurance.

Examples of definite systemic issues:

» processing errors arising out of failures in the administration of computer systems supporting FSPs

» wrongful charging of fees for services not provided

» policy interpretation and wrongful cancellation of life insurance and general insurance policies.

Working together with FSPs and ASIC

In 2015-16, a number of matters we identified and referred to FSPs as systemic had been, or subsequently were, self-reported to ASIC by the FSP. In several other cases, we acknowledged the act of self-reporting of a breach to FOS before we received any disputes on the matter.

Other matters that were identified as possibly systemic were the subject of previous or concurrent investigations by ASIC.

We continued to share information with ASIC under clause 11.1 of our Terms of Reference, which permits FOS to provide reports and release information about an FSP.

Case StudyCredit card expiry leaves customers uninsuredA dispute lodged with FOS involved the automatic cancellation of two life insurance policies held by an applicant when his linked credit card used to pay monthly premiums expired.

In submissions to FOS, the insurer conceded that the applicant had not been notified in writing of the consequences of non-payment of premiums as required under the Life Insurance Act 1995. Section 210 of this Act states that details of the non-payment must be provided together with the consequences to the consumer if payment is not made, such as whether the policy will be cancelled.

The applicant was uninsured for about two months before the insurer advised him of the cancellations.

FOS contacted the insurer to seek information about why the policies had been cancelled without written notification and whether other policyholders may have been affected.

The insurer acknowledged that the applicant’s complaint had revealed a failure in its processes which had seen a number of life insurance policies cancelled as a result of linked credit cards expiring.

The insurer said that its standard process for cancelling policies was designed to meet the requirements of the Life Insurance Act and that dishonoured payment notices were usually sent to customers before policies were cancelled. But in this case, 69 customers were affected by the process failure.

The FOS Lead Ombudsman, Investments and Advice, considered the matter to be a definite systemic issue.

FOS asked the insurer to contact the affected customers to ensure they had an opportunity to reinstate their policies on similar terms. We also asked for further information about processes introduced by the insurer to ensure that written notification was sent to policyholders affected by a non-payment of premiums, in compliance with the Life Insurance Act.

Five customers accepted the insurer’s offer of reinstatement. As a result of this information, we considered the matter satisfactorily resolved.


Case study

Incorrect increase in premiumFOS identified a possible systemic issue with an insurer relating to its calculation of premium under a sickness and accident insurance policy.

The original application for the policy purchased by the applicant said there would be no increase in premium after he turned 55.

During our review of dispute information, the applicant raised concerns that the insurer had calculated the policy premium incorrectly. The applicant told FOS that he had relied on the insurer’s representations about the ongoing cost of the policy when applying for cover.

In response to FOS, the insurer acknowledged that the applicant had been overcharged but said it had provided a refund to the applicant. The FSP also told FOS that the policy was amended after the applicant had gone on-risk and the no-change age limit increased from 55 to 60 as a result of a policy upgrade.

The insurer took the position that the applicant was informed about the upgrade, but it provided no evidence of this. We noted that the applicant said he was never made aware of the upgrade.

During the systemic issues investigation, the insurer confirmed that the applicant’s premium under

the policy remained incorrect even after it had provided a refund for the overcharging as part of the resolution of the dispute.

The insurer explained at this time that the policy was altered to a five-yearly stepped policy in error and a discount should have been applied. It also advised it had conducted a sample review of similar policies and that a wider class of policyholder had been impacted and suffered a financial loss.

We advised the insurer that we considered that its confirmation of this wider error represented a definite systemic issue. In response to FOS, the insurer advised that more than 200 policies remained on-risk.

The insurer reviewed those policies to identify any other policyholders who had been overcharged as a result of this error and, following this review, advised FOS that it had calculated compensation payable to policyholders who were entitled to a refund both where the policy was in force or had ceased.

The FSP advised that, in total, affected policyholders would be reimbursed about $340,000. The refunds were subsequently made and the matter resolved to the satisfaction of the Lead Ombudsman, General Insurance.


Case studyWrong time limits deny customers their dispute rightsFOS raised a possible systemic issue with an FSP about whether it had discouraged potential applicants from lodging their dispute with FOS by providing incorrect information about timeframes for considering disputes.

The information provided by the FSP seemed to relate to an overseas external dispute resolution scheme.

We were also concerned about the FSP’s practice of refusing to consider unauthorised transaction disputes when the customer failed to return its claim form within 30 days. The Lead Ombudsman, Banking and Finance, took the view that such a practice may effectively deny customers the ability to have their case considered on its merits.

The FSP confirmed that it had issued internal dispute resolution (IDR) responses to its customers which suggested that applicants had to refer their dispute to FOS within six months. Under the FOS Terms of Reference, applicants are allowed two years to refer a dispute.

The FSP also confirmed that its internal process was to decline disputes about unauthorised transactions when customers failed to return a form to the FSP within one month of being sent the request.

We advised the FSP that we considered its advice to customers about the timeframe to refer their dispute to FOS represented a definite systemic issue, because it breached clause 6.2 of our Terms of Reference.

In order to be satisfied that the wider group of customers had been adequately remediated, we requested that the FSP contact all customers who had been given incorrect information and notify them of its error. The FSP agreed to do this and also undertook to update its IDR template letter to ensure that customers would be given correct information about their referral rights.

We also advised the FSP that we considered its procedure of declining unauthorised transaction disputes because applicants failed to return a form within 30 days was inappropriate and not supported. FOS wanted to ensure that the FSP was complying with its obligations to investigate disputed transactions as outlined by clause 38.1 of the ePayments Code.

The FSP advised FOS that it had:

» amended the claims document to remove the advice that the form must be returned within 30 days

» conducted staff training about the ePayments Code and the requirement to consider the claims individually and on their merits.

The FSP also completed a review of cases where it had refused to consider an unauthorised transactions dispute because the customer failed to return the particular form to the FSP within 30 days.

In order to restore affected customers to the position they would have been in but for the FSP’s incorrect practice, the FSP reimbursed the disputed funds to the affected customers.


Code compliance & monitoring


Code compliance and monitoringThe Code Compliance and Monitoring Team at FOS (Code team) works on behalf of independent committees to monitor compliance with codes of practice in the Australian financial services industry, supporting financial services providers (FSPs) to continually improve their services and achieve standards people can trust.Our aim is to help FSPs:

» build good relationships with their customers

» improve complaints handling

» reduce the number of customer disputes through improved service delivery

» comply with their relevant industry code of practice.

The Code team is a separately operated and funded business unit of FOS.

Codes of practice

The Code team administers and monitors compliance with four industry codes of practice:

» Code of Banking Practice

» General Insurance Code of Practice

» Customer Owned Banking Code of Practice

» Insurance Brokers Code of Practice.

Our services are funded by the industry associations responsible for these codes, in accordance with service level agreements.

Codes of practice set standards of good industry practice for FSPs when dealing with people who are, or who may become, individual or small business customers in areas relating to service provision, standards of professional conduct, practice standards and ethical behaviour.

These codes are voluntary and FSPs can decide whether to subscribe to the appropriate code. Once they subscribe to a code, they are required to comply with it. The codes therefore play an important role in the regulatory framework of the Australian financial services industry.

A total of 571 FSPs subscribed to the four codes in 2015-16. Each code subscriber has made a commitment to:

» work to improve the standards of practice and service in their industry

» promote informed decisions about their services

» act fairly and reasonably in delivering those services.

As at 30 June 2016:


Code compliance committees

Monitoring of the four industry codes of practice is overseen by code compliance committees, each of which comprise an independent Chair, a consumer representative and an industry representative.The code compliance committees are independent of the industries that are responsible for these codes, and have powers and functions to identify and address breaches of code obligations. These committees met 27 times in 2015-16.The Code team provides secretariat, code monitoring and investigation services to each of these committees. In 2015-16, the Code team continued to improve the efficiency of committee operations through initiatives such as an online portal for the exchange of code compliance information between the committees and subscribers. This year we enhanced the portal to ensure a more convenient user experience, consistent with feedback from users, and modified reporting from the Code team Case Management system to better inform decision making and transparency.In 2015-16, the Code team also arranged for each of the committee Chairs and representatives to meet and exchange information to further improve their operations.

Monitoring compliance with codes

Annual compliance program

In 2015-16, 551 code subscribers responded to an annual compliance statement, self-certification, annual return or desktop audit relevant to their code’s obligations. The questionnaires asked them to report on the operation and effectiveness of the code monitoring frameworks within their organisations.During this process, code subscribers self-identified 11,809 breaches of code obligations for the previous reporting year. Results of the annual compliance program and the trends and emerging risks in code compliance were reported back to industry and other stakeholders in annual reports published for each code.Highlights of the annual compliance statement programs included:

Banking

» 6,558 self-reported breaches of the Code of Banking Practice, of which 1,319 (20%) were about provision of credit

» 1.2 million complaints received by banks, 93% of which were resolved within five days

» 296,000 requests for assistance from customers in financial difficulty, 70% of which were granted.

Customer owned banking

» 646 self-reported breaches of the Customer Owned Code of Banking Practice, of which one-quarter (26%) were about training obligations

» 16,709 complaints received by customer owned banking institutions, 93% of which were resolved within 21 days.

Insurance brokers

» 862 self-reported breaches of the Insurance Brokers Code of Conduct, of which one-quarter were about obligations related to buying insurance

» 1,023 complaints received by insurance brokers, 79% of which were resolved within 21 days.

General insurance

» 3,743 self-reported breaches of the General Insurance Code of Practice, a reduction of one-third from the previous year

» 21,719 personal insurance disputes lodged with insurers

3,690,113 claims lodged with insurers relating to personal insurance policies, of which 91% were settled.

Significant code breaches

A ‘significant’ breach of code obligations is usually a breach that involves a number of customers who have been impacted by the conduct or activity and who have suffered loss. Significant breaches also require more extensive remedial action to be undertaken by the code subscriber to correct the non-compliant conduct and to reduce the likelihood of recurrence.During the 2015-16 annual compliance program, a total of 32 significant breaches were reported for the previous reporting year: 16 in banking, 5 in customer owned banking and 11 in insurance broking. In addition, there were 11 confirmed breaches of the General Insurance Code of Practice reported by insurers during 2015-16. Under this code, insurers are required to report significant breaches to the Code Governance Committee within 10 business days of identification. The number of significant breaches across all four codes more than doubled from last year’s figure, indicating improved identification and reporting of significant breaches.In banking, more than 150,000 customers were affected by these significant breaches, with a total estimated financial impact of almost $13 million. As in previous years, a large proportion of these significant breaches related to IT systems issues, within the institution or with third-party providers.The five significant breaches reported under the Customer Owned Banking Code were made by five institutions and related to general commitments, privacy and Statements of Accounts.Under the Insurance Brokers Code, the 11 significant breaches reported by 9 brokers was more than double the number reported last year. Three of the breaches were in respect of the obligations to ‘discharge duties diligently, competently, fairly and with honesty and integrity’.In general insurance, three general insurers reported eleven significant breaches. Seven of these significant breaches involved the obligation to conduct complaints handling in a fair, transparent and timely manner; two were about the conduct of insurers’ sales processes and services; and the other two were about decisions whether to accept or deny a general insurance claim within a specified timeframe and, if unable to do so, inform consumers of their right to access complaints processes.


Compliance investigations

Each code sets out individual rights for consumers, including the right to complain that an FSP may not have met their obligations under their industry code. Investigating these complaints helps us to monitor FSP compliance and support them to remedy code breaches.We do not provide compensation – that is the role of external dispute resolution bodies such as FOS or courts and tribunals. Also, we do not issue fines or penalties – that is the role of regulators such as the Australian Securities and Investments Commission (ASIC).Anyone can contact us to allege that an FSP may have breached an industry code. Our investigation processes are independent, fair, efficient and transparent (subject to our confidentiality and privacy obligations). Each investigation is unique and depends on its facts. However, as a general guide we take into account:

» evidence before us

» the law

» our decisions or guidance where relevant

» decisions or guidance by other entities (such as ASIC)

» whether the issue might affect other consumers

» how the FSP has handled the issue.

In 2015-16, we received 245 new investigation cases into alleged code breaches and closed 281 investigation cases. There were 75 confirmed breaches across the four codes identified as a result of our investigations activity. The code subscribers responsible for each breach took action to remedy the non-compliance and prevent similar breaches occurring again.Allegations of breaches of the General Insurance Code of Practice made up the majority of cases we received in 2015-16, with 202 registered by the team. As a result of these investigations, 49 breaches of the Code were identified, most of them related to claims handling. The number of breaches identified during this reporting period is lower than in 2014-15. In banking, the Code Compliance and Monitoring Committee (CCMC) made one determination that a bank had breached the Code of Banking Practice. The decision related to the provision of credit. The CCMC otherwise used its delegated decision-making process 27 times. This process allows many investigation decisions to be delegated to the CCMC’s independent Chair rather than requiring a determination of all three Committee members.The Insurance Brokers Committee received six new referrals in 2015-16. Most referrals related to obligations relating to buying insurance, claims handling and complaints handling. The Customer Owned Banking Committee received three new matters for investigation in 2015-16. The investigations related to the obligations to deliver high customer service and standards and to be a responsible lender.

Own Motion Inquiries

Where we identify a particular area of compliance risk, through our investigations work or from breaches self-reported by code subscribers, we may conduct an Own Motion Inquiry. These inquiries are an in-depth look at a specific area of concern. We use methodologies such as questionnaires and onsite visits to code subscribers, survey consumer advocates and other interested parties or conduct mystery shopping exercises.In 2015-16, the Code team finalised and reported on two Own Motion Inquiries: one looking at financial difficulty (banking) and another on community engagement (customer owned banking). The Code team will conduct Own Motion Inquiries into internal dispute resolution processes (insurance broking), provision of credit (banking) and claims investigations practices and outsourced services (general insurance) in 2016-17.

Financial difficulty – banking

In November 2015, the CCMC published the report of its inquiry into banks’ compliance with financial difficulty code obligations. The CCMC found that all subscribing banks have in place procedures to try to help customers overcome their financial difficulties with credit facilities they have with their bank, as required by the Code of Banking Practice. Overall, the CCMC found that banks have robust procedures in place to deal with customers in financial difficulty, and that they are committed to engaging actively and co-operatively with customers. Results from the survey of consumer and small business representatives indicated that while banks have improved the way they deal with customers experiencing financial difficulty, some issues remain, particularly where the customer’s situation is unique or requires longer-term solutions.A summary of the CCMC’s findings and recommendations to industry is available at www.ccmc.org.au

Community engagement – customer owned banking

In May 2016 we began an Own Motion Inquiry to examine customer owned banking institutions’ compliance with their code obligations to effectively engage with the wider community.The inquiry aims to:

» develop a better understanding of how these institutions manage their community engagement obligations

» assess how they impact on the wider community

» identify and promote good business practices

» provide recommendations for improvements to community engagement.

A summary of the findings and recommendations of this Inquiry will be available in late 2016.


http://www.ccmc.org.au/

Internal dispute resolution processes – insurance brokers

This Own Motion Inquiry will assess code-subscribing insurance brokers’ compliance with their obligations under the Insurance Brokers Code of Practice to ensure they have an internal complaints and disputes handling process that meets code standards.The inquiry, to be undertaken in August 2016, will ask each code subscriber to rate its internal dispute resolution procedures and explain how these procedures are embedded in its compliance framework.

Investigation of claims and outsourced services – general insurance

In early June 2016 the General Insurance Code Governance Committee began its first Own Motion Inquiry. The inquiry is examining:

» outsourced services in relation to claims, debt collection services and complaints handling

» internal and external claims investigation practices and policies.

The outcomes of the inquiry are expected to be available by the end of 2016.

Industry Data Report

In June 2016, the Code team finalised and published the General Insurance Code Governance Committee’s first Industry Data Report. The report’s combination of general insurance industry figures and self-reported code compliance data from 2014-15 forms an illuminating snapshot of the industry.Key observations included:

» More than 48 million personal insurance policies were issued. Three-quarters of these were in car, travel or home insurance

» Almost 3.7 million claims were lodged, an increase of 8%

» Industry denied almost 123,000 claims – an increase of 16%

» Consumers withdrew more than 206,000 claims – an increase of 61%. The authors said this pointed to a gap between consumer expectations and how insurance products operate in practice.

The report is available at: www.fos.org.au/custom/files/docs/cgc-20142015-industry-data-report.pdf

Stakeholder engagement

The Code team had more than 100 interactions with its stakeholders during 2015-16. It attended 82 meetings, issued 28 publications and provided 18 presentations and training sessions to regulators, industry associations, consumer advocates and other stakeholders throughout the year. The team also conducted 42 onsite visits or verification teleconferences with code subscribers.

Banking

For the first time in the six years that the CCMC has been holding its annual forums, all 13 banking groups were represented at the CCMC Annual Forum, held in Adelaide. Twenty bank representatives attended to hear presentations from the Australian Bankers’ Association, representatives from three banks and the FOS Lead Ombudsman – Banking and Finance.

In addition to Compliance Statement onsite visits with all subscribers, the Code team met bank representatives 12 times in 2015-16 to discuss code compliance and identify emerging issues. The visits also gave the CCMC valuable insights into bank systems and procedures.As part of its ‘Financial Difficulty Awareness’ month, one bank invited the CCMC to present to more than 150 of its staff on the findings of the CCMC’s financial difficulty Own Motion Inquiry.The CCMC also met ASIC to discuss its Indigenous Outreach Program and obtain information about issues the regulator has seen in relation to banks’ compliance with the provision of the code that covers remote Aboriginal and Torres Strait Islander communities.

Insurance

The Code team met the Insurance Council of Australia’s Code Reference Group to discuss code monitoring outcomes and the Code Governance Committee’s 2015-16 Code monitoring program. It also conducted a workshop with the Code Reference Group to discuss trends in the 2014-15 general insurance industry data and identify areas that required further exploration.

Insurance brokers

The Code team presented at the National Insurance Brokers Association’s (NIBA) Tier 1 workshops to assist with awareness of the code. It will continue this work with the Australian and New Zealand Institute of Insurance and Finance which has taken over NIBA’s educational role for the insurance broking industry. The Code team also presented at the FOS general insurance forum on insurance broking matters.

Customer owned banking

The Code team attended the Customer Owned Banking Association’s compliance forums in Sydney, Brisbane, Adelaide and Melbourne to address code-related matters. The Code Compliance Committee met representatives of various groups within the industry to discuss the development of an industry liason group to share code updates and gather feedback.

Consumer groups

In 2015-16, the Code team continued to work with key consumer stakeholders, including Financial Counselling Australia, to promote code awareness in the consumer sector. We again partnered with the Telecommunications Industry Ombudsman and Energy and Water Ombudsman schemes to present training to financial counsellors in Victoria. We attended the national and Victorian financial counsellor conferences and delivered training on the 2014 General Insurance Code of Practice to community legal centre lawyers throughout Australia via webinar.We also developed an e-Learning module to explain the Code team’s roles and functions to all stakeholders. The module will be launched later in 2016.We revised our Code toolkit brochure promoting the four codes, their code compliance committees and the Code team. This brochure is available at: www.fos.org.au/about-us/codes-of-practice


http://www.fos.org.au/about-us/codes-of-practice

http://www.fos.org.au/about-us/codes-of-practice

Code team: 2015-16 at a glance

4 Codes of practice 42 Onsite visits and verification teleconferences

4 Independent code compliance committees 4 Own Motion Inquiries

27 Committee meetings 245 New investigations of alleged breaches of industry codes of practice

571 Financial services providers subscribing to the codes 281 Investigations cases

closed

4 Annual reports published 75 Breaches of codes identified through investigations

1Industry data report published 82

Meetings with regulators, industry associations, consumer advocates and other stakeholders

551Annual compliance statements, self-certifications, annual returns and desktop audits reviewed

28Information bulletins and other publications issued

11,809 Code breaches self-identified 18 Presentations and

training sessions conducted

43 Code breaches assessed as significant

Case study


Debt collector took action despite hardship requestA consumer was involved in a car accident in August 2014, resulting in damage to another car. The other party’s insurer considered the consumer was at fault.

On behalf of the insurer, a debt collector sought to recover the cost of repairs to the insured’s car from the consumer.

The consumer requested financial hardship assistance and appointed a financial counsellor as his representative.

The financial counsellor alleged that the insurer and its agent, the debt collector, failed to comply with their financial difficulty obligations under the 2012 and 2014 General Insurance Code.

The 2012 Code (3.12) says that if a person is experiencing difficulty repaying a debt and cooperates with a code subscriber, the subscriber will work with that person and consider options to help them overcome their financial difficulties.

The financial counsellor had difficulty obtaining a completed Statement of Financial Position from the consumer due to an illness he was suffering. During this time, the financial counsellor provided regular updates to the debt collector. However, the debt collector proceeded with legal action against the consumer in June 2015.

The General Insurance Code Governance Committee determined that such action was inappropriate and therefore, that the insurer had failed to comply with the Code.


Case studyBank removes vexed questionWhen a consumer made a financial hardship request to his bank, he was concerned that a staff member asked him whether he had family and friends who could help him while he was experiencing financial difficulty.

He believed this was a breach of the Debt Collection Guideline and the Code of Banking Practice.

As part of the Code (32.1), a bank must comply with the Debt Collection Guideline, under which it is unacceptable for a bank to pressure a debtor to borrow from family or friends to pay a debt.

The bank confirmed that the staff member had asked the question consistent with its practice to obtain a full picture of the circumstances of a customer experiencing financial difficulty. However, it was not the bank’s intention to exert pressure on the consumer to borrow from family and friends.

The Code Compliance Monitoring Committee reviewed the matter and listened to a recording of the telephone conversation between the consumer and the staff member.

Based on the recording, the CCMC did not agree that the staff member insisted or pressured the consumer to borrow funds from his family and friends. As a result, it did not find the bank in breach of the Debt Collection Guideline and subsequently the Code.

However, in light of the consumer’s concerns and the CCMC investigation, the bank removed the question regarding family and friends’ assistance from its scripting, internal documents and templates, and provided updated training to ensure staff were aware not to refer to family and friends while talking to customers about their financial difficulty.


Corporate governance


Corporate governanceFOS prides itself on independence, integrity and transparency in all aspects of its operations, and applies the principles of good corporate governance to the running of the company.FOS considers the Australian Stock Exchange’s Corporate Governance Principles and Recommendations, 3rd edition, sets the benchmark for a high standard of corporate governance in Australia.

This section explains how FOS applies these principles and recommendations, issued by the ASX Corporate Governance Council, to our operations.

Principle 1: Lay solid foundations for management and oversight

Functions reserved by the Board and those delegated to management

Since the inception of the company, the FOS Board has adopted a Charter that governs its operations and clearly delineates the responsibilities of the Board and senior management.

The role of the Board is to monitor the performance of FOS, provide direction to the Chief Ombudsman on policy matters, set the budget, and review from time to time the Terms of Reference, including the jurisdictional limits of FOS.

The Board does not involve itself in the detail of disputes lodged at FOS, because that would prejudice the independence of the Ombudsmen. The decisions of the Ombudsmen are free of any interference from the Board.

The Board has two committees to assist it in its role – the Finance and Risk Management Committee and the Nominations and Remuneration Committee.

The role of management is to implement the strategic direction provided by the Board and to ensure that FOS provides its external dispute resolution (EDR) services within the terms of its approval from ASIC.

Appointment of directors

The Nominations and Remuneration Committee Charter sets out the process to be followed by the Board when appointing or reappointing directors and other Board appointees.

Written terms of appointment

Written agreements set out the terms of each appointment of FOS Board directors and senior executives.

Direct accountability of Company Secretary to Board for proper functioning of the Board

As set out in the Board Charter, the FOS Company Secretary is appointed by, and accountable to, the Board and may advise the Chair, the Board, its Committees and individual directors on matters of governance process.

Diversity policy

The FOS Diversity Policy and Procedures are available via the Careers page on the FOS website (www.fos.org.au/careers) and reflect its commitment to diversity at all levels in the FOS workplace.

Evaluation of performance of FOS Board

The Nominations and Remuneration Committee of the Board ensures a robust system of performance evaluation is in place for Board appointees and the Board itself.

In 2015-16, the Board built on the 2014-15 external independent assessment of its performance through a self-assessment process. This self-evaluation suggested some minor enhancements of the Board’s processes, which have since been implemented.

Evaluation of performance of FOS senior management

Since FOS began operating in 2008, all employees of FOS, including senior managers, have been subject to a performance evaluation process. The line manager of an employee conducts the performance evaluation, with the Chief Ombudsman responsible for the performance evaluation of the senior managers reporting to him. The performance evaluation of the Chief Ombudsman is conducted by the Chair of the Board.


Principle 2: Structure the Board to add value

FOS Board of Directors

Professor The Honourable Michael Lavarch AO – LLB (QUT)

Michael Lavarch was appointed a transition director on incorporation of the company, for a term expiring on 31 May 2009. When the new Board was formed on 1 June 2009, he was appointed a director and Independent Chair of the Board. He was reappointed as Chair of the Board on 20 February 2015 for a further three-year term commencing on 1 June 2015.

Michael is the Commissioner, Risk Analysis and Investigation, for the Australian Skills Quality Authority, and formerly Executive Dean of the Faculty of Law at the Queensland University of Technology. He is a former Federal Attorney-General and a former Secretary-General of the Law Council of Australia. He has extensive board experience, having held public and private company directorships, and is currently Chief Adjudicator of the Alcohol Beverages Advertising Code adjudication panel.

In 2012, Michael was appointed an Officer of the Order of Australia for distinguished service to law, education and human rights.

Robert Belleville – MBA

Robert Belleville was appointed an industry director on 25 February 2010 and reappointed on 13 November 2015 for a further three-year term commencing on 25 February 2016.

Robert is a member of the Insurance Manufacturers of Australia (IMA) Board, Chair of the IMA Board Risk Committee and a member of its Audit Committee.

He was employed by AAMI for more than 37 years, culminating in his appointment as Chief Executive in 2002. Soon afterwards he added the position of Chief Executive of Promina’s Direct Division, adding APIA, Shannons and Just Car Insurance to his responsibilities. Following the successful offer by Suncorp to take over Promina, Robert was appointed Group Executive, Personal Lines, which added GIO and Suncorp portfolios to his oversight. Despite retiring in December 2008, Robert stayed on with Suncorp as a part-time consultant until September 2009.

David Coorey – BA, LLB (UNSW)

David Coorey was appointed a consumers’ director on 1 June 2009 and reappointed on 20 February 2015 for a further two-year term commencing on 1 June 2015.

He is a senior lawyer with the Civil Division section of the Legal Aid Commission of NSW, which he joined in 2002. Since commencing with the Legal Aid Commission, he as been actively involved in policy work in consumer law, with

particular interest in policy issues that affect consumers of insurance products.

David previously worked with the law firm Freehills for more than three years, including a one-year pro bono secondment to Kingsford Legal Centre. He is also a former member of the Insurance Council of Australia Consumer Reference Group. He has worked in various areas of civil law, including insurance, credit, consumer and trade practices litigation, as well as human rights and discrimination law

Jennifer Darbyshire – BA, LLB (Hons), LLM (London), GAICD

Jennifer Darbyshire was appointed an industry director on 8 June 2012 and reappointed on 20 February 2015 for a further three-year term commencing on 1 June 2015.

Jennifer joined National Australia Bank in 2006 and was appointed General Counsel, Corporate in March 2016. From late 2014 to early 2016, Jennifer was the General Manager, Group Regulatory Strategy & Affairs. From mid-2012 to

late 2014, she was General Counsel and Company Secretary for NAB’s UK banking operations.

Jennifer has previously worked in private legal practice (including Mallesons in Melbourne and Linklaters in London) and in major Australian corporations (including Coles Myer). She has a corporate legal and executive background with extensive governance, regulatory and transactional experience.

Jennifer was the Chair of Heide Museum of Modern Art until January 2016 (and a director since 2006). Previous directorships include St Vincent’s & Mercy Private Hospital (2006 to 2011) and St Vincent’s Advisory Council Melbourne (2011 to 2012).


Carmel Franklin – BEd., Dip (Financial Counselling)

Carmel Franklin was appointed a consumers’ director on 20 February 2015 for a three-year term commencing on 1 June 2015.

Carmel has been involved with consumer issues for a number of years, including as the Director of Care Financial Counselling and the Consumer Law Centre of the ACT, as the Chair of Financial Counselling Australia and through her role on the boards of the National Information

Centre on Retirement Investments and the Welfare Rights and Legal Centre. In addition to these positions, she is a member of the ATO Individual Tax Advisory Forum.

She is a former member of the ASIC Consumer Advisory Panel as well as the FOS Consumer Liaison Group.

Elissa Freeman – BA (UNSW)

Elissa Freeman was appointed a consumers’ director on 21 February 2014 and commenced her three-year term on 1 June 2014.

Elissa has advocated for consumers’ rights in the financial services, telecommunications and the energy and water industries in her roles at CHOICE, the Australian Communications Consumer Action Network and the Public Interest Advocacy Centre.

She has represented consumers at the ASIC Consumer Advisory Panel, the ACCC Consumer Consultative Committee and as a Council member of the Energy and Water Ombudsman of NSW.

Elissa was previously Chair of the Financial Rights Legal Centre (then the Consumer Credit Legal Centre of NSW). She is currently Manager of Consumer Policy at CHOICE.

Louise Lakomy – MBA, GDPFP, JP, CFP

Louise Lakomy was appointed an industry director on 20 February 2015 for a three-year term commencing on 1 June 2015.

Louise is a certified financial planner with 15 years’ experience in financial planning. In her current role she is a director with Crystal Wealth Partners, an independently owned financial planning business offering investment and strategic advice to her clients. Louise also holds a

Master of Business Administration majoring in finance and funds management.

She previously served on the Board of the Financial Planning Association of Australia for the maximum term of six years. She is a former member of the Financial Planning Education Council and the FPA’s Professionalism Committee, and has held roles with large institutions including Westpac and St. George private banks as well as

Louise Lakomy was appointed an industry director on 20 February 2015 for a three-year term commencing on 1 June 2015.

Louise is a certified financial planner with 15 years’ experience in financial planning. In her current role she is a director with Crystal Wealth Partners, an independently owned financial planning business offering investment and strategic advice to her clients. Louise also holds a

boutique advisory firms.


Catriona Lowe – LLB (Qld)

Catriona Lowe was appointed a consumers’ director on 1 June 2009 and reappointed on 20 February 2015 for a further three-year term commencing on 1 June 2015.

Catriona is a member of the Boards of the Telecommunications Industry Ombudsman and Legal Practice Liability Committee. She is also Treasurer of the Consumers’ Federation of Australia and Chair of the ACCC Consumer Consultative Committee.

She is formerly the Co-Chief Executive Officer of the Consumer Action Law Centre and, before joining Consumer Action, was a director in the Australian Competition and Consumer Commission’s Policy and Liaison Branch. Catriona was deputy director and the first principal solicitor of the legal practice at Consumer Law Centre Victoria and spent five years in private practice as a litigation lawyer.

Catriona has also served as a member of the Board of the National Information Centre on Retirement Investment, a member of ASIC’s External Advisory Panel, a member of the National Australia Bank Social Responsibility Advisory Council, a member of the Insurance Council of Australia Consumer Reference Group, and a member of the Motor Car Traders’ Guarantee Fund Claims Committee.

Christopher McRae – BA, LLB (Sydney)

Chris McRae was appointed an industry director on 8 June 2012 and reappointed on 20 February 2015 for a further three-year term commencing on 1 June 2015. He retired from the Board on 2 June 2016.

Chris is a director of McRae Services Pty Ltd, an incorporated legal practice specialising in financial services law, corporate governance and regulatory

compliance, life insurance contracts review, drafting and settlement, stamp duty, superannuation and trustee services, consumer credit law and financial services dispute resolution.

Chris is also a consultant to several larger members of the Financial Services Council (FSC). Before establishing his legal consultancy in 2009, Chris held senior legal roles at AMP for more than 25 years. He was Specialist Counsel for AMP Financial Services from 1998 to 2008 and Chief Legal Officer for AMP Society Australia from 1988 to 1998. He managed in-house legal teams at AMP and represented AMP on FSC committees and in dealings with APRA and ASIC.

Company Secretary

Nicolas Crowhurst - BA, LLB (Hons), FCIS, FCSA

Nicolas Crowhurst was appointed Company Secretary on 23 September 2010, after serving as Assistant Company Secretary. He is also a director of Financial Services Compensation Scheme Pty Ltd.

Nicolas qualified as a barrister in the United Kingdom in 2000 and has previously served as Legal Counsel to the Financial Industry Complaints Service Limited and the company.

He is a Fellow of the Governance Institute of Australia and of the Institute of Chartered Secretaries and Administrators.

Disclosures regarding Nominations and Remuneration Committee

The Nominations and Remuneration Committee comprises the Chair of the Board, one industry director (Jennifer Darbyshire) and one consumers’ director (David Coorey). This composition satisfies the constitutional requirements for board committees to maintain equal membership between industry and consumers’ directors.However, where thought necessary, the Committee has engaged external assistance from relevant stakeholder groups to provide advice and guidance on its duties and responsibilities. The following table sets out the meetings and attendances for the Nominations and Remuneration Committee in 2015-16:

Actual attendance

Eligible to attend

Michael Lavarch 3 3David Coorey 3 3Jennifer Darbyshire 3 3

The Skills Matrix of the FOS Board of Directors

The Board Charter states that examples of the core technical competencies that should be found across the Board include:

» Accounting and finance (directors who have expertise in financial accounting)

» Business judgment (directors who have a record of making good business decisions)

» Governance (directors who understand and keep abreast of good governance practices)


» Knowledge of consumer issues and needs (directors with appropriate and relevant consumer movement-specific knowledge and experience)

» Industry knowledge (directors with appropriate and relevant industry-specific knowledge and experience)

» Knowledge of internal and external dispute resolution

» Human resource management (directors who have experience and interests in human resource management and staff welfare).

To assist the Nominations and Remuneration Committee, FOS also has a Skills Matrix which lists the core competencies of each director, as well as other organisational competencies, allowing easy identification of the strengths and weaknesses of the Board as a whole.

Independent directors

The Chair is required by the FOS Constitution to be independent and the FOS Board Charter prohibits a single individual from occupying the roles of Chair and Chief Ombudsman.The FOS Board comprises individuals with expertise and knowledge as required by the FOS Constitution. There are no executive directors. While the directors, with the exception of the Chair, are required to represent the interests of industry or consumers, each understands his or her legal obligation as a director to put the needs of FOS before those of their own ‘constituents’.

Induction and training of directors

Upon appointment, each director is provided with a comprehensive induction to FOS and its operations. The directors are also permitted to request and receive all reasonable training necessary for them to perform their role as directors effectively and a suitable budget has been allowed for this to occur.

Principle 3: Promote ethical and responsible decision making

Code of Conduct

The standards of behaviour expected of FOS directors and employees are set out in the Board Charter, the FOS Code of Conduct, and the FOS values of Respectful, Efficient, Trustworthy and Forward Thinking.


Principle 4: Safeguard integrity in financial reporting

Audit Committee

The functions of an audit committee are carried out at FOS by the Finance and Risk Management Committee. Catriona Lowe is the Chair of this committee, and Robert Belleville is the other member.

Since its inception in 2008, the Committee has had a formal charter governing its area of responsibility.

The Charter was last revised in October 2015 and approved by the Board.

The following table sets out the meetings and attendances for the Finance and Risk Management Committee in 2015-16:

Actual attendance

Eligible to attend

Robert Belleville 5 5Catriona Lowe 5 5

As part of the Board’s succession strategy, Elissa Freeman is receiving papers and notifications of Finance and Risk Management Committee meetings and will commence attending meetings by invitation in 2016-17.

CEO and CFO declarations

Prior to the Board approving the annual financial reports contained within the FOS General Purpose Financial Report, the Board receives from the Chief Ombudsman and Chief Financial Officer a declaration that, in their opinion, the financial records have been properly maintained and that the financial statements comply with appropriate accounting standards.

These declarations also state that the financial statements give a true and fair view of the financial position and performance of FOS and that these opinions have been formed on the basis of a sound system of risk management and internal control which is operating effectively.

Attendance of the external auditor at Annual General Meeting

The external auditor receives an invitation to attend each AGM, but attendance has not, to date, been required by the membership.

Principle 5: Make timely and balanced disclosure

Disclosure Policy

This principle applies to companies that are subject to the ASX Listing Rule disclosure requirements, and as such has no direct relevance to FOS.

However, FOS has various policies and procedures which, in combination, cover many of the same areas as the recommended Disclosure Policy.

Principle 6: Respect the rights of shareholders

As a public company limited by guarantee, FOS does not have shareholders. As a result, this principle has no direct relevance to FOS.

However, FOS is committed to respecting the rights of its stakeholders, particularly the financial services providers (FSPs) that are members of the scheme and the consumers who use the service.

Information about FOS and its governance

Information about FOS can be found on the website (www.fos.org.au), by email ([email protected]), or by telephone 1800 367 287 freecall (1800 FOS AUS) or 1300 56 55 62 for members.

Stakeholder relations program

FOS has a Stakeholder Engagement Strategy which sets out our approach to liaison with our members, consumers, ASIC and the broader community.

Activities that promote two-way communication include industry and consumer forums, the FOS National Conference, our online magazine The Circular, and our accessibility initiatives.

Meetings of stakeholders

The Annual General Meeting is held and run in accordance with the Corporations Act 2001 and the FOS Constitution.

FOS’s ASIC Liaison Policy and Procedures and our Stakeholder Engagement Strategy encourage participation at general stakeholder meetings.

Electronic communications

FOS has developed Secure Services, a secure part of the website for FSPs and consumer representatives to manage disputes and information exchange electronically.

In addition, consumers are able to lodge disputes electronically through the FOS website (www.fos.org.au).


mailto:[email protected]

http://www.fos.org.au/


Principle 7: Recognise and manage risk

Oversight of risk

While ultimate responsibility for risk oversight and risk management rests with the full Board, the Finance and Risk Management Committee has operational oversight of these activities and the Senior Leadership Group has day-to-day operational responsibility for risk oversight and management.

Given the nature of the material business risks of FOS, the Senior Leadership Group is supported and advised by a Risk Management Working Group, chaired by the Company Secretary and consisting of the:

» Chief Financial Officer

» Chief Information Officer

» Facilities and Procurement Manager

» Senior Manager – Community & Corporate Communications

» Senior Manager – People & Development

» Senior Manager – Quality, Knowledge & Improvement

» Senior Manager – Strategy & Analysis.

A risk management report is presented to the Finance and Risk Management Committee at the end of each quarter, with significant issues being advised as necessary.

Review of risk management framework

The risk management framework and approach to strategic risk within the organisation was last fully reviewed in 2014-15 and is subject to continual monitoring and improvement.

Internal audit

During 2015-16, the FOS internal audit function (outsourced to Pitcher Partners) reviewed the OHS framework, Records and Knowledge Management, and Project Management framework.

In addition, the internal auditors conducted a review of the recommendations arising from prior audits to ensure that management had completed six agreed actions in an appropriate manner. Three actions were found to have been completed appropriately and the other three were in progress at 30 June 2016.

Material exposure

As at the time of publication, FOS has no known material exposure to any economic, environmental or social sustainability risks.

Principle 8: Remunerate fairly and responsibly

Remuneration committee

The main functions of a remuneration committee are performed at FOS by the Nominations and Remuneration Committee.

The Board sets its own remuneration by consensus, in accordance with clause 4.15 of the FOS Constitution and on advice from the Nominations and Remuneration Committee. The Board also sets the remuneration of the Chief Ombudsman.

Responsibility for the company’s remuneration, recruitment, retention and termination policies for all other employees has been delegated to the Chief Ombudsman, but significant changes to these policies are ratified by the Board.

The remaining aspects of this principle are applicable to companies that are subject to the ASX Listing Rules, and as such have no relevance to FOS.

Remuneration of non-executive directors and executive directors

All FOS directors are non-executive directors and, aside from the Chair, are paid equally, with a small additional payment being made to the members of the Finance and Risk Management Committee.

Equity-based remuneration

FOS does not offer equity-based remuneration to any employee.


GlossaryTerm Explanation

accepted dispute a dispute that has progressed through Registration and Referral and been accepted into Case Management at FOS (compare with received dispute)

ACR authorised credit representative – a business that is authorised to engage in specified credit activities on behalf of a business with an Australian credit licence from ASIC

alternative dispute resolution

ways of resolving disputes that do not involve going to court, such as conciliation and negotiation

applicant consumer who brings a dispute to FOS

APRA Australian Prudential Regulation Authority

ASIC Australian Securities and Investments Commission

Case Management the second major stage of our dispute resolution process in which we work to resolve disputes that the consumer and FSP cannot resolve

closed dispute a dispute is closed once our handling of it is complete – this can be achieved through an agreement between the parties involved, through a decision by FOS, or because the dispute is discontinued or outside our Terms of Reference

consumer individual or small business owner who uses the services of a financial services provider

determination a final decision in a dispute by an Ombudsman, adjudicator or panel

EDR external dispute resolution – dispute resolution managed by an independent third party (the Financial Ombudsman Service is an EDR service)

financial difficulty a consumer may experience financial difficulty if they are unexpectedly unable to meet their repayment obligations on a credit contract

FOS Financial Ombudsman Service Australia

FSP financial services provider

IDR internal dispute resolution – every member should have IDR processes in place to handle disputes they receive about their business

member a financial services provider that is a member of the Financial Ombudsman Service

NCC National Credit Code (part of the National Consumer Credit Protection Act 2009)

Ombudsman someone who investigates disputes between aggrieved parties (for example, consumers and small businesses) and organisations (for example, financial services providers) and mediates a fair settlement or makes a final decision on the matter

OTR disputes that are outside the FOS Terms of Reference

outcome the way in which a dispute has been resolved or finalised

outcome type the result or consequences of the resolution or finalisation of a dispute

product a specific type of product within a product category (for example, shares are a product within the securities product category)

product category a group of products within a particular product line (for example, securities are a product category within the investment product line)

product line a broad line of products (for example, investments)

received dispute a dispute that has entered the Registration and Referral stage of our dispute resolution process (compare with accepted dispute)

Registration and Referral

the initial stage of our dispute resolution process in which we lodge all the disputes we receive, record basic information about the issue(s) in dispute and then send the details to the FSP

(ASIC) Regulatory Guideline 139

a document that sets out the requirements of how organisations such as FOS can become an ASIC-approved EDR scheme and how they have to operate and report to maintain that approval

sales and service channel

the channel a consumer used to purchase or get advice about the product in dispute

TOR Terms of Reference – the document setting out the broad rules and processes that


Term Explanation

FOS follows


Contact us

Website www.fos.org.auPhone 1800 367 287 (1800 FOS AUS) 9am to 5pm Monday to FridayEmail [email protected] GPO Box 3 Melbourne VIC 3001

© Financial Ombudsman Service Limited 2016ABN 67 131 124 448Published September 2016

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