22 FEB 2017 | CIO Ombudsman Raj Venga’s Opening Statement to the Parliamentary Joint Committee on Corporations and Financial Services



Thank you for the invitation to address this Committee. 


  1. The Credit and Investments Ombudsman (CIO) has more than 23,000 members, about 95% of whom are sole traders and small businesses; in other words, they represent the smaller end of town. CIO operates predominantly in the credit sector.  Its membership comprises non-bank lenders, mortgage brokers, debt purchasers, credit reporting bureaus, time-share operators and small amount lenders, among others.
     
  2. CIO does not have any life insurers as its members. All life insurers and banks are members of FOS. So my contribution to the Committee’s inquiry will therefore be limited.
     
  3. However, CIO has a keen interest in any debate about the future of the two ASIC-approved dispute resolution schemes in the finance sector – CIO and FOS.
     
  4. As the Committee will be aware, the government has commissioned a review, led by Professor Ian Ramsay, to see if any changes need to be made to the dispute resolution architecture in financial services.
     
  5. Professor Ramsay’s draft recommendation is for there to be a single non-statutory ombudsman scheme to replace CIO and FOS - the so-called small ‘t’ tribunal.
     
  6. We think this is, frankly, nothing more than whitewash.  It’s a politically expedient solution that fixes nothing.
     
  7. Professor Ramsay’s interim report does not even offer a glimpse of how his single non-statutory ombudsman scheme will deal with life insurance and bank scandals which have caused public outrage, invited the scrutiny of numerous parliamentary inquiries, prompted calls for a Royal Commission, and spurred the Government to commission the Ramsay review in the first place.
     
  8. The fact is a single non-statutory ombudsman scheme will not be able to prevent or address any of the life insurance or banking scandals we’ve seen in the past.  Nor will it have the necessary powers to deal with small business claims against insurers and banks.
     
  9. This is because, like CIO and FOS, the single non-statutory ombudsman scheme will not be able to subpoena a third party to attend as a witness or produce documents; it will not be able to join third parties, cross-examine witnesses, take evidence on oath, investigate criminal fraud or impose penalties.  Only a court or statutory tribunal can do this.
     
  10. For the same reason, in the context of small business loans and guarantees, the single ombudsman scheme will not be able to bind valuers, investigative accountants and receivers to its decisions, nor will it be able to enforce any decision against them. 
     
  11. Any investigation a single non-statutory ombudsman scheme may conduct in relation to life insurance systemic issues will necessarily fall short of exposing and fixing entrenched poor cultures.
     
  12. We’ve asked Professor Ramsay how his proposed single ombudsman scheme, even with increased monetary limits, would deal with life insurance and banking scandals any differently from the way FOS does. 
     
  13. This is particularly relevant because FOS has indicated that the FOS model, culture and approach should be maintained in the new ombudsman scheme. 
     
  14. It is painfully ironic that the life insurers and major banks will be the big winners of the Ramsay review – a review specifically commissioned in view of the scandals attributed to them. They know the review is a diversion to avoid a Royal Commission.
     
  15. The life insurers and banks, who are members of FOS, will benefit from a single ombudsman scheme because their ombudsman costs will be subsidised by the influx of more than 23,000 smaller financial firms (who are presently members of CIO) being forced to join a single scheme.
     
  16. Smaller and more innovative financial firms, including fintech disrupters, operating on thinner margins and not having the benefits of scale and incumbency, will be least able to absorb or pass on any increased cost that may result from an inefficient single scheme monopoly.
     
  17. The major banks, invariably the largest generators of complaints, also benefit from a single scheme because the scheme will tailor its processes to deal with their large volume of complaints, at the expense of smaller financial firms.
     
  18. And it should come as no surprise that the peak industry bodies for life insurers and banks – the Financial Services Council and the Australian Bankers’ Association - are the strongest supporters of a single ombudsman scheme that none of their competitors support.  No prizes for guessing why.
     
  19. And all this at a time when the independent reviewer, Stephen Sedgwick, in his recent issues paper for the ABA into commissions and payments made to bank staff and third parties, noted that some banks still believed that "significant change is not required."
     
  20. If this attitude and arrogance is not something that goes to the culture of an organisation, I don’t know what does.
     
  21. Can I end by assuring the Committee that CIO and FOS are fit for purpose (although there is always room for improvement).
     
  22. CIO and FOS were designed to deal with Mum and Dad complaints, as well as straight-forward small business disputes.  That they do this very well has been acknowledged by consumer advocates, independent reviews conducted in relation to each scheme, and Professor Ramsay’s own interim report.
     
  23. CIO and FOS were never intended, nor are they equipped, to expose bad behaviour by assigning and publicising moral culpability to, or imposing penalties on, financial firms.  That is beyond their remit, as it will be beyond the remit of a single non-statutory ombudsman scheme. Only a commission of inquiry will achieve this.

Thank you for your time.  I’m happy to take any questions.