The FEMAG review expressed a view Compliance Monitors should be more proactive rather than reactive in making themselves available and accessible to stakeholders. To emphasise this, its report stated only a few stakeholders had any interaction with the Compliance Monitors and this interaction has been quite limited. Its October 2005 report provided recommendations for improved practices by Compliance Monitors, to:
- circulate quarterly email with updates to stakeholders and conduct forums regularly, and
- expand their stakeholder base to include COSBOA, Small Business Coalition and State / Territory Small Business Commissioners, and
- inform ASIC, ACCC and State and Territory Fair Trading and consumer protection agencies on compliance issues in conjunction with email updates.
These recommendations are supported by the few complaints by customers referred to the Compliance Monitors in 200405. This demonstrates that, at this early stage, there was a need for the Compliance Monitors to improve accessibility and transparency to their publics and stakeholders.
FEMAG stated the public profile of the Compliance Monitors thus far is quite low, and a banking representative commented the lack of a public profile by Compliance Monitors limits their effectiveness.’
Effectiveness of Monitors compliance monitoring
The Compliance Monitors are required to publish an annual survey, which they started publishing in June 2004. This was a two-part process largely based on the UK Banking code Standards Board’s standards.
The review commented that the Compliance Monitors survey could be improved by including more meaningful information such as how many complaints were referred to the FOS, how many involved possible Code breaches and how many actual breaches were found. When assessing the effectiveness of the Compliance Monitors monitoring activities and techniques, FEMAG stated there is a need for:
benchmarks and key performance indicators (KPIs) against which the KPIs should be measured. These KPIs need to be developed from objectives. In paragraph 8 of its report, FEMAG makes suggestions on objectives the Monitors might adopt.
Monitoring by Compliance Monitors to date has been done by two means: an annual compliance statement that completed by the banks and the handling of complaints lodged with the Code Compliance Monitoring Committee.
FEMAG recommended KPIs, to:
provide independent and objective verification of compliance with the Code, and
ensure banks implement controls for compliance and for KPIs, and
provide the public with a degree of confidence the self regulatory scheme is working.
The recommendations should have been implemented when the Compliance Monitors were appointed. Any framework that relies on self regulation can potentially lack direction and enforceability without clear objectives being established. Regular reporting of the Compliance Monitors performance against KPIs to their publics and to stakeholders and regulatory bodies such as ASIC, ACCC and Fair Trade agencies is needed to ensure self regulation is working and is independent, transparent and fair, and not controlled or constrained by a few vested interests.
Key Issues Side-lined
Banks play an important part in the economic well being of Australians and whilst they are subject to a number of legislative requirements, the Code presented an opportunity for banks to demonstrate their commitment to self regulation in their relationship with customers.
In addition to the above issues raised in the FEMAG report, it identified key issues that went beyond the scope of the review. This is unfortunate, given the issues raised were relevant to the task at hand. Possibly FEMAG did not have financial resources to pursue its inquiry to significant depths or that it was constrained in terms of access to materials that might have assisted its review.
Restrictions on Investigative Powers
The FEMAG report states there is an overlap in the roles of the Compliance Monitors and the FOS and therefore continuing cooperation is necessary. FEMAG noted the lack of public profile limits Compliance Monitors effectiveness however they should not seek to achieve a similar profile to that achieved by the FOS.
In commenting on the difference in profile, FEMAG commented that:
as far as the Compliance Monitors are concerned, provided that when a person obtains information about the FOS from its website or otherwise, they can readily access effective information allowing them to decide whether they should raise a matter with the Code Compliance Monitoring Committee.
It may be appropriate for the FOS to encourage a consumer who makes a complaint to consider whether it might involve a breach of the Code and if so to make a simultaneous complaint to Code Compliance Monitors. It is not possible under the current arrangements for the FOS to refer the matter to the Compliance Monitors because of the privacy rights of a FOS complainant, without first obtaining consent from the complainant.
According to FEMAG, the Compliance Monitors investigative powers are set out in the Code. However, in their report it was not suggested these investigative powers were inadequate due to restrictions imposed by the bank CEOs constitution. It seems the FEMAG review avoided drawing adverse conclusions by distinguishing between evidence of factual non-implementation of high principles of the Code and evidence of structural flaws that may give rise to future failures.
The review did acknowledge however, there were instances when Compliance Monitors may be constrained from performing their duties due to provisions in the bank CEOs constitution. As discussed earlier, clause 34 of the Code makes clear stakeholders have a right to believe Monitors have powers to investigate all complaints other than those resolved to the satisfaction of customers.
This statement appears to give wide berth to categories of complaints Compliance Monitors can investigate. Yet, according to the review, paragraph 8.1(b) of the bank CEOs constitution restricts Monitors investigating complaints where it is or may be determined in another forum.
FEMAG reports that in the bank CEOs constitution, the term FORUM was defined widely as being any court, tribunal, arbitrator, mediator, independent conciliation body, complaint/ dispute resolution body, complaint/ dispute resolution scheme or Ombudsman in any jurisdiction.
This paragraph provides banks an optout provision detracting from high principles banks introduced in response to the Martin Committee’s recommendations. These principles were recommendations when the banks published the first Code in 1996.
While the report noted the optout provision competes with paragraph 34(i) of the Code, it raises potential limitations for action by Compliance Monitors where there may be serious or systemic noncompliance. The report noted in some instances the Monitors may be better able to take action to deal with systemic matters than either the FOS or ASIC.’
Prior to the Martin report and publication of the first Code in 1996, banks used their significant resources to abuse courts and dispose of customer complaints, covering up misconduct and adversely affecting individuals and small businesses. The Martin report dealt with this in depth because they believed rogue banks with access to vast resources misuse courts when dealing with complaints when individuals and small businesses could often not defend actions or seek redress if banks sought to conceal serious breaches.
When adopting the 11 May 2004 Code and remaining silent on the bank CEOs constitution, published three months earlier, banks appear to have successfully effected a coup d’état on an already feeble self regulatory system. As the optout provision excludes investigatory powers by the Compliance Monitors, as the alternate FORUM has jurisdiction, paragraph 8.1(b) of the bank CEOs constitution allows banks to transfer dubious concerns to courts or another FORUM, where they enjoy an unmatched advantage, rather than having Code Monitors investigating them.
Restrictions on Resources
Whilst the above matters confounded Compliance Monitors three years later when they reported their views to Jan McClelland’s review, in its 2005 report, FEMAG stated Compliance Monitors required additional resources if their full potential was to be realised. FEMAG was concerned the Monitors might not have sufficient resources to successfully discharge their functions set out in the Code, and state the Compliance Monitors:
were obliged to deal with a number of allegations of breaches of the Code very early in their life and these required commitment of a substantial proportion of their limited resources in order to inform themselves of issues in compliance and to develop procedures for real experience. In the Code, the function of monitoring compliance is paragraph 34 (b)(i) for investigation and determination of Code breach allegations in paragraph 34(b)(ii).
The FEMAG Report reinforces the notion Compliance Monitors are reliant on funding obtained from banks to carry out their two main functions of compliance monitoring and investigating and making determinations on customer complaints in relation to Code practices.
In setting out its report, FEMAG noted that:
case management was very good, but the lack of resources available to the Compliance Monitors in this area was a matter of concern as additional resources were needed to ensure a continuing capacity to manage cases and to obtain the greatest benefit from their results in terms of code compliance in general. And Compliance Monitors might require additional funding to fund activities aimed at increasing the effectiveness of the Compliance Monitors and, through this, its credibility which requires increased resources and further commitment from the signatory banks.
We consider the Compliance Monitors need personnel to undertake strategic thinking, business planning and drafting budgets, liaison with banks and other stakeholders at a senior level, writing bulletins and high level policy papers and drafting determinations; managing general monitoring activities; and managing cases of Code breach allegations; special inquiries and office administration.
ASIC, ACCC and State and Territory Fair Trading
FEMAG stated that:
ASIC is naturally aware of Compliance Monitors operations, but submissions from State and Territory Fair Trading and consumer protection agencies tells us they are lacking information about the Monitors, their role and activities. This is of some concern since they are responsible for administration of credit regulation.
[FEMAG] believe ASIC, ACCC, State and Territory Fair Trading and consumer protection agencies should be informed on the Code issues and receive email bulletins and dedicated quarterly reports even if these are to advise there are no significant compliance issues current, and that they be invited to the recommended forums.
FEMAG notes clause 13.3 of the constitution:
empowers Chairs of the association and FOS to jointly determine the budget of Compliance Monitors. This could be seen as potentially allowing banks to limit their resources and thus the effectiveness of the Monitors although the Code obliges banks to ensure the Monitors have sufficient resources to carry out their functions satisfactorily and efficiently. To improve resource control and to give greater confidence adequate resources are being provided, a more defined and accountable planning and budget process could be valuable.
Regardless of whether Compliance Monitors vulnerability has been exploited, this admission indicates these dynamics may come into play, and are largely invisible.