2020–21 Annual Review

Code compliance and monitoring

Between 1 July 2020 and 30 June 2021

The Code Compliance and Monitoring Team (Code Team) is a separately operated and funded business unit of AFCA. It works on behalf of independent committees that monitor compliance with industry codes of practice in the Australian financial services industry. Its services are funded by the industry associations and subscribers of the codes. The Code Team provides code compliance monitoring, investigation and secretariat services to five committees and helps code subscribing financial firms improve their services and achieve standards customers can trust.

Codes of practice

Codes of practice set standards of good industry practice for financial firms 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.

The Code Team administers and monitors compliance with five industry codes of practice:

  1. Banking Code of Practice
  2. General Insurance Code of Practice
  3. Customer Owned Banking Code of Practice
  4. Insurance Brokers Code of Practice
  5. Life Insurance Code of Practice

 

Through its work for the committees, as a separate business unit of AFCA, one of the objectives of the Code Team is to work with code subscribing financial firms to ensure they comply with their code obligations, thereby raising industry standards, minimising complaints and improving positive consumer outcomes.

Code compliance committees

Monitoring of the five industry codes is conducted by five separate independent code compliance committees, each of which consists of an independent Chair, a consumer representative and an industry representative.

The code compliance committees are independent of the industries that are responsible for each code and have the power to identify and address breaches of code obligations.

Sharing experience with stakeholders

In 2020–21, the Code Team continued to engage with stakeholders to help improve industry practice, including by:

  • providing submissions to code reviews and other initiatives and reforms in the industry
  • sharing outcomes of code committees’ enquiries
  • providing guidance to code subscribers about good industry practice
  • participating or presenting at industry forums and conferences.
Banking Code Compliance Committee

The Banking Code Compliance Committee (BCCC) published two reports on banks’ compliance with the Banking Code. One was for the 2019–20 reporting period, and the other detailed banks’ compliance with the Code for the first six months of the 2020–21 reporting year.

The reports summarise banks’ self-reported breach data and, while the BCCC has commended banks for their efforts to improve the identification of non-compliance, it has encouraged banks to make sure they use the insights from their breach data to prevent compliance incidents from happening in the first place.

The BCCC concluded 2020–21 by publishing the report of an inquiry into banks’ compliance with the Banking Code’s guarantee obligations. The BCCC’s report highlighted its concerns about failures to consistently provide full disclosure of key information to guarantors. This was a finding supported by the outcomes of performance audits conducted by a sub-set of banks, which is a new requirement for a BCCC Inquiry. The BCCC was equally concerned that the audits found numerous instances where banks could not demonstrate compliance. Overall, the inquiry found that while banks had adequate written policies and processes to comply, banks:

  • lacked effective record-management practices
  • conducted inadequate or ineffective monitoring of compliance controls
  • dealt with non-compliant guarantees on a case-by-case basis and too heavily relied on legal advice when considering whether to enforce a non-compliant guarantee
  • lacked guarantee-related data capability.

In addition to industry-wide inquiries, the BCCC also conducts targeted inquiries and investigations. As an outcome of one such inquiry, the BCCC found that a bank breached its obligation related to fair and reasonable conduct, and timely, clear and useful communication. The BCCC found these breaches to be both serious and systemic and applied a sanction to publicly name the bank.

In response to concerns that too often banks identify ‘human error’ as the cause of code breaches without establishing, recording or acting on the ‘root cause’ of the problem, in February 2021, the BCCC published a report about how they should build organisational capability to improve compliance with the Banking Code. Banks can achieve better and more consistent outcomes for customers by developing an integrated approach to code compliance. The BCCC made better practice recommendations focused on five key capability areas:

  1. Communication strategy
  2. Learning and development
  3. Systems, processes and technology
  4. Culture
  5. Enhancing capability through robust compliance frameworks.

 

The BCCC highlighted that an impactful communication strategy, effective learning and development, and designing all systems, processes and technology with the needs of customers and employees at their centre are all inevitably underpinned by an organisation’s culture and a mindset of continuous improvement and delivering good customer outcomes.

The BCCC’s other activities conducted throughout 2020–21 included an inquiry into how banks comply with vulnerability, inclusivity and accessibility obligations, and a mystery shopping exercise examining banks’ compliance with the code requirement to cancel direct debits on request.

Further information about the BCCC, including news and reports, is available on its website bankingcode.org.au.

Life Code Compliance Committee

The Life Code Compliance Committee (Life CCC) published a number of documents in 2020–21. These included 68 determinations, one case study, one Guidance Note on section 6.5 of the Life Code, the Life CCC’s inaugural Own Motion Inquiry (OMI) on section 3.2, and the Life CCC’s 2019–20 Annual Industry Data and Compliance Report.

The Life CCC’s Annual Industry Data and Compliance Report was based on quantitative data collected from 25 code subscribers who each completed a detailed data workbook that was developed in consultation with stakeholders. The Life CCC was pleased to see subscribers apply far more rigour to the data collection and quality assurance processes than was the case in 2018–19.

The Life CCC also continued to provide guidance to subscribers to help improve the quality and consistency of their compliance reporting. This involved meeting with, and talking to, subscribers about their obligations under the code, including engaging directly with the Boards and senior executives of some subscribers.

During the year, the Life CCC completed its first OMI on section 3.2 of the Life Code, which requires subscribers to review the medical definitions of all on-sale policies at least every three years. The data provided by subscribers revealed a reported 100% compliance rate, and all subscribers confirmed that they had the appropriate compliance frameworks in place to ensure ongoing compliance with section 3.2.

The Life CCC also embarked on its second OMI relating to section 6.3 of the Life Code, covering the obligation for subscribers to issue consumers with an annual notice in writing, prior to the anniversary of the policy. The report for the section 6.3 OMI is slated to be published in late 2021.

Investigating code breach allegation referrals and assessing self-reported breaches remained a priority for the Life CCC throughout the year. Sixty-eight de-identified determinations and one case study were published to assist subscribers’ understanding of compliance issues. Determinations and case studies are published on the Life CCC’s website. Further information about the Life CCC, including news and reports, is available on its website lifeccc.org.au.

Customer Owned Banking Code Compliance Committee

The Customer Owned Banking Code Compliance Committee (COBCCC) conducted 11 investigations and initiated two OMIs. One was investigating the use of consumer credit insurance, and the other was providing learnings from the previous year’s Annual Compliance Statement (ACS) Verification Program. The COBCCC also published two Insight articles providing further guidance to code subscribers.

The OMI, which followed on from a 2019 OMI into the sale of consumer credit insurance (CCI), established that code subscribers have largely stopped selling CCI. It found that most continued to manage loans with these policies attached. This inquiry investigated how subscribers dealt with customers in this situation and offered guidance on ensuring best practice when managing third party supply of CCI.

Throughout the year, the COBCCC continued to collect and analyse code subscribers’ self-reported breach and complaints data received via the 2019–20 ACS, and ran a webinar to assist code subscribers to effectively complete the materials required. Video conferences were also conducted with 25 code subscribers as part of the ACS Verification Program and findings were published in the Annual Data Verification Report 2019–20.

Individualised Benchmark Reports were provided to all subscribers and presented high-level comparative trends that enabled code subscribers to review their compliance outcomes against industry and sector performance.

The COBCCC continued to engage with the Customer Owned Banking Association (COBA) to discuss the review of the code, as well as meeting with other key stakeholders, including ASIC and AFCA, in relation to customer owned banking issues.

The COBCCC also increased its engagement with individual code subscribers significantly, conducting video and/or telephone discussions with virtually every subscriber. Through its engagement, the COBCCC was proactive in addressing recommendations that arose out of the Royal Commission and the Code review, with a focus on adding value to the code and better communicating with its intended beneficiaries.

In line with its purpose, the COBCCC will continue to monitor code compliance, identify systemic industry-wide issues and promote good industry practice.

Further information about COBCCC, including news and reports, is available on its website cobccc.org.au.

Insurance Brokers Code Compliance Committee

The Insurance Brokers Code Compliance Committee (IBCCC) conducted eight individual investigations and produced two OMI reports. One OMI dealt with the provision by code subscribers regarding add-on insurance products, and the other OMI examined how premium funding contracts are used and explained to consumers, particularly in the context of financial hardship.

Underpinning the year’s activities was the IBCCC’s commitment to encouraging cultural and behavioural change in the industry for the benefit of insurance brokers, consumers and the wider community.

The IBCCC engaged a behavioural scientist to review two years of self-reported code breach data to reveal behaviours that informed both good and poor practices. The report included useful insights into culture-based issues that affect behaviour. These findings will help shape the IBCCC’s focus over the coming year as it works to identify best practices, and then embed these in changes in culture throughout the industry.

The IBCCC maintained a robust monitoring of compliance with the code, which included collecting breach and complaints data in the Annual Compliance Statement (ACS). Other compliance and monitoring activities included providing a webinar to support ACS completion, conducting video conferences with 10% of all subscribers to discuss their data, and providing individualised benchmark reports to all subscribers.

The IBCCC met with both the National Insurance Brokers Association (NIBA) and the code reviewer on a number of occasions to discuss the code review process and discussion papers, and provide three formal submissions. In particular, the IBCCC noted that more emphasis must be placed on outcomes, behaviour and culture, if codes are to achieve their objectives.

The IBCCC regularly met with other key stakeholders, including ASIC and AFCA, in relation to insurance and insurance-broking issues.

The IBCCC will continue to support code subscribers to identify and implement best practice behaviour that delivers positive client outcomes.

Further information about IBCCC, including news and reports, is available on its website insurancebrokerscode.com.au.

General Insurance Code Governance Committee

The General Insurance Code Governance Committee (GICGC) released two significant publications during 2019–20, as well as continuing work on the phased transition to the 2020 General Insurance Code of Practice. In March 2021, the GICGC published its annual report ‘Annual Industry Data and Compliance Report 2019–20’. The report presented an overview of trends and service standards in the general insurance industry in 2019–20, and included focus on travel insurance. The GICGC published a further report in March 2021 ‘Assessment of Compliance with new provision on family violence policy’.

The report assessed how code subscribers had implemented the first of the obligations under the 2020 code to come into effect. The GICGC has commenced a review of compliance with the next provisions that came into effect on 1 January 2021, Parts 9 (Supporting customers experiencing vulnerability) and 10 (Financial hardship). The GICGC also completed a second phase of consultation on expanded data sets for the annual data collection, and these have now been included in the 2020–21 data collection.

The 2020 General Insurance Code of Practice was formally released by the Insurance Council of Australia (ICA) at the beginning of 2020. Following its release, the GICGC commenced its program of work for transition to the new code, focusing on the key areas of governance, operations and subscriber transition. While the ICA deferred the adoption of the majority of the 2020 code by six months to 1 July 2021, due to the impact of COVID, it brought forward by six months to 1 July 2020, key consumer provisions in Parts 9 (Supporting customers experiencing vulnerability) and 10 (Financial hardship) of the new code.

As the general insurance industry adapted to new ways of working, due to the COVID-19 pandemic, the GICGC engaged with individual code subscribers, as well as with ICA, to discuss the impact of COVID on insurers’ operations, the GICGC’s publications, transition to the 2020 code, and insurers’ responses to catastrophes such as the bushfires and extreme weather events. Further information about the GICGC, including news and reports, is available on the GICGC website insurancecode.org.au.

Compliance investigations

An important role of all committees is to investigate alleged breaches of the codes they monitor. The Code Team, on behalf of the committees, commences investigations in response to referrals of alleged code breaches by consumers, their representatives or AFCA, or in response to external intelligence such as ASIC media releases.

The Code Team also investigates self-reported breaches by code subscribers. During the 2020–21 reporting year, the Code team opened 450 compliance investigations and closed 491 compliance investigations, some of which were opened in the previous reporting year.

These compliance investigations also include investigations of self-reported breaches by subscribers. The Code Team received a sustained high number of self-reported breaches, continuing the trend of a significant increase in the number of self-reported breaches since the 2018 Financial Services Royal Commission.

For example, in relation to the General Insurance Code of Practice, there were 57 significant breach reports from subscribers, compared to 63 the previous year. In relation to the Life Insurance Code of Practice, the Code Team opened 20 investigations in response to self-reported breaches by subscribers this year, compared to 21 self-reported breach matters the previous year.

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