ASIC wins the EDR debate but at whose cost?

Mike Taylor writes that the Australian Securities and Investments Commission was fundamental to the changes being wrought on the financial services external dispute resolution regime but not everyone is happy.

Anyone observing last month’s Senate Estimates proceedings will have noted that the Australian Securities and Investments Commission (ASIC) was more than satisfied with the Ramsay Committee’s decision to amalgamate the financial services external dispute resolution (EDR) regime into a single body.

But what that observer might not have recognised is that ASIC had been a factor in the consolidation of the EDR regime well before the Government convened the Ramsay review. That is because, owed to legislative convenience, ASIC was fundamental to the flow of budget funding to the Superannuation Complaints Tribunal (SCT).

And it is worth noting that over much of the past half-decade, many superannuation fund executives and some members of the SCT itself have complained about under-funding sitting as the root cause of the body having failed to keep pace with its workload.

The issues around the SCT’s workload and its funding manifested themselves over a period of years, but appeared to become more concentrated during the tenure of current ASIC chair, Greg Medcraft.

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The complaints about SCT funding and its impact on workload were clearly not missed by Federal Opposition spokesperson on financial services, Senator Katy Gallagher, who used last month’s Estimates process to define the degree to which the tribunal has been dependent on ASIC.

Asked to explain the manner in which funding was provided to the tribunal, its current chair, Helen Davis made clear that unless there was specific budget funding, it was derived from the so-called Australian Prudential Regulation Authority (APRA) levy and then provided via ASIC.

“When you look at the APRA levy, you will see resourcing to all of ASIC, of which a portion relates to the SCT,” she said in answer to a question from Gallagher. “That is not separately shown. In terms of our budget for last year, we disclosed in our annual report our expenditure. It was $5.2 million last year and we are currently working on what that is looking like for the forward year.”
Senator Gallagher asked: “So you have roughly a $5 million budget. When you are negotiating your budget do you do that through ASIC or directly with the government?”

Davis replied: “I guess we do not negotiate our budget. ASIC has the obligation to provide the resourcing. Practically how that works is that we have discussions. Indicatively for next year ASIC has advised a budget of $5.1 million. We are still working with that, particularly in the context of the Ramsay review and whether there is a hard project deadline of resolving all open complaints by 2020. We are currently undergoing work to model what resourcing it would require to achieve that”.

In other words, a body which is fundamental to the functioning of Australia’s $3 trillion superannuation system and was established by Commonwealth statute – the Superannuation (Resolution of Complaints) Act 1993 has been mendicant to ASIC for its funding and staffing.

It therefore seems little wonder that the majority of submissions to the Ramsay review process from superannuation funds as well as bodies such as the Association of Superannuation Funds of Australia (ASFA) and the Australian Institute of Superannuation Trustees (AIST) urged its retention in its present form.

But where the superannuation funds are clearly unhappy with the SCT being folded into a single ombudsman body, the senior officers of ASIC seem to have no such qualms, telling Senate estimates they were happy with the outcome.

ASIC deputy chair, Peter Kell told the committee process that the regulator had been an active participant in the Ramsay review which had ultimately recommended the bringing together of the schemes.

“…and we ourselves thought that was the right direction to go in,” he said.

“We had dealings with Treasury during that time, in part because we have a particular role to play when it comes to external dispute resolution schemes. It is a licence condition that, if you are a participant in the finance sector, you have to belong to a scheme that is approved by ASIC against standards that we publicly issue through our regulatory guide. So, yes, we certainly had discussions with Treasury during the Ramsay process, and we helped provide information to Ramsay.”

“Ramsay recognised that there are some elements to the way that the SCT operates that will be important to look at for how they can be maintained. They are things like the ability to join third parties to disputes, which is particularly important in insurance disputes, and the unlimited jurisdiction in monetary terms, which is particularly important in a field such as super. One of the questions will be: you do not want to lose those elements necessarily going forward; how do you best maintain them under a new scheme?”

ASIC, it seems, has substantially won the EDR debate. Some superannuation fund executives are asking who will be the ultimate losers.