RAMSAY REVIEW UPDATE
The Ramsay Review, established by the Federal Government in April 2016 and chaired by Professor Ian Ramsay to review the financial system’s external dispute resolution (EDR) and complaints framework, released a supplementary issues paper on 31 May 2017. The paper addresses two significant matters which were added to its terms of reference after the release of the Carnell Report in December 2016. After considering submissions, the Ramsay Review will deliver a further report which is likely to have important ramifications for the financial system.
The inquiry which was conducted by the Australian Small Business and Family Enterprise Ombudsman, Ms Kate Carnell AO, into small business loans made 15 recommendations. These included recommendations that the banking industry fund an EDR “one-stop-shop”, that it include a dedicated small business unit to resolve disputes relating to credit facilities up to $5 million and that EDR schemes be expanded to include disputes with third parties appointed by banks, including valuers, investigative accountants and receivers.
Following the delivery of the Carnell Report, the Federal Government expanded the Ramsay Review’s terms of reference in February 2017 to require it to make recommendations on the merits and potential design of a last resort compensation scheme and to consider the merits and issues involved in providing access to redress for past disputes.
The Ramsay Review has already delivered a report dealing with the matters raised by its original terms of reference and the recommendations made in that report have been accepted by the Federal Government. The centre piece of the report is a recommendation that a single, industry-funded EDR body be established, with equal numbers of directors from industry and consumer backgrounds, for all financial disputes. The recommendations also proposed that the new body should commence operations with a monetary limit of $1 million and a compensation cap of at least $500,000 for disputes involving consumers and that, for credit facility disputes, small businesses should be able to make a claim where the facility is for not more than $5 million. The report also recommended that there should be no monetary limits in relation to a dispute about whether a guarantee should be set aside where it is supported by a mortgage over the guarantor’s primary place of residence.
The supplementary issues paper released by the Ramsay Review on 31 May 2017 notes that many of the submissions received in response to its earlier issues paper supported the establishment of a compensation scheme of last resort to ensure that consumers who suffer loss from misconduct are compensated and to build trust and confidence in EDR arrangements and in the financial services sector more generally.
The supplementary issues paper identifies several matters which would need to be addressed in designing a compensation scheme of last resort including:
- Whether it would be entirely industry funded;
- Whether it would be entitled to review EDR determinations;
- Whether it would include unsatisfied court judgments;
- What compensation caps should apply; and
- How it would interact with other schemes.
In relation to the possibility of providing redress for past disputes, the supplementary issues paper notes several complex issues which need to be addressed. These include:
- The need to specify the range of consumers and small businesses that would be eligible to seek redress;
- The monetary limits that should apply;
- Whether there should be any limit on the age of the disputes that could be considered;
- Whether claims would need to be brought within a designated “application window”;
- Who would determine which claims would be met;
- What criteria would apply in making determinations; and
- What funding arrangements should apply.
The closing date for submissions is 28 June 2017 and a further report will be delivered in the second half of 2017.
This article was written by Greg Lewis, Partner.