Credit Union and Mutual Law Blog

December 5, 2012

Mutual Banking Code Annual Report 2011-12

The Code Compliance Committee of the Mutual Banking Code of Practice has released its 2011-2012 Annual Report.

Most individual code breaches reported in 2011- 2012 related to the following five categories, representing 66% of the total number of reported breaches:

‘Privacy and confidentiality’ (96 breaches or 26%);

‘Key Commitments’ (42 breaches or 12%);

‘Dispute resolution’ (42 breaches or 12%);

‘Direct Debits’ (28 breaches or 8%);

‘Training (28 breaches or 8%)

According to the CCC, “breaches associated with privacy and confidentiality matters appear to be associated with human, system and administration errors. They do not appear to be systemic, nor significant, in nature. …

Some of the breaches of the Code self reported by Mutuals concerning privacy obligations include:

staff issuing a receipt with account details (including account balance) to a person not associated
with the account;
a credit account enquiry completed for a loan when no signed consent form or evidence of verbal
consent was noted;
a member was not adequately indentified when using the the call centre for an account enquiry.”

Mutuals reported that they handled 10,401 complaints from members through their internal dispute resolution systems, 64% of which were resolved in favour of the member or by mutual agreement: 84% of these complaints were related to service provision (32%), transactions (32%), ATM failure (10%) and charges (9%).

Mutuals received 2,137 hardship applications from members of which 1,683 or 79% were granted some assistance. Of these granted applications, 419 or 20% were resolved by the provision of long term relief.

It’s worth comparing those statistics for mutuals with the statistics for banks in 2011-12 Annual Report of the Code Compliance Monitoring Committee of the Code of Banking Practice.

Banks also reported significantly increased breach numbers in the areas of Privacy and Confidentiality, Debt Collection and Financial Difficulty.

Overall, the banks reported 206,472 formal requests made for financial difficulty assistance during the reporting period of which 149,484 (69%) resulted in some type of formal assistance being granted. The CCMC has identified that some banks record only hardship applications seeking a variation to the credit contract (as defined under the National Consumer Credit Protection Act (2009) – the NCCP Act). Other banks additionally record requests for a short term suspension of payments as a request for assistance, even if the customer is not in arrears.

Banks also reported breaches created by technology breakdowns or programming issues: the CCMC observed that “the number of significant code breaches related to technology demonstrates that issues in this area can affect large numbers of people and result in significant resources being devoted to remediate the issues”.

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Posted 5th December 2012 by David Jacobson in Legal, Mutuals

November 29, 2012

National Co-operative Laws Regulations

Following the passage by the NSW Parliament of the Co-operatives (Adoption of National Law) Act 2012, NSW Fair Trading has released the draft Co-operatives National Regulations for comment.

The Co-operatives National Regulations contain the uniform matters for regulation across all states and territories, including the different financial reporting requirements for small co-operatives.

Background

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Posted 29th November 2012 by David Jacobson in Legal, Mutuals

November 16, 2012

Financial Claims Scheme preparation

APRA has published a discussion paper and draft changes to APS 910 Financial Claims Scheme setting out proposals that ADIs be required to implement the systems needed to ensure that they can:
• generate and transmit payment instructions to a paying agent appointed by APRA;
• generate and disseminate APRA reports to account-holders and other parties in respect of FCS payments;
• facilitate communications with stakeholders; and
• comply with testing, audit and CEO attestation requirements.

Under transition arrangements in APS 910, ADIs are required to comply with the Single Customer View (SCV) requirements by 1 January 2014. ADIs with difficulties in meeting the requirements by that date may seek APRA approval for an extended transition period of up to a further two years.

Under the amended APS 910, it is proposed that ADIs will be required to implement the prepositioning requirements for payment instructions, reporting and communications by 1 July 2014. This proposed timing is based on an assumption, at this stage, that the finalised version of the amended standard will be issued by 1 July 2013. An extended transition period to meet these requirements, up to 1 January 2016, may be approved by APRA on a case-by-case basis.

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Posted 16th November 2012 by David Jacobson in Risk management

October 22, 2012

Breach and complaint registers

In its October 2012 newsletter the Code Compliance Committee for the Mutual Banking Code of Practice commented on the diversity and quality of breach and complaint registers used across Code subscribers. The Committee commented that there appears to be no common industry practice or guidance in place about the importance of accurate and meaningful capture of breach and compliance data.

Recording and monitoring complaints and breaches is a critical part of any compliance framework.

The complaints handling process of Code subscribers must comply with clause 28 of the Code of Practice. The Australian Standard on Compliance Programs (AS 3806-2006) is a useful benchmark.

Recognising a complaint is an important training issue. These may be received at branches, by letter, by email, by feedback from your website or in call centres. However they are received they must be recorded to ensure the required response time deadlines are met.

Whether complaints and breaches are recorded in hard copy registers, in excel spreadsheets or in databases does not matter as long as the system is able to track when complaints are lodged, the nature of the complaint, when they are responded to and when they are resolved. The records must be accessible, be maintained and be monitored.

It’s what you do with the complaints you receive that is important. You have to tell your customers how their complaint will be dealt with (and when) as well as the ultimate resolution and keep them informed along the way. And complaints should be analysed internally to assess whether they are an indicator of a widespread problem, poor customer service or a potential breach of a law or Code.

Unresolved complaints become disputes which must be separately recorded and monitored, particularly if they are referred to External Dispute Resolution.

If complaints or disputes involve compliance issues there must be a process to assess them and what has been done to fix them.

You need to establish the appropriate links between your IDR procedures and your EDR Scheme (see ASIC RG 165)

If they are substantial breaches of an AFS Licence they need to be reported to ASIC within 10 business days.

Accordingly your compliance system needs to include reporting regularly to your Risk and Audit Committee on whether there have been any complaints, breaches or disputes and whether previous matters have been resolved or not.

This must be positive reporting: even if there has been no complaint, breach or dispute you must report that fact if that is the case.

Langes can help review your complaints process.

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Posted 22nd October 2012 by David Jacobson in Mutuals, Risk management

September 28, 2012

APRA Internal Capital Adequacy Assessment Process review for ADI’s

APRA has released for consultation draft Prudential Practice Guide CPG 110 Internal Capital Adequacy Assessment Process and supervisory review (CPG 110).

The Guide is part of APRA’s increasing emphasis on capital risk management as Basel III approaches commencement on 1 January 2013. (see here)

UPDATE 1 October: APRA has released a final set of prudential standards and reporting standards that give effect to major elements of the Basel III capital reforms in Australia.

The Guide supports compliance with Prudential Standard APS 110 Capital Adequacy (APS 110) which sets out requirements in relation to the capital adequacy of a regulated institution, including the need for a regulated institution to have an Internal Capital Adequacy Assessment Process (ICAAP), and establish a framework for supervisory review and adjustment of a regulated institution’s capital requirements.

Under the capital standards, the Board of a regulated institution has primary responsibility for the capital management of that institution. This obligation goes beyond the need to ensure compliance with regulatory capital requirements and requires the Board to ensure that each regulated institution holds capital resources commensurate with its risk profile.

Consistent with that overarching responsibility, the capital standards require each regulated institution to have an ICAAP that has been approved by its Board.

The Board is responsible for the risk appetite of a regulated institution and for ensuring that the institution has an appropriate risk management framework. Risk appetite is a fundamental part of both risk management and capital management.

APRA has not yet decided on the form of capital instruments that mutual ADIs can issue to comply with Basel III Common Equity Tier 1.

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Posted 28th September 2012 by David Jacobson in Mutuals, Risk management

September 17, 2012

US credit unions: impact of Dodd-Frank Act

While credit unions in the USA have a different regulatory environment from Australia, there are many common issues.

So this Report from the US Government Accountability Office on Community Banks and Credit Unions (Impact of the Dodd-Frank Act) makes interesting reading.

The Report outlines the significant changes US credit unions have undergone in the past decade, including regulatory changes and how they have been affected in particular by the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Sarbanes Oxley Act.

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Posted 17th September 2012 by David Jacobson in Credit unions

LCollect is not part of Langes+

It has come to our attention that some financial services providers have been under the impression that the mercantile agency LCollect is part of Langes+. Although associated with former partners of the law firm, LCollect operated separately from the firm, and there has been no business relationship between Langes+ and LCollect since 2011.

At Langes+ we undertake mortgage enforcement and debt collection work in all States and Territories, acting on direct instructions from clients. Please call your usual Langes+ Relationship Partner, Shannon Adams on 08 8168 9601 or Josh Annese on 08 8168 9604 if you’d like more information about our mortgage enforcement and debt collection services.

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Posted 17th September 2012 by David Jacobson in Legal

September 11, 2012

Speaking about mutuals

Langes partner Rob Surman will speak about “The Compliance Framework” at the MAGPI (Mutuals Audit & Governance Professionals Institute) Conference on 18th October.

Shannon Adams, Ronen Atzmon and David Jacobson will attend the Abacus Convention on 23rd September.

We look forward to seeing you. Please say hello.

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Posted 11th September 2012 by David Jacobson in Mutuals

August 20, 2012

Financial Industry Levies for 2012-13

The Australian Prudential Regulation Authority (APRA) has published the paper that sets out the financial industry levies for 2012-13.

The increase for ADI’s is 3.9% with minimum and maximum amounts relating to asset size.

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Posted 20th August 2012 by David Jacobson in Credit unions, Mutuals

July 19, 2012

National co-operative laws update

The New South Wales Parliament has passed the Co-operatives (Adoption of National Law) Act 2012 which includes the Co-operatives National Law which is a template for uniform national laws for co-operatives.

Once passed in all states, larger co-operatives wishing to carry on business across a state or territory border will be able to do so without registering in each jurisdiction. Smaller co-operatives will benefit from the introduction of simplified financial reporting to members and removing the obligation to lodge publicly available accounts.

The Co-operatives National Law will implement modern principles of corporate governance and accountability similar to requirements for other corporate entities.

Now that the law is passed in NSW, other States and Territories must pass the same or consistent law in their own jurisdictions within 12 months.

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Posted 19th July 2012 by David Jacobson in Legal, Mutuals