Review of the EFT Code. Submission in Response to ASIC s Consultation Paper

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1 Review of the EFT Code Submission in Response to ASIC s Consultation Paper May 2007

2 INTRODUCTION Australia and New Zealand Banking Group Limited ( ANZ ) is pleased to provide comments on the Review of the EFT Code Consultation Paper, released in January The subject of the inquiry is broad ranging, and this submission covers those questions canvassed in the Consultation Paper in which ANZ has a particular interest. 1. REGULATORY OVERLAP As noted in the Consultation Paper the EFT Code of Conduct ( Code ) has significant overlap with requirements contained in both the Financial Services Reform Act 2001 ( FSR ) and the Code of Banking Practice ( CBP ). Two clear examples are the requirements to provide periodic statements and those for notifying customers of changes to fees and charges. The Consultation Paper notes that there are no true inconsistencies as the Code is simply imposing stronger obligations on financial institutions than the law or other codes would otherwise. While ANZ agrees with this in principle, in practice there are additional costs that arise from having to comply with a number of different requirements, especially given the Code only applies to a selection of the products offered by financial institutions. These additional costs arise as a result of having to obtain legal advice about differing requirements, training staff about which requirements apply to different products and ensuring that the individual requirements are reflected in banks systems. ANZ would encourage ASIC to examine options to better align the Code with the various other requirements. This could be done either by removing those sections already covered by the FSR/CBP from the Code, or alternatively ensuring that all areas of overlap contained in the Code are examined and consistent wording is developed. 2. LANGUAGE This is the fourth review of the Code since its introduction in As a result of these reviews the Code has changed significantly and whilst generally remaining robust and up to date, the Code s wording is overly legalistic and this has the potential to make it difficult for a user to understand. The example referred to in Section 5.1 of the Consultation Paper regarding the definition of EFT Transactions highlights the complexity of some aspects of the Code. This complexity has the potential to reduce the usability of the Code for financial institution staff and, more importantly, for those the Code is designed to protect consumers. 2

3 In 2003 ANZ commissioned Australia s first national survey into financial literacy. This research provided a comprehensive insight into the financial literacy of Australia s adult population. One of the findings of that research showed the importance of using plain English in financial information. For this reason, following on from its 2005 update of the financial literacy survey, ANZ adopted a promise in its customer charter to write our letters, brochures, ATM and website messages and other notices in plain language. While ANZ commends ASIC on the plain English publication Using electronic funds transfer: your rights, this should not be seen as a substitute for the full Code. Indeed ASIC s consumer website, advises consumers that the publication is only intended to provide a general overview of rights and responsibilities under the Code and that consumers should consult the full Code if a dispute arises. As such, ANZ recommends that the Code should be redrafted in plain English to improve its accessibility to consumers. The UK Banking Code is written in plain English and could be used as a model for drafting the revised Code. The UK Banking Code can be found at Rewriting the Code into plain English can also assist in ensuring that the Code remains technology neutral. Currently the Code can be prescriptive in its wording which can limit the EFT access methods covered to those presently available. Less prescriptive and more technology neutral wording will help to ensure that innovative new products are not excluded from the Code. 3. LIABILITY FOR UNAUTHORISED TRANSACTIONS Current balance of liability between financial institutions and customers ANZ is supportive of the currently liability provisions contained in the Code which create a regime that is weighted in favour of the consumer. This is because, with the exception of those instances where the consumer has acted fraudulently, failed to safeguard their access codes or unreasonably delayed notifying a loss to their financial institution, ANZ is better placed to improve the security of the EFT systems. For example, the consultation paper raises the question of liability for losses resulting from vulnerability of user s equipment or deceptive phishing attacks. ANZ believes that while consumers do have some mechanisms available to them to improve the security of internet banking for themselves, ANZ is still better placed to reduce system insecurity at the lowest cost overall. For this reason, in 2004 ANZ introduced Carreker Fraudlink BillPay (similar to ANZ s Falcon credit card fraud detection system) which was further enhanced in late Fraudlink BillPay monitors for both phone and internet banking fraud and detects abnormal spending patterns early using a series of trigger rules which allows ANZ to take steps to minimise any potential loss. 3

4 ANZ also made modifications to its Pay Anyone arrangements to further strengthen detection capabilities. Processing using Fraudlink BillPay was switched from overnight to throughout the day to ensure that suspect transactions could be detected more quickly. Pay Anyone arrangements were also modified to allow timely detection and intervention, transactions from ANZ to other financial institutions were switched to being processed at the end of the day, and funds from ANZ to ANZ transactions are not able to be withdrawn until the next day. The combined result of these two initiatives was a decrease in Internet banking fraud losses of 40 per cent over a six-month period. ANZ has also received the award for Innovation in Security and Fraud Management at the 2007 Financial Insights Innovation Awards for its internet banking security. Further, as a result of ANZ s development work, Carreker has been able to offer the enhanced system to other banks. ANZ recommends leaving the balance of liability in favour of the consumer to encourage financial institutions to continue to improve the security of their EFT access channels. Streamlining and improving the liability process There are a number of areas where the liability provisions of the Code could be improved to make the process simpler and more certain. Areas such as clarifying the right to obtain information from customers, establishing a limitation period in which claims can be made and clarifying some of the definitions including transaction and time limits. In some cases, in order to expedite the resolution of claims for unauthorised transactions it would be useful for the consumer to provide certain information or documents, for instance, statutory declarations. Currently the Banking and Financial Services Ombudsman (BFSO) has stated that under the Code: a disputant has an obligation to answer all reasonable questions asked by the Bank in the course of its investigations to the best of the disputant s ability. 1 While this creates an obligation on the consumer to cooperate with the financial institution in its investigation, specific requirements outlined in the Code would assist institutions to resolve disputes more quickly. For example, the Code could require consumers to: Sign a statutory declaration regarding the circumstances surrounding the unauthorised transaction 1 BFSO, Bulletin No. 37, March 2003, Page 12 4

5 Sign a receipt and release form to allow financial institutions to officially close the matter. Provision of these documents would only be in instances where the investigating financial institution deems it necessary and makes a specific request to the consumer. All of these measures would assist ANZ in establishing the liable party and/or resolve unauthorised transaction disputes more quickly and efficiently. The Code does not currently impose a limitation period on when disputes regarding unauthorised transactions can be lodged. While the unreasonable delay provisions impose some obligation on consumers not to delay reporting unauthorised transactions after they become aware of them, it in itself does not encourage consumers to remain vigilant in monitoring for these transactions. ANZ believes it is extremely important that financial institutions are made aware of unauthorised transactions promptly. When a consumer becomes aware of an unauthorised transaction soon after the incident and notifies their financial institution immediately there is a greater chance of the investigation being successful. This is because financial institutions will have access to more reliable and readily accessible information which will assist in identifying the liable party and customers recollections of details and circumstances tend to be clearer than after longer periods of time. Further to this, in cases where the unauthorised transaction is part of a wider attack on electronic banking, early notification can allow financial institutions to work with law enforcement agencies to stop the conduct. Financial institutions can also use the information to establish patterns which can assist in bolstering internal security systems as well as potentially providing early warning to other consumers. ANZ would therefore recommend imposing a limitation period of 60 days from the date of statement issue in which the consumer must raise claims for unauthorised transactions. ANZ believes that 60 days after their periodic statement is issued is sufficient time for consumers to become aware of unauthorised transactions. Linking the limitation period to the date when a statement is issued provides an incentive for consumers to read and verify their statements. This method, unlike a defined limitation period, also takes into account the frequency of periodic statements, which may vary between customers and products. Interpretation of the limitation period by banks will need to take into account the individual circumstances of a dispute on a case-by-case basis. Finally, clarification of some terms within the Code would assist ANZ in implementing the dispute resolution process. Under Section 10 Complaint investigation and resolution procedure the Code sets down time limits for completing the investigation in terms of days, but does not specify whether this is taken in calendar or working days. 5

6 Further, Section 5 Liability for unauthorised transactions specifies that in circumstances where the account holder is liable they will not be liable for losses that exceed applicable daily transaction limits. In practice however, when referring to Card & PIN transactions the BFSO has applied the daily ATM and EFTPOS transaction limit including when over the counter withdrawals have been made. ANZ offers customers the ability to withdraw amounts over and above the ATM and EFTPOS transaction limit to ensure they have complete access to their funds. This creates a situation where, in cases where the customer has contributed to the losses, through fraud or extreme carelessness, ANZ is still liable for amounts that have been illegitimately withdrawn but in excess of ANZ s ATM and EFTPOS daily transacting limit. As such, ANZ recommends that the Code specifically define applicable daily transaction limit(s) relevant to the appropriate electronic channel to clarify this situation. 4. MISTAKEN PAYMENTS ANZ has recently made changes to its Internet banking platform specifically aimed at addressing the issue of mistaken payments. The first change was to introduce a prominent warning to customers which is visible prior to entering the Pay Anyone details. The warning informs the consumer that ANZ does not check that the Account Number entered matches the Account Name or BSB details and as such all details entered must be correct. The second initiative was to introduce the Confirm Details page. This is a new page that shows the details of the transaction prior to it being processed. It is designed to give customers the opportunity to check and confirm the details of their payment to ensure the payment goes to the intended account. At the top of the Confirm Details page a prominent message instructs the user to confirm that all details are correct and read other important information which, amongst other things, again warns consumers that ANZ does not check that the details provided are correct. For more information on ANZ s internet banking Confirm Details page see Based on this experience ANZ would support a move for the Code to be expanded to cover mistaken payments through adequate customer warnings combined with industry wide change to account terms and conditions to clarify the process for dealing with disputes over mistaken payments. The Code should specify that the warning be prominently placed, contain a minimum level of information and be displayed in a timely manner. The Code could also specify that where a financial institution collects both the account name and the account number but the recipient institution only relies on the account 6

7 number to effect payment, the sending institution must provide a warning or the receiving bank would have a right against it in instances where a dispute arises. The Code should also require all member financial institutions to include certain requirements in their account terms and conditions. These additional requirements would provide for disputed funds to be placed into a suspense account until the matter is resolved to the financial institutions satisfaction. The additional terms and conditions should also require that the receiving account holder irrevocably consent to the funds being returned to the sender s account where a dispute is raised and the account name entered by the sender does not match the name of the recipient account (with the exception of minor variations). In cases where there are insufficient funds remaining in the recipient s account, the sending bank should be provided with the recipient s name and address to allow the claim to be pursued directly with the recipient. ANZ believes that these changes would assist consumers not only by reducing the number of mistaken payments made, but by outlining clear requirements for financial institutions when a mistaken payment is identified. 5. CONCLUDING COMMENTS ANZ believes that its proposed amendments would result in a robust Code that will continue to protect consumers. ANZ would strongly encourage ASIC to examine options to remove the regulatory overlap contained in the Code to reduce the regulatory burden on financial institutions. ANZ would be pleased to provide any further information about this submission as required, and can be contacted as follows: Ms Jane Nash Head of Government & Regulatory Affairs ANZ Level 22, 100 Queen Street Melbourne VIC 3000 (03) nashj@anz.com 7