Speech by AFSA Chief Executive Tim Beresford at the 2024 Financial Counselling Australia NSW Conference, Wednesday 11 September.
I’d like to give an Acknowledgement of Country in the Dharug language.
I’m delighted to have this opportunity to speak to you this morning.
Thank you for the work you’re doing – it makes a huge difference to the people you support.
As financial counsellors, you’re pivotal to the personal insolvency ecosystem.
You work at the coalface of financial vulnerability.
What you see informs our actions as a regulator and our work to support the Australian community.
So, I’m keen to keep building on our relationship with you.
Today, I’m going to talk about:
- What we’re seeing in the personal insolvency space;
- How we’re stepping up our education and outreach to assist people experiencing financial vulnerability; and
- Recent developments in our regulatory practice.
I also have a powerful request of you, which I’ll get to later.
I note 45 minutes is allocated to this session and I want to use that time to hear from you.
So, I’ll keep my comments to around 20-25 minutes, so we can have that discussion.
Bankruptcy trends and developments
Let’s look at personal insolvency trends over the past 50 years.
You can see from this slide that they rose steadily for almost 40 years from 1972 to a peak of 37,000 after the GFC.
But they’ve dropped significantly in the past 8 years, thanks to 3 key drivers.
Firstly, we’ve experienced low unemployment.
Ten years ago, unemployment was between 5 and 6% – but for the last 3 years, it’s had a 3 or a 4 in front of it.
The second driver was changed creditor behaviour after the Hayne Royal Commission.
Creditors are now much more likely to work with debtors when they experience financial difficulty.
And the third key driver is changed debtor behaviour since the pandemic, which means people in financial difficulty are more likely to raise this with their creditors.
As a result of these tailwinds, personal insolvencies have fallen to levels we haven’t seen since the late 1980s.
But there are some headwinds.
I don’t need to tell you that times are tough for many people.
Households are digging into their savings to pay their bills.
Unemployment is nudging higher.
Other factors, like the resumption of the ATO’s debt collection activities that were relaxed during COVID, also impact our system.
The tax office is our biggest creditor and its share of the system keeps growing – from 12.5% of system liabilities in 2015-16 to around 20% today.
Because of these headwinds, we expect insolvencies to rise to around 14,850 this financial year.
This is still well below the long-term average but it’s a signal for us to be vigilant.
Our approach to regulation
As a result, we’ve shifted our regulatory posture to be more proactive in our education, compliance and enforcement activities.
This simple bell curve best describes our approach.
I’ll start in the middle because this is where the vast bulk of the people who enter our system – over 90% – sit.
Our responsibility to this cohort is to make it as easy as possible for them to use the system, through simple processes and communication.
We’ve reduced the number of systems people need to navigate from 8 to 3 – and we’re on our way to getting it down to one.
The introduction of Online Insolvency Services in April this year has enhanced the user experience, allowing people to manage their transactions in a more consolidated manner.
This part of the bell curve is called system efficiency. It’s high volume but low risk.
The other 2 parts of the curve are the other way around – low volume but high risk.
On the left side of the bell curve are those experiencing serious vulnerability.
As you know only too well, that vulnerability isn’t just financial.
There can be a range of other stresses – such as mental and physical health issues, addictions, family and domestic violence.
We were contacted by a woman we’ll call Kate relating to coercive control by her ex-husband Phil, who she said had previously been violent towards her.
Phil, she said, was now falsely claiming a financial interest in 2 vehicles on the Personal Property Securities Register as a further attempt to control her.
We asked Phil to show he had a valid consensual security interest.
When he couldn’t, we removed the registrations, issued him with a caution and prevented him from making automatic PPSR registrations for 6 months.
In another case, the Official Trustee administered an estate for a debtor, who we’ll call Alex.
After sustaining permanent injuries, Alex’s life snowballed.
Rendered medically unfit to work, he surrendered his home and declared bankruptcy.
The Official Trustee spent time working with Alex, building rapport and learning details about his ongoing care and costs.
When we showed the sole creditor this information, they withdrew their claim on the estate.
Alex was able to maintain some funds to receive ongoing medical assistance and improve his quality of life.
People in this part of the curve – which is called system vulnerability – require a lot of individual support.
We need to take the time to understand their unique circumstances and help them navigate the system.
On the right side of the bell curve are those who deliberately misuse the system for their own benefit.
They undermine the integrity of the system and the community’s confidence in it – and they place people experiencing vulnerability at risk of even greater financial loss.
We call this part of the curve system misuse – and, as I’ll detail later, we’ve been actively pursuing these cases and bringing them to light.
In the current environment, we see particular risks on the left and right sides of the curve.
Accordingly, we’ve identified as 2 two key harms to the system this financial year:
- People experiencing hardship, relating to the left side of the curve, and
- On the right side of the curve, we’re targeting unethical and untrustworthy advice.
Supporting vulnerable people in the system
I’ll deal first with what we’re doing to support people experiencing financial hardship – the people who sit across from you every day.
You can see from this slide why that’s so important.
The personal insolvency system is not representative of the broader economy.
People entering the system often don’t have an established asset base to fall back on when times get tough.
They don’t own a home or have a mortgage.
In fact, renters make up 93% of new personal insolvencies.
This is at odds with an economy where 21% of Australians rent.
They actually have relatively little debt.
While Australian household debt averages more than $260,000, most people entering personal insolvency have liabilities of less than $50,000.
That’s the equivalent of a couple of credit cards, a personal loan and a handful of buy now pay later agreements.
In other words, personal insolvencies are largely skewed towards renters with unsecured debts.
What else do we know about people entering personal insolvency?
We know they’re mostly young, aged between 25 and 44.
They live in the most populous cities – Sydney, Melbourne and Brisbane – or across the rest of NSW and Queensland.
They work in construction, healthcare and social assistance, retail trade, and transport, postal and warehousing.
These people need support, not punishment.
That’s why education is a key regulatory lever for us, along with compliance and enforcement.
It’s even more important now, with people facing increased financial pressure.
What we’re doing
We have a range of targeted activities to better support people experiencing hardship.
Firstly, we’ve established a dedicated Education and Outreach function.
I acknowledge that in the past, we’ve fallen short on our education priorities – and the creation of this team seeks to address that.
The Education and Outreach team focuses on targeted stakeholder education, so people get the right information at the right time.
They’ve set up educational stands at several financial counselling events this year, including the FCA national conference in Perth.
And they have a stand here, so please take the time to say hi.
I’ll outline 2 of the many activities the Education and Outreach team is working on.
They’re developing a personal insolvency education plan to ensure we meet the needs of people experiencing financial vulnerability.
The plan includes financial counsellors as a key target audience, recognising the critical role you play in providing information, advice and advocacy to this cohort.
We will be looking to involve you in co-design opportunities in the coming months to ensure our products and channels are fit-for-purpose.
Secondly, the team is reviewing the existing Personal Property Securities Register materials, to see how they can be updated to better suit the needs of vulnerable audiences.
The register is a critical risk protection tool for individuals and businesses, so we need to make sure it’s easy to use.
These initiatives go hand-in-hand with work we’re doing across the agency to make it easier for you and your clients to engage with us.
This includes updating our approach to vulnerability and presenting our communication materials, including our website content, in plain English.
We’re improving our Google advertising strategy so that AFSA appears first when people seek information about bankruptcy and the PPSR.
We’re improving our data analytics capabilities to better understand the people who enter our system and their circumstances.
We’re progressing a Consumer Consultative Panel, with expressions of interest out this week.
The panel gives us a forum to discuss issues such as personal insolvency and vulnerability with those closest to the coalface.
And we’re assessing how we can best work with the Financial Rights Legal Centre to amplify its excellent bankruptcy toolkit for financial counsellors.
Another area I know is of interest to you is how we treat gambling in the bankruptcy system.
We’re looking at providing guidance around gambling that recognises it as a harm rather than a condition to punish within our ecosystem.
We’ve consulted with specialist gambling financial counsellors, Annette Devereaux and Jillian McKinlay, as part of this work.
We’ll publish a review of our practice guidance on gambling offences in the second quarter of this financial year.
We can’t say AFSA will never refer people whose gambling has contributed to their insolvency for prosecution, as this is part of the legislation.
However, the guidance will clearly outline the behaviours or situations when people would be referred, including example scenarios or case studies.
These are some of the things we’re doing at the left side of our bell curve to protect against system vulnerability and support people experiencing hardship.
Protecting against system misuse
I’ll turn now to what we’re undertaking on the right sight of the curve to prevent system misuse, to ensure you, your clients and the community have confidence in the system.
As I said, unethical and untrustworthy advice remains one of the key system harms we’re targeting as part of a multi-year program of work.
Previously, we’ve focused on pre-insolvency advice.
Now, we’re broadening the scope to include unethical and untrustworthy advice by registered trustees and debt agreement administrators.
Some of the practices we’re targeting are excessive practitioner remuneration and deficient administration of personal insolvency agreements.
Three of AFSA’s 12 active investigations relate to the potential misuse of personal insolvency agreements to protect some creditors over others.
This includes our recent application to the Federal Court to set aside a personal insolvency agreement protecting Gold Coast lawyer Beau Hartnett from bankruptcy.
We are currently considering the Final Report of the review we commissioned into untrustworthy advice.
The interim findings corroborated the experience of AFSA staff on the ground, as well as insights provided by financial counsellors, industry partners and the community legal sector.
We’ll share the Final Report’s key insights with FCA in due course to discuss the next steps in our regulatory response.
We will also collaborate with our regulatory peers, industry, financial counsellors and the community legal sector to develop this response.
What we learned from the interim report is that the likely scale of the problem is bigger than we expected.
This is important when people in financial distress are increasingly turning to informal debt arrangements, which can carry high fees and long durations.
We’ve heard your concerns about the registration process for debt agreements, the fees charged by administrators, and their impact on vulnerable debtors.
The Official Receiver is dedicating further support to the regulation of debt agreements.
Over this financial year, we aim to improve the registration process and strengthen our engagement with administrators to achieve affordable debt agreement outcomes.
In particular, the Official Receiver will require more evidence from registered debt agreement administrators to support its decisions.
This will include requests for evidence of income, and expenses, such as rent.
We’ll seek information about the affordability of the agreement, particularly where the debtor earns less than $60,000 a year.
And we’ll ask what information has been provided to the debtor about their insolvency options, as required by the legislation.
Another area where we’re working to prevent system misuse is in our engagement with trustees and debt agreement administrators.
I have placed the practitioner community on notice that we expect more from them as joint stewards of the system.
I’ve made it clear to them that they should report misconduct when they see it, even if it’s in their own firm.
This is part of the responsibility of their office and the position of trust they hold.
We’ve stepped up our enforcement action, with noteworthy results including the deregistration of trustee Paul Leroy 17 days after his employer reported allegations of misconduct to us.
Other trustees are under investigation.
In one case, we cautioned a trustee who agreed to a proposal by 2 debtors to pay creditors as little as 0.00005c in the dollar, under the same legal mechanism used by Alan Bond to end his bankruptcy.
After we intervened, the trustee chose not to proceed with the debtors’ offer and transferred the estates to other trustees, who resolved the case with significantly higher creditor returns.
Pleasingly, we’ve also seen an uplift in the performance of the trustee.
We’re also looking at how we can model best practice for the practitioner community, by positioning the Official Trustee as a model trustee.
In the same spirit, we’re having ongoing discussions with the ATO, as the largest creditor in our system, on how they can be a model creditor, setting an example for other creditors.
This is part of the collective stewardship AFSA embraces.
It’s built on the belief that the system works best when we all work together.
My powerful request
And this brings me to my powerful request.
As financial counsellors, you are part of that system and part of that collective stewardship.
I need your eyes and ears. If you see something, say something.
The point I want to reinforce with you today is that AFSA’s door is open – and we want to hear from you:
- Where you think the system can be improved.
- Where you’re seeing increasing hardship.
- Where you see system misuse.
You can shape our actions across each part of the bell curve, to address system vulnerability, efficiency and misuse.
You don’t have to wait for the Consumer Consultative Panel to be up and running – you can speak to us now.
Reach out to me or your AFSA contacts.
Reach out to our Education and Outreach team and they’ll connect you to the right part of the agency.
Above all, reach out.
Conclusion
Thank you again for your time this morning.
And thank you for the work you’re doing – it makes an untold difference to the people you support.
It also makes a difference to the ecosystem in which we all operate.
I can assure you AFSA is profoundly aware of the need to support people in financial vulnerability through the system so they can get back on their feet.
And we understand our responsibility to protect people against system misuse.
We are working constantly across the bell curve to ensure the system is fair for everyone.
