White, Paul (2007) The regulation of electronic funds transfer in Australia: an integrated multidisciplinary approach. Other Degree thesis, Victoria University.

Abstract

Electronic Funds Transfer (‘EFT’) as a modern, global consumer payment method continues to expand rapidly by comparison with credit cards and traditional paper-based forms of payment. The core issue addressed in this thesis is a controversial one: the fair allocation of liability between the consumer and financial institution in the event of a disputed or unauthorised EFT transaction. The purpose of this study is considered especially apposite in view of the Australian Securities and Investments Commission’s (‘ASIC’) imminent review of the self-regulating Australian EFT Code of Conduct (‘EFT Code’) and both the increasing incidence of reported unauthorised EFT transactions and in noncompliance by EFT financial institutions with the EFT Code. It is also an important study because of the rapid recent growth in EFT transaction volume and the continued expansion of EFT products and services compared to other payment instruments, which are in a corresponding decline. Moreover, there has been no previous study or review of the current Australian EFT Code, which was revised in 2002. In the EFT payments system, consumers are exposed to risks quite different from those in traditional payments instruments. These include flaws in the various methods employed by financial institutions for the distribution of EFT cards and PINs, problems adducing unequivocal evidence in the event of unauthorised use of the instrument and systemic errors and technical malfunctions in processing EFT transactions. Furthermore, the distinct nature of electronic authentication using an electronic device and secret code makes the general common law principles dealing with handwritten signature authentication in the case of paper instruments (eg, by analogy with a forged cheque) particularly unhelpful. In order to address these controversies, this thesis presents an integrated multi-disciplinary analysis of EFT regulation in Australia in an attempt to identify the efficacy of current EFT regulatory arrangements as well as to appraise the merits of different EFT regulatory options to attain a more optimal and efficient regulatory regime for the future. The adapted multi-disciplines include comparative law method, economic criteria and regulation theory methods, as well as ethical, social and administrative considerations. The two (2) EFT regulations which are the subject of this comparative study are the Australian EFT Code and the US EFT Act. The latter was chosen for comparative purposes as it is a rare example of a formal legislative response to the above core issues and risks, which the EFT system in the USA has in common with Australia. Unlike the US EFT Act, for example, which has a relatively simple and administratively convenient approach to apportioning fault, the self-regulating Australian EFT Code essentially shares the burden of proof between the financial institution and the consumer in most instances. The consequence of the EFT Code’s ambiguous, undefined and multi-layered legal tests and guidelines for determining the allocation of liability to either consumer or financial institution is that it leaves the Australian Banking Industry Ombudsman (‘ABIO’), as the independent and preferred adjudicator of Australian EFT disputes, with the difficult and arbitrary task of hearing contrasting arguments and weighing the inconclusive evidence led by both sides before then seeking to reach a fair and equitable finding on the ‘balance of probabilities’. Indeed, the practical application of the EFT Code is extremely difficult and confusing, as the ABIO regularly observes in its annual reports and is almost always evident in its actual case examples. The task undertaken in this thesis to research and analyse these difficult and complex regulatory issues is both helped and hindered by another important issue: the lack of literature on consumer EFT regulation. Helped, because it represents a unique opportunity to embark upon such a study afresh, and, hindered, because little benefit can be derived from previous studies and hence there are no foundations upon which to build or progress the debate, the research and the analysis. Accordingly, the significant gaps in this area provide a rare occasion to explore these contemporary and contentious issues using multi-disciplinary techniques. As is argued in this thesis, the current regulatory arrangements in Australia are ineffective on several grounds. In particular, in: (i) efficiently settling disputed or unauthorised EFT transactions; (ii) ensuring compliance by financial institutions; and (iii) legal enforcement of its provisions. Ultimately, in consequence of this study, it is concluded that to improve consumer confidence and institutional compliance, as well as to arrest rising fraud and illegality, there is an urgent need for a comprehensive review and reform of EFT regulation in Australia. In order to design and formulate a more efficient or optimal regulatory regime, a more rigorous analysis beyond a straight legal studies approach needs to be undertaken. In this sense, the multi-disciplinary research and analytic approach adapted in this study is an integrated approach with the intention that it will not only drive the debate on an appropriate EFT regulatory framework forward, but ultimately with its 48 findings and 25 specific recommendations, also serve as a workable framework with some actual pragmatic criteria on which to assess different EFT regulatory and policy options.

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