By Ben Patrick, Partner, Michael Tandora, Special Counsel and Dominique Noblet, Paralegal

This matter is somewhat of a milestone, as it provides judicial guidance in relation to non-compliance with financial services licensees’ internal dispute resolution (IDR) obligations, and the enforceability of ASIC’s Regulatory Guide 271 (RG 271).

ASIC now expects financial services licensees to continually strengthen their complaint handling frameworks in line with the following key areas for improvement identified in RG 271:

• stronger complaint management understanding and skills;
• increased organisational accountability; and
• leveraging technology and data analytics to offer better complaint management, data capture, and service delivery.

Background

The Corporations Act 2001 (Cth) (Act) requires that a financial services licensee has IDR procedures in place that meet standards and requirements made or approved by ASIC. Failure to comply with those IDR procedures also constitutes a breach of the Act and may result in civil penalties and enforcement action.

ASIC alleged that the defendant, Telstra Super Pty Ltd (Telstra Super), received 323 complaints between October 2021 and January 2023 and committed 204 breaches of its IDR procedures across 125 of these complaints.

ASIC also alleged that those breaches meant that Telstra Super had failed to:

• adequately resource its IDR function, in breach of RG 271.142; and
• do all things necessary to ensure that its financial services were provided efficiently, honestly and fairly, in breach of section 912A(1)(a) of the Act.

The Court held that Telstra Super breached RG 271.56 by failing to provide IDR responses to complainants within the required 45 day timeframe and failing to issue IDR delay notifications compliant with RG 271.66 as an alternative means of compliance.

Telstra Super raised a number of specific defences from RG 271, and the decision has provided helpful guidance as to what is required to comply with that document. We will deal with each in turn.

a) RG 271.64 – 271.66: Reasonable opportunity exception

Telstra Super sought to rely on the ‘no reasonable opportunity’ exception under RG 271.64 – 271.66, arguing that complaint complexity and/or circumstances beyond its control prevented timely IDR responses. The Court rejected this argument as Telstra Super sent IDR delay notifications without first establishing whether the complaints in question met the criteria to extend the 45 day deadline. Telstra Super also failed to demonstrate a causal link between the claimed exceptional circumstances, such as the COVID-19 pandemic, and the delays.

b) RG 271.71 – 271.75: Five business days exception

Telstra Super also relied on the ‘five business days’ exception under RG 271.71- 271.75, which waives the requirement for a firm to provide an IDR response when a complaint is closed within five business days. The Court found that the exception did not apply because the complaints were neither recorded nor treated as closed.

c) RG 271.66: Content of delay notifications

ASIC argued that Telstra Super’s IDR delay notifications did not adequately explain the reasons for the delay and failed to include information as to AFCA rights and contact details, as required by RG 271.66. The Court held in favour of ASIC, finding that certain IDR delay notifications were non-compliant as they only cited an ‘ongoing investigation’ as the relevant circumstance for the delay and not specific reasons.

Notably, there is no fixed checklist for what the delay notification must say. Adequacy is judged by whether the notification (1) informs the complainant of the status of their complaint and (2) the real reason for the delay. The Court also confirmed that information as to AFCA rights and contact details must be included in all IDR responses and delay notifications even where the complaint is already being handled by AFCA.

d) RG 271.142: IDR resourcing

Finally, the Court held that ASIC failed to prove that Telstra Super’s resourcing of its IDR function fell below the standard prescribed by RG 271.142. Although Telstra Super did not initially meet the requirements of RG 271.142, it did eventually take reasonable steps to address the issues, including hiring additional staff for its IDR function and monitoring complaint volumes. The Court acknowledged that resourcing requires a balancing act between having sufficient staff to manage complaints effectively without imposing unnecessary costs on superannuation fund members.

Did Telstra Super breach its obligation to provide financial services efficiently, honestly and fairly under section 912A(1)(a)?

As noted above, ASIC also alleged that Telstra Super contravened section 912A(1)(a) of the Act by failing to do everything necessary to ensure that the financial services covered by its licence were provided efficiently, honestly and fairly. Although Telstra Super committed numerous contraventions of its IDR procedures, the Court held that these breaches were not systemic or sufficiently serious to constitute a significant departure from reasonable standards of performance as prescribed by section 912A(1)(a).

In making this finding, the Court noted that section 912A(1)(a) accommodates the possibility of error and does not demand ‘absolute perfection.’ The provision is forward-looking and requires proof of what the licensee should have done, but failed to do, rather than merely pointing to past failures.

Key Takeaways

The Federal Court’s decision highlights the following key takeaways for those organisation that are required to comply with RG 271:

• Provide IDR delay notifications that clearly explain the actual reason for the delay, as opposed to generic responses.
• Maintain records demonstrating when complaints are resolved within five business days in order to dispense with the requirement to provide an IDR response.
• Ensure that any reliance on the ‘no reasonable opportunity’ exception is supported by evidence of both the qualifying circumstance and its causal connection to the delay.
• Include information as to AFCA rights and contact details in all IDR responses and delay notifications.
• Recognise that deficiencies in IDR processes may attract civil penalties under section 912A(1)(a) of the Act, but that the provision does not demand absolute perfection in those processes.

Please contact our team if you would like assistance assessing whether your IDR procedure is compliant with the regulatory regime or understanding how this decision may affect your financial service.