By Mark Bland, Partner, Jacqueline Wang, Senior Associate and Eliza Kane, Paralegal
This is the first of a series of articles on AFCA, the new monolith External Dispute Resolution (EDR) Scheme open for business on 1 November 2018.
In less than ten weeks, the Australian Financial Complaints Authority (AFCA) will become the single statutory body in Australia for handling financial system complaints. A number of actions are required to be ready for the new regime.
On November 1, AFCA will replace the three external dispute resolution (EDR) schemes currently available to consumers and providers of financial services, namely the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal (SCT).
The AFCA regime was announced by the Government in response to the Ramsay Review. While industry has generally welcomed a single statutory body, critics argue that a monolith Ombudsman scheme is likely to be too unwieldy to adapt to market changes and will be more inefficient than its predecessors (other than the SCT) in the absence of competitive pressures.
Many stakeholders have also voiced concerns about the lack of clarity in the drafting of the AFCA Rules (Rules) and the short 28-day consultation period for the Rules which is said to have resulted in a lack valuable industry input. Indeed, the drafting and consultation processes for both the AFCA Bill and the Rules suggest that the scheme has been ushered in with a degree of haste.
The pressing issues now for Independent Chair, Helen Coonan and her board, and CEO David Locke, are to deliver a set of Rules that facilitate a flexible, dynamic and improved dispute resolution model and to implement a smooth transition to the new scheme. It is not yet known if AFCA will have the agility to address any flaws in the existing EDR schemes identified in the ongoing Banking Royal Commission.
The following types of financial services providers (FSPs) must, if they have not already done so, take steps to secure membership with AFCA:
- Australian financial services licensees;
- Unlicensed product issuers;
- Unlicensed secondary sellers;
- Australian credit licensees and credit representatives;
- Exempt special purpose funding entities;
- Regulated superannuation funds (but not SMSFs)
- Approved deposit funds;
- Retirement savings account providers;
- Annuity providers;
- Life policy funds; and
What you need to do
- By 31 Aug 2018 – existing members of CIO are required to secure their AFCA membership. From 7 August 2018 AFCA has been notifying CIO members with instructions on how to apply for membership.
- By 21 Sept 2018 – all FSPs will be required to hold membership with AFCA.
- Existing FOS members who have completed their annual assessment form are not required to do anything further to comply with membership requirements.
- FOS members who do not complete the annual assessment form will be removed as a member and must apply to become a member of AFCA by 21 Sept 2018.
- Superannuation entities must apply for an AFCA membership by 21 Sept 2018 via an online process that has been available since 6 August 2018.
What you need to know
- Upon commencement of AFCA on 1 November 2018, any existing unresolved disputes under the CIO and FOS schemes will continue to be handled by AFCA under the old FOS and CIO Terms of Reference (TOR) until the dispute is resolved.
- The current FOS dispute fee structure will be in place and will continue to apply to disputes which are received prior to 1 November 2018 and not closed by 31 October 2018, subject to any annual CPI related increases that normally occur on 1 July each year.
- No complaints will be transferred from the SCT to AFCA.
- The AFCA scheme will operate under the AFCA Rules. The finalised rules along with the Operational Guidelines are expected to be released in September. The draft rules are available on AFCA’s website, along with mapping reports highlighting differences between the AFCA Rules and the FOS TOR, the CIO TOR, and the Superannuation (Resolution of Complaints) Act 1993 (Cth).
In the next of the ‘AFCA on the way’ series, we will take a look at ASIC’s increased oversight role in the new EDR scheme and the immediate steps that FSPs need to take in order to take advantage of the disclosure relief provided by ASIC.
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