AFCA on the way – disclosure relief and ASIC’s enhanced powers

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By Mark Bland, Partner, Jacqueline Wang, Senior Associate and Eliza Kane, Paralegal

This is article No. 2 in a four-part series on the new Australian Financial Complaints Authority (AFCA), which commences on 1 November 2018.

The AFCA Rules set out the processes applying to all complaints submitted to AFCA, including superannuation complaints. ASIC’s approval of the Rules is a reminder of ASIC’s enhanced role under the new AFCA regime and the need for Financial Services Providers (FSPs) to prepare carefully over the next seven weeks for the arrival of AFCAMore plans were put in place last week for the upcoming launch of the Australian Financial Complaints Authority (AFCA) on 1 November 2018, with ASIC announcing it had approved the AFCA Rules and the terms of reference for the Independent Assessor (IA).

1. Disclosure Requirements and Relief

As part of the new regime, FSPs will be required to update mandatory disclosure documents, periodic statements and exit statements with the contact details of AFCA.

In response to submissions, ASIC has given FSPs disclosure relief until 1 July 2019, conditional upon FSPs updating their documented Internal Dispute Resolution (IDR) procedures and consumer communications about complaints and dispute resolution with current information about the AFCA Scheme (AFCA Information), by 1 November 2018.[1] If the FSP has a website, the website must also be updated with the AFCA Information.

In addition, by 21 September 2018, FSPs will be required to provide information about predecessor schemes and AFCA in all IDR final response letters and ‘delay letters’.[2]

2. ASIC’s Enhanced Powers

A material aspect of the new AFCA scheme is enhanced ASIC powers for oversight of the EDR regime. In line with the new statutory framework, ASIC has updated its existing guidance with the release of RG 267: Oversight of the Australian Financial Complaints Authority, in June 2018.

Key changes to ASIC’s powers are summarised in the table below.

New laws under AFCA regime Existing law Further information
Testing ASIC may issue directions relating to compliance with the mandatory requirements under section 1051 and general considerations under section 1051A of the Corporations Act 2001 (Cth). [3] No equivalent ASIC is required to provide a statement of reasons and ensure that it provides a reasonable timeframe for compliance directions.
Directions power to be used as a last resort where ASIC considers that AFCA has not done all things reasonably practicable to ensure compliance with the relevant legislative requirements. [4]
ASIC may issue directions to the scheme operator to increase limits on the value of claims or remedies that may be awarded. No equivalent An increase in claim or remedy limit will only apply in relation to complaints that AFCA receives after ASIC giving a direction.
Intended to be a last resort to ensure that claim and remedy limits can be increased if they become inadequate over time.
All material changes to the AFCA scheme must first be approved by ASIC. [5] Material changes include:

  • the scheme’s jurisdiction
  • the terms of reference of the independent assessor
  • relevant time limits. [6]
EDR schemes must consult with ASIC on all proposed changes to their Terms of Reference. AFCA will be required to consult publicly about proposed changes to the scheme. [7]
AFCA must refer or report to ASIC, the Australian Prudential Regulation Authority (APRA) and the Commissioner of Taxation (ATO), certain matters including:

  • Conventions and breaches
  • Settled complaints
  • Systemic issues.
ASIC approved EDR schemes reports “serious misconduct” to ASIC. Purpose is to provide regulators with sufficient information to determine whether regulatory action, beyond the resolution of underlying complaints, is required.

AFCA should consult with the relevant regulator in determining whether or not to refer a particular matter, if AFCA is in doubt as to whether a matter should be referred.

Some stakeholders have voiced concerns about ASIC’s ability to increase claim and remedy limits without consultation with members and the impact that such changes may have on the price and availability of professional indemnity insurance. The AFCA legislation also introduces an enhanced Internal Dispute Resolution (IDR) framework that gives ASIC powers to determine the content and form of IDR reporting, and to publish financial firms’ IDR data at both a firm and aggregate level. The objective is to deliver increased accountability and transparency to consumers.

Broader concerns have also been raised about ASIC’s broad powers to issue directions without any requirement for public consultation.

It is not clear if ASIC intends to engage and consult with industry and/or AFCA users in the exercise of its powers but it is clear that failure to do so may undermine stakeholder confidence in the new EDR scheme.

Up next

In article No.3 of the ‘AFCA on the way’ series, we will consider the broader impact of AFCA’s increased jurisdictional limits, as well as compensation caps on the behaviour of consumers and providers of financial services in Australia.


[1] ASIC Corporations (AFCA transition) Instrument 2018/447 and ASIC Credit (AFCA transition) Instrument 2018/448

[2] ASIC Regulatory Guide 165 ‘Licensing: Internal and External Dispute Resolution’.

[3] Corporations Act 2001 (Cth) sections 1051, 1051A, 1052C.

[4] Explanatory Memorandum, Treasury Laws Amendment (Putting Consumers First – Establishment of the Australian Financial Complaints Authority) Bill 2017 (Cth).

[5] Corporations Act 2001 (Cth) section 1052D.

[6] Regulatory Guide 267: Oversight of the Australian Financial Complaints Authority, RG 267.36.

[7] Regulatory Guide 267 at RG 267.37.

[8] Corporations Act 2001 (Cth) section 1052E(1).

For further information, please do not hesitate to contact us.

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    RegTracker 28 February 2022