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

This is the final article in a four-part series on the Australian Financial Complaints Authority (AFCA) which opened its doors in November 2018. We take a look at AFCA’s first three months, and the challenges that it and financial firms will continue to face in the aftermath of the Hayne Royal Commission. The immediate action for firms wishing to act on what they can control, is to ensure their internal dispute resolution procedures are meeting AFCA’s (and ASIC’s) expectations.

AFCA has hit the ground running, and reports that it has received over 11,500 complaints within its first two months of operation. Keen to avoid the criticism of its predecessors, AFCA has been swift to boast of its 32% settlement rate[1] as evidence of the effectiveness of its complaints handling procedures. 

With increased monetary jurisdiction and compensation caps in place, it was anticipated that AFCA would be subjected to a greater workload than its predecessors. However, there is no doubt that complaint activity has and will continue to be fuelled by the Royal Commission which delivered its final report to the Government on 1 February 2019, having spent the better part of 2018 unpacking some of the most egregious examples of large-scale misconduct by Australian financial firms.

AFCA reports that the bulk of the complaints received in its initial months have been against the major banks, general insurers and credit providers. This is a clear reflection of the media focus on credit reporting, responsible lending, denial of insurance claims and unauthorised transactions generated by the Royal Commission.

In addition, the Productivity Commission’s report on superannuation, released in January this year, and critiquing the competitiveness and efficiency of superannuation, has aroused further disquiet amongst consumers and commentators. The report has raised issues with ‘questionable practices’ involving insurance arrangements in superannuation funds, financial advice provided to SMSFs and complaints handling by superannuation fund trustees.

The perfect storm created by these factors is expected to result in consumers and small businesses continuing to agitate complaints against FSPs in record numbers throughout 2019.

AFCA’s promise – Consumers first

In a bid to counteract growing consumer discontent and criticism, AFCA has promised to take a proactive and consumer-oriented approach to ensuring that all consumers of financial products and services have proper access to redress mechanisms.

Some of the items on AFCA’s agenda include:

• Consumer awareness and education about AFCA and the help available.
• Proposals for consumer protection reforms, including the imposition of a statutory obligation on FSPs to mandate the fair treatment of consumers and the introduction of a ‘Compensation Scheme of Last Resort’ to ensure that consumers who are awarded compensation via EDR channels are paid accordingly.
• An expanded remit to ensure that all “buy now, pay later” providers, are required to join AFCA. Such providers have been a major disruptive force and are not presently subject to national credit laws and therefore are not required to comply with responsible lending obligations.
• An expansive approach to reducing and resolving disputes to improve public confidence in FSPs and reduce the number of complaints that need to be escalated to EDR. To this end, it has committed to working with FSPs to raise general industry standards and establish effective internal dispute resolution (IDR) procedures.
• A commitment to investigating the root causes of complaints and reporting systemic issues and serious contraventions to the regulators as part of the enhanced oversight regime. AFCA is currently investigating 84 systemic complaints and four potential serious contraventions.

What does this mean for FSPs?

For many FSPs, the transition to AFCA has not resulted in a significant disruption. However, in light of the current climate and AFCA’s broader jurisdiction and increased monetary limits, FSPs can expect to receive a greater number of complaints. Furthermore, the real risk of being reported to ASIC or APRA sends a strong message to FSPs that poor internal practices will no longer be tolerated.

AFCA’s commencement presents a timely reminder for FSPs to revisit their compliance policies and IDR procedures to ensure that these are aligned with AFCA’s expectations. ASIC has also flagged its focus on IDR procedures in its 2018/19 Corporate Plan.

AFCA has identified the following key areas for FSPs to direct their focus:

• creating and maintaining effective complaints registers;
• issuing IDR letters that provide an explanation, including adequate reasons, for why a particular decision was made in relation to a consumer’s complaint;
• establishing processes to ensure consumers are aware of their rights to make complaints to AFCA if they are not satisfied with the outcome of the IDR procedure; and
• ensuring staff are appropriately trained in complaints handling procedures.

In relation to both dealing with AFCA disputes and updating your compliance and IDR policies and procedures, our Financial Services team welcomes your questions.

[1] For the months November and December 2018.