Streamlining the complaints process for the financial sector – introducing the AFCA

What is AFCA?

The Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017 received Royal Assent on 5 March 2018.   

The new legislation amends the Corporations Act 2001 (Cth) and a series of other Commonwealth legislation, forming a new external dispute resolution (EDR) framework for dealing with complaints from consumers involving financial services and products.

One of the most significant of the 11 recommendations of the Ramsay Review was the establishment of a single external dispute resolution body for financial and superannuation disputes to replace the existing regimes.

The new framework

The new EDR framework is intended to ensure that consumers have easy access to a single EDR scheme, known as AFCA, which will resolve disputes about products and services provided by financial firms. The AFCA scheme will replace the Superannuation Complaints Tribunal and the existing EDR schemes approved by ASIC being the:

  • Financial Ombudsman (FOS); and
  • Credit and Investments Ombudsman (CIO).

The related and enhanced internal dispute resolution (IDR) framework will require financial firms to report their IDR activities in accordance with ASIC requirements and allow ASIC to publish information it receives under new reporting requirements. This will allow ASIC to improve transparency about the performance of financial firms in relation to their IDR activities.

AFCA will begin receiving complaints about financial service providers from 1 November 2018.

Some key changes

The AFCA will (amongst other things):

  • Be a ‘one-stop shop’ for complainants.
  • Require each of the following to become members:
    • Australian Financial Service Licencees.
    • Australian Credit Licencees.
    • Regulated superannuation funds (except self-managed super funds).
    • Approved deposit funds.
    • Retirements savings account providers.
    • Annuity providers.
    • Life policy funds and insurers.
  • Have higher monetary limits, including a compensation cap of $500,000 for consumer disputes, $1 million for small business disputes and an unlimited jurisdiction for disputes relating to guarantees and superannuation.
  • Increase accountability by having an independent assessor to deal with complaints about AFCA’s handling of disputes.

Letting customers know about AFCA

To promote consumer awareness of their rights to pursue a complaint in the transition to commencement of AFCA, members are expected to refer to the below table for guidance on changes to various types of documents.

 

Type of document
  IDR Final Response letters
RG 165.92 delay letters
Website information
General complaints brochures
Mandatory disclosure documents
Periodic statements
21 September 2018 – 31 October 2018Give contact details of both the relevant predecessor scheme and AFCA

Give contact details of the relevant predecessor scheme
1 November 2018 – 31 January 2019May continue to include references to both the predecessor EDR scheme and AFCA, provided it is clear that only AFCA can receive complaints after 1 November 2018

Members should use this time to remove predecessor scheme details and instead refer complaints to AFCA


broader communications about how to complain must be updated with AFCA’s details by 1 November 2018.Member should use this time to remove predecessor scheme details and instead refer complaints to AFCA
From 1 February 2019Give contact details of AFCA only
From 1 July 2019Give contact details of AFCA only

ASIC disclosure relief

ASIC has recently registered ASIC Credit (Amendment) Instrument 2018/665, granting financial firms disclosure relief, until 1 July 2019, from the requirement to update the following National Credit Code (NCC) forms with the contact details of AFCA:

  • Form 5: Information Statement: Things you should know about your proposed credit contract
  • Form 9: Information Statement: Things you should know about guarantees
  • Form 17: Information Statement: Things you should know about your consumer lease

Consistent with the transitional disclosure relief granted in ASIC Credit (AFCA transition) Instrument 2018/448, relief is conditional upon firms’ broader consumer communications about how to complain being updated with AFCA’s details by 1 November 2018.

All other NCC forms and notices that are required by the AFCA Act to be updated with AFCA’s details by AFCA’s commencement must be amended by 1 November 2018.

Lavan comment

The existence of established IDR and EDR processes has generally been well accepted, both by customers and lenders.

As with the introduction of the EDR regimes that are now being replaced and as the Banking Royal Commissioner reported in his interim report last week into the banking sector generally,  the devil can be in the detail in terms of how well these regulatory processes work.  

In particular, the time taken to resolve complaints will be a key factor in the success of AFCA.

If you have any questions about the AFCA scheme, or about your organisation’s obligations during the transition period (including in relation to statutory notices), please contact a member of Lavan’s RRI team.