Any new complaints by consumers or small businesses (100 employees or fewer) against financial firms will be handled by a single point of contact, the Australian Financial Complaints Authority (AFCA), from November 1, 2018.
AFCA replaces three external dispute resolution schemes (EDR):
- the Financial Ombudsman Service (FOS)
- the Credit and Investments Ombudsman (CIO)
- the Superannuation Complaints Tribunal (SCT).
Open superannuation disputes will continue to be handled by the SCT which will continue in run-off. FOS and CIO open disputes will be transferred to AFCA but dealt with under the predecessor scheme’s terms of reference.
Any financial firm required to be a member of an EDR scheme must join AFCA. Ninety eight percent of existing firms had joined by May 1.
Like the FOS and CIO schemes, AFCA is a not-for-profit company limited by guarantee. Similarly, its decisions regarding complaints are legally binding on financial firms but not on consumers. However, a significant difference lies in its tribunal-like statutory powers to deal with superannuation complaints.
AFCA is a non-compulsory, accessible alternative to courts and tribunals for individuals and small business for whom the service is free of charge.
The promise of faster resolutions, higher monetary caps and an active role identifying systemic issues
“Free, fast and binding” is the AFCA promise to consumers. While ‘free and binding’ have been dealt with by regulation, the promise of ‘fast’ remains on the horizon.
Previously, a rigid and under-resourced SCT was grinding to a halt with dispute resolution times blowing out to a whopping 796 days in the 2015-16 financial year. Because 14.8 million Australians have at least one superannuation account and many of these accounts are maturing, there was concern that increasing numbers of disputes would cause resolution times to blow out even more.
It is hoped that its flexible ombudsman model of governance and funding will make AFCA’s handling of superannuation complaints responsive and faster.
Other new features of the combined scheme are:
- increased jurisdictional monetary limits and combined compensation caps for non-superannuation disputes
- no jurisdictional monetary limits for superannuation disputes
- increases in facility limits and compensation caps for small business and agricultural business credit disputes
- a role in addressing systemic issues contributing to complaints including requiring remediation by the firm and reporting systemic issues to a relevant body, for example ASIC, APRA, Commissioner of Taxation or Office of the Australian Information Commissioner
- Equal representation of industry and consumers on the board and an Independent Assessor to review AFCA decisions
Financial firms would do well to review their internal dispute resolution (IDR) procedures. The same Bill that authorised the formation of AFCA, The Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017 (AFCA Bill) which passed both houses in February 2018, has given ASIC the power to publish industry-wide and individual firm level data on IDR activity to increase transparency and accountability.
Inform your clients about AFCA
From November 1, financial firms need to be informing their clients that new complaints can only be received by AFCA. Contact details for AFCA must be included on websites, complaints brochures, mandatory disclosure documents and periodic statements by 1 July 2019.
The formation of the newly authorised Australian Financial Complaints Authority followed 20 months of review (Review into the financial systems external dispute resolution framework) and public consultation. Submissions to the Review reinforced what Shaw Gidley’s insolvency specialists see regularly; the workings of finance and credit are opaque to many individuals and small businesses and is one of the reasons why they end up in hot water.
Shaw Gidley are experts in restructuring, turnaround and insolvency and provide free initial advice on these matters. Please contact our offices on (02) 4908 4444 or (02) 6580 0400.