This update looks at the current state of play and details the mechanism to make the transition to AFCA. Entities required to be members of AFCA are referred to as financial firms.
All financial service providers will be aware that a new one-stop-shop for external dispute resolution services has been established: the Australian Financial Complaints Authority (AFCA).
AFCA takes over from the three existing external dispute resolution schemes: the Financial Ombudsman Service (FOS); the Credit and Investments Ombudsman (CIO); and the Superannuation Complaints Tribunal (SCT).
It has been suggested that AFCA is the successor to FOS. While this is not correct one could be forgiven for thinking so when regard is given to the mechanics of joining the new scheme – FOS members are in 'pole position' here – see below.
The time for transitioning from the existing schemes to AFCA is now with us.
Key dates for transitioning from existing schemes to AFCA are:
- 31 August 2018 – make application to join AFCA
- 21 September 2018 – become a member of AFCA
- 21 September 2018 – update websites and contact details
- 1 November 2018 –AFCA start date
- 1 February 2018 – to remove transitional wording from correspondence/websites
- 1 July 2019 – update disclosure documents
AFCA was established under legislation passed by the Commonwealth Government on 14 February 2018. The dispute resolution services will be provided on behalf of AFCA, by the Australian Financial Complaints Limited, a not-for-profit company limited by guarantee.
ASIC has released a new Regulatory Guide 267 ( Oversight of the Australian Financial Complaints Authority)
Requirement to join AFCA – FOS Members have a dream ride
Members of existing schemes must become members of AFCA by 21 September 2018. ASIC has issued a guidance note on the issue.
In practical terms, AFCA is requiring that financial firms who are members of CIO and SCT to make application for membership of AFCA by 31 August 2018, presumably to ensure AFCA has time to process the applications before the deadline for membership of 21 September 2018.
As indicated earlier, financial firms who are members of FOS have an easy ride. These members have been automatically transferred to AFCA.
This has occurred because management of the FOS scheme has already been transferred to AFCA. Members of CIO and SCT in contrast must complete an application process. CIO members will need to complete an annual assessment and member declaration. For SCT members a membership fee is payable.
Financial firms can apply for membership of AFCA online. CIO and SCT have written to their members outlining the process.
Members of CIO and SCT need to maintain their existing scheme memberships during the transition period.
When does AFCA start handling complaints?
AFCA will start receiving complaints from 1 November 2018. From this date, all complaints against a financial firm must be lodged with AFCA.
What happens with new complaints made during the transition period?
New complaints during the transition period will continue to be lodged with one of the existing schemes.
What happens on 1 November 2018?
On 1 November 2018 pending complaints with existing schemes will be transferred and dealt with by AFCA.
Which terms of reference will apply to legacy disputes?
The terms of reference that apply to legacy disputes will continue to be the terms of reference that applied when the dispute was lodged.
The terms of reference of AFCA only apply to new disputes lodged with AFCA post 1 November 2018.
AFCA terms of reference
Complaints made to AFCA will be determined in accordance with AFCA rules.
There has been consultation on the proposed new AFCA rules, the final approved rules are yet to be released, although this is imminent.
The current draft of the rules can be viewed here.
Staff of the existing schemes
Our understanding is that staff of existing schemes CIO and SCT will be transitioned to AFCA from early September 2018.
This means that those staff transitioned to AFCA will continue to determine disputes under the existing schemes, even though they have been offered employment with AFCA.
Letting your customers know about AFCA
Financial firms are required to update mandatory disclosure documents, financial service guides and credit guides. For the purpose of disclosing AFCA as the new scheme in the above documents, ASIC has allowed for a grace period until 1 July 2019.
What you have to do by 21 September 2018
This relief period for mandatory disclosure documents, is on the condition that financial firms provide information to consumers on how to complain to AFCA from 21 September 2018.
What financial firms will need to do initially is summarised at paragraph RG 165.88 of Regulatory Guide 165: (Licensing: Internal and external dispute resolution) that states:
AFCA will commence receiving complaints about financial service providers (including superannuation trustees and RSA providers), credit providers, credit service providers or unlicensed COI lenders on 1 November 2018. To promote consumer awareness of their rights to pursue a complaint in the transition to commencement of AFCA, these providers and lenders must:
- ensure that IDR final response letters and 'delay letters' (see RG 165.92) issued on or after 21 September 2018 and before 1 November 2018 include references to both the relevant predecessor EDR scheme (which will be able to receive complaints only up until 31 October 2018) and AFCA (which will be able to receive complaints on and after 1 November 2018)—we have set out example text below for IDR final response letters
- ensure that such letters issued on or after 1 February 2019 include references to AFCA but not the predecessor EDR schemes. Letters issued between 1 November 2018 and 1 February 2019 may 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.
In practical terms, financial firms will need to take steps prior to November 2018 to ensure that relevant websites and correspondence are updated with details of AFCA. We would suggest other documents also need to be updated, such as contact information of default notices issued.
Relief granted until 1 July 2019
ASIC, in media release 18-158MR, summarises the transitional relief that has been granted to financial firms in the following terms:
Under the disclosure relief provided by ASIC:
- Financial firms will have until 1 July 2019 to update EDR details to refer to AFCA in mandatory disclosure documents, periodic statements and exit statements
- Financial firms will not have to issue significant event notifications under s1017B of the Corporations Act associated with the transition to AFCA.
Monetary limits and complaints made to AFCA
As is evident from the draft rules of AFCA, new and different monetary limits are proposed in relation to complaints lodged with AFCA.
Financial firms will have a lot of work to do in the transition period not only in relation to applying for membership with AFCA, but also ensuring that customers are made aware of a new one-stop-shop for complaints and disputes – the Australian Financial Complaints Authority (AFCA).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.