From 1 November 2018, Australia will have a new external dispute resolution body, the Australian Financial Complaints Authority (AFCA), combining the Financial Ombudsman Service (FOS), Credit and Investments Ombudsman (CIO) and Superannuation Complaints Tribunal (SCT). It will be the 'one stop shop' for consumer complaints against banks, insurance and superannuation companies, as well as other financial services providers.
Following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, AFCA is expecting 1,000 complaints per week. Those in the financial services industry (and their insurers) should familiarise themselves with these changes.
AFCA can consider complaints against a member of AFCA by:
- An eligible person, being an individual or registered charity.
- A small business, being an incorporated business, a partnership, an incorporated trustee or a not-for-profit organisation with less than 100 employees. This is generally broader than the previous FOS definition for small business.
Importantly, for groups of related companies, AFCA cannot consider the complaint if the company group has more than 100 employees.
There are time limits for bringing complaints and they must have sufficient connection with Australia.
AFCA's monetary limits are as follows:
- Unlimited monetary jurisdiction for superannuation disputes.
- $1 million limit and a compensation cap of $500,000 for most non-superannuation disputes (increased from $500,000 and $323,500 respectively).
- $5 million limit and a compensation cap of $1 million for small business credit facility disputes (increased from $2 million and $323,500 respectively).
- No limits or compensation caps for disputes relating to guarantees supported by a mortgage or other security over the guarantor's primary place of residence with $5 million facility limit for small business (increased from $500,000, $323,500 and $2 million respectively).
- $13,400 per month for insurance stream product disputes (increased from $8,700).
- $15,000 compensation cap for uninsured third-party motor claims (increased from $5,000).
- $250,000 compensation cap for general insurance broker disputes (increased from $174,000).
AFCA cannot deal with disputes concerning the level of fees, charges, rebates, premiums or interest rates which do not involve allegations of non-disclosure, misrepresentation or incorrect application, breach of legal duty or obligation, or where the dispute is with a medical indemnity insurer.
AFCA also cannot deal with disputes regarding small business insurance policies covering legal liability (including public and product liability), professional indemnity, industrial special risks, contractors all risk and fidelity guarantees.
Systemic issues and serious breaches
The Royal Commission has exposed many systemic breaches by Financial Firms (as defined in AFCA's Rules). AFCA can now investigate and report on systemic breaches and refer them to the Financial Firm for remedial action. AFCA has ancillary powers to require the Financial Firm to do or refrain from doing any act which it considers necessary to achieve its objectives. AFCA must report systemic issues to ASIC, APRA, the Taxation Commissioner, the Privacy Commissioner, or other appropriate body.
Similarly, AFCA is required to report a settlement of an AFCA complaint which requires investigation and serious contraventions by Financial Firm to the relevant bodies and may report to ASIC other serious breaches.
AFCA's stated objective is to consider complaints in a way that is independent, impartial and fair in a manner that affords procedural fairness to the parties and which is efficient, effective and timely with the minimum of formality.
In terms of the procedure to be followed:
- AFCA will usually allow an initial referral back period for the complainant to try to resolve the dispute directly with the Financial Firm. This is an important opportunity for the Financial Firm to resolve the complaint outside of the formal AFCA process.
- If the matter cannot be resolved and AFCA considers it can determine the complaint, it will progress through the AFCA system which may involve negotiation, conciliation or a preliminary assessment (not binding on either party). The final step is determination.
- AFCA will then decide whether a determination should be made by a single ombudsman or adjudicator, or by a two- or three-person AFCA panel. AFCA's aim is to select the appropriate AFCA decision maker for the complaint. AFCA will give the parties the opportunity to make submissions and may seek expert assistance.
- AFCA is not bound by the rules of evidence or previous determinations in making a determination.
- AFCA is free to complainants, but comes at a cost to Financial Firms, increasing as the complaint progresses from the initial stages to determination phase. Financial Firms are not entitled to payment of their costs if successful however a Financial Firm may be ordered to pay a complainant's costs up to $5,000 for a non-superannuation complaint.
- Importantly, AFCA's final determinations will be binding on the Financial Firm but not the complainant who may elect to pursue an alternate remedy if dissatisfied with the outcome.
Although AFCA has introduced the role of an Independent Assessor for AFCA complaints, their role appears limited to reviewing the complaints handling process and not the merits or substantive outcome of any complaints. There are very limited rights of appeal from determinations of non-superannuation complaints – essentially restricted to whether AFCA's determination breached its rules or was so unfair it breached its terms of reference. Superannuation complaints may be appealed to the Federal Court on a question of law.
Implications for financial firms
Many Financial Firms will be familiar with the FOS and CIO processes. Those within the jurisdiction of SCT will need to adjust to an ombudsman service.
Any complaints made prior to 1 November 2018 under the existing EDR schemes will be transferred to AFCA, however they will be dealt with under the original EDR Terms of Reference/Rules applicable at the time the complaint was made.
AFCA's increased powers and jurisdictional reach will mean Financial Firms face greater exposure to liability in this jurisdiction without the usual judicial safeguards. It is critical that Financial Firms notify complaints to insurers as early as possible. If complaints cannot be resolved directly with the complainants, the Financial Firms need to ensure they provide all relevant information to AFCA or they run the risk that decisions will be made by AFCA based on incomplete information.
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.