“AFCA is a scam and do not look at evidence or anything and is not fair and equal. There is no possible way they will look into the merits of a decision even if they are shown undeniable proof”
— Afcaneedsfixing, North Queensland (Productreview.com.au)
1. An Introduction to AFCA.
The Australian Financial Complaints Authority (AFCA) is a successor to the Financial Ombudsman Service (FOS), Credit and Investments Ombudsman (CIO), and other External Dispute Resolution (EDR) schemes. AFCA commenced operations on 1 November 2018, replacing these predecessor EDR schemes and inheriting all complaints made to FOS and CIO, providing a singular platform for resolving financial disputes.
ASIC’s Regulatory Guide 139 (RG 139) initially provided the framework for the approval and oversight of these external dispute resolution schemes, however, this guide was withdrawn on 15 August 2023, following the full transition to AFCA. For those playing at home, RG 139 was replaced by RG 267 “Oversight of the Australian Financial Complaints Authority”.
AFCA operates with a consumer-centric approach, primarily focused on protecting the interests of retail clients. However, it also has the discretion to consider complaints made by Wholesale Clients (and the willingness to do so).
Tip: Understand AFCA’s history and focus.
Most advisers, or rather those that complain about AFCA, describe AFCA as “out of control” and biased against advisers. Many consumers express similar sentiments for contrary reasons. Some might question AFCA’s legitimacy but understanding transition to AFCA and its consumer-focused approach can aid financial advisers in aligning their practices with AFCA’s principles, ensuring a seamless interaction in case of disputes.
Related Reading: Explore the evolution of AFCA in the article “AFCA: Old wine in a new bottle?” on Assured Support. Alternatively, read “Legitimacy in Australia’s Financial System External Dispute Resolution Framework: New and Improved or Simply New?”
2. AFCA’s Jurisdiction.
The jurisdiction of AFCA is a cornerstone that defines the ambit of complaints it can handle. It extends to complaints against financial firms who are members of AFCA, encompassing a wide array of financial products and services.
AFCA is governed by a set of Rules approved by ASIC, and these Rules and Operational Guidelines are published to provide transparency.
Tip: Read the rules
Familiarity with AFCA’s jurisdiction, rules and guidelines can empower Licensees and financial advisers to more effectively respond to allegations and ensure compliance with established protocols.
3. Dispute Resolution Procedure.
AFCA has structured a robust dispute resolution mechanism that orchestrates the mediation process between financial advisers (and other financial firms) and complainants, pivoted on contractual law and adherence to AFCA rules.
It’s a formal, structured process built on regular and open communication.
Where advisers and Licensees go wrong is that they often consider AFCA to a party to the dispute. That’s a mistake; although AFCA prioritises openness and engagement.
Tip: Take a proactive approach to communications.
Regardless of your personal investment in the dispute, ensure that you engage in proactive communication with clients to resolve disputes amicably (ideally before the dispute escalates to AFCA). It’s not wasted time and effort, done right, it will save you time and preserve your reputation.
4. Judicial Rules and Principles.
AFCA’s Rules delineate the manner of considering complaints, emphasising a merits-based approach, supported by submissions and evidence from each party. Although not bound by substantive law, or required to follow court rules, AFCA follows judicial principles like procedural fairness, impartiality, and timely complaint resolution.
Tip: Importance of Documentation.
Ensure thorough documentation of all financial transactions and advisory processes to provide substantial evidence in case of a dispute
5. Guidelines on Advice Adequacy.
AFCA has crafted guidelines elucidating its approach to key issues like the adequacy of statements of advice, enabling both consumers and financial firms to have a clear understanding of what constitutes adequate advice.
The Guidelines can be accessed here.
Tip: Consider AFCA’s Advice Adequacy Guidelines.
Regular training on AFCA’s guidelines regarding advice adequacy can assist you and your staff to provide, what AFCA consider, better Statements of Advice. You might not slavishly follow their suggestions, but they might provide you with a better understanding of their approach.
6. Professional Indemnity Insurance (PII).
There have been a few instances where firms evaded compensation payments following AFCA rulings by citing a lack of Professional Indemnity Insurance. Allowing advisers to sidestep AFCA rulings would be, and is, problematic.
This may be why ASIC have cancelled licences for AFS Licensees that did not have adequate professional indemnity insurance.
Tip: Check your policy
Even if it weren’t a legal requirement (s912A), a robust Professional Indemnity Insurance policy acts as a safety net against unforeseen financial liabilities (including complaints).
7. Monetary Limits.
Following Treasury’s review of AFCA, and effective from 1 January 2021, AFCA revised its monetary limits concerning complaints, encapsulating the maximum claim values for compensation, credit facility complaint sizes, and awardable amounts for various complaint categories, with a mandate for triennial adjustments.
Tip: Follow the money
Keeping abreast of the current monetary limits which can help you understand your potential liability or help you set realistic expectations for clients regarding the compensation they can seek through AFCA. Don’t be too comforted by the numbers, a complaint can involve multiple claims.
8. Rights of Appeal.
AFCA’s decisions generally bind the Licensee/adviser, but do not bind the complainant. However, some decisions and conduct by AFCA are appealable, accentuating the importance of understanding the appeal rights and processes.
Tip: Not all decisions are final
Seek legal counsel to comprehend the intricate appeal processes and rights that pertain to AFCA’s decisions, preparing for possible appeal scenarios.
AFCA has the mandate to impose a range of remedies including issuing an apology, awarding monetary sums, forgiving debts, and setting aside contracts. The cap on compensation does not limit the number of complaints a complainant can lodge, potentially leading to substantial cumulative compensation.
Tip: Explore for non-financial remedies
Offering an apology, rework or waiving costs are often over-looked complaint resolution strategies. Financial loss or damage needs to be addressed quickly and adequately, but don’t overlook alternatives that the complainant might actually prefer.
10. Impact of AFCA Complaints.
The repercussions of complaints are multifaceted, potentially escalating insurance premiums, tarnishing reputations, and posing challenges in capital raising among others. A thorough understanding of AFCA rules and proactive management of complaints are pivotal for risk mitigation.
Tip: Prioritise prevention over cure
Implement and sustain a culture that emphasises addressing grievances promptly and efficiently, minimising the impact on your clients and your business operations.
Bonus: Three additional considerations
- Surge in Complaints
The surge in complaints in 2022-23, totalling 96,987, reflected a rise of Banking and Finance complaints by 27%, scam-related complaints by 46%, and General Insurance complaints by 50% due to ongoing claim delays. The data snapshot as of 30 June 2023 further revealed $253.81 million in compensation to complainants, with an additional $100.5 million in remediation secured for 378,000 consumers post AFCA’s systemic issues investigations.
Tip: Analyse trends to take preemptive steps.
Analysing trends in complaints can provide valuable insights to preemptively address areas of concern and enhance client satisfaction.
2. Mandatory Reporting to ASIC
The legislative changes have introduced a mandatory and ongoing Internal Dispute Resolution (IDR) data reporting obligation for in-scope financial firms to ASIC. These firms must submit an IDR report every six months, covering the reporting periods of 1 January to 30 June, and 1 July to 31 December, with a two-month submission window opening at the end of each reporting period. The detailed reporting necessitates a regulatory technology solution.
The reporting for different tranches of firms will commence in stages. The third tranche of firms, which likely includes numerous financial advisers, will begin reporting from 1 January to 29 February 2024, covering the six-month reporting period from 1 July to 31 December 2023.
Tip: Prepare for the Reporting Obligations.
To ensure compliance with these reporting obligations, adopting a regulatory technology solution such as OpenAFSL, which is configured to meet these requirements, is advisable.
3. Regulatory Guide 271
RG271 sets out how financial firms required to comply with IDR requirements can meet their broader obligations, including recording and responding to IDR complaints, and the timeframes for doing so.
Tip: Understanding what RG 271 requires
RG271 can provide you with a clear understanding of the IDR requirements and help you build a compliant complaint handling and reporting procedure.
The intricacies surrounding AFCA’s operations necessitate a thorough understanding and a proactive approach. Aligning yourself with AFCA’s regulations, and fostering a culture of transparency, can significantly mitigate the risks associated with financial disputes.
Our seasoned experts, backed by a rich dataset and in-depth industry insights, are adept at providing bespoke solutions aligning with regulatory expectations. Explore our suite of services and leverage our expertise to foster a culture of compliance and resilience against financial disputes
Navigating the intricacies of AFCA’s regulations and dispute resolution processes can be challenging. Contact the experts at Assured Support for comprehensive assistance and advice tailored to safeguard your firm against potential pitfalls.