With the Banking Royal Commission in full swing, the culture of financial services companies is under the spotlight. One of the key processes by which ethical conduct can be encouraged is by having a robust and transparent complaints handling program, encouraging internal and external commentary and avoiding the need for external agencies and legal action. However, if the need arises to use an external complaints handling agency (once the Internal Dispute Resolution (IDR) Process fails), financial services companies should be prepared for the transition period to the Australian Financial Complaints Authority (AFCA) and the impact on their internal processes.
The Ramsay Review (the Review) was established to conduct a comprehensive and independent review of the financial services dispute resolution framework, and it identified that there were overlaps and gaps among the three financial services bodies - the Superannuation Complaints Tribunal (SCT); Financial Services Ombudsman (FSO) and the Credit Industry Ombudsman (CIO). The Review also identified some confusion among consumers as to where to direct their complaints.
The different operating styles of the bodies made it difficult to ensure the same outcome for similar complaints and some disputes could involve multiple financial services providers who could be members of different schemes. In short, the very existence of three different, overlapping External Dispute Resolution (EDR) schemes for the financial services industry did not illustrate best practice in how to manage complaints.
Background to AFCA
The Review applauded the independence, flexibility and responsiveness of the ombudsman model embodied by the FSO and the CIO. But, in the SCT, it also valued the unlimited monetary jurisdiction, broad jurisdiction to review trustee decisions and statutory provisions such as the ability to join third parties to a dispute.
The Federal Government's solution was the passing of the Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017, which established the AFCA, a one-stop shop for fair, timely and effective EDR in the financial services industry using the current consumer protection framework. The AFCA replaces all three current complaints handling bodies, however, while the FSO and CIO are to be immediately subsumed on the commencement of the AFCA and their current complaints transferred to AFCA, the SCT will resolve all complaints currently being heard before being retired.
Complaints handling best practice
Complaints handling is a reflection of a company's governance procedures. Too many companies view a client complaint as either a nuisance that should be minimised (and the client's fault) or critical improvements that need to be actioned (prompting a variety of reactive defense mechanisms).
But complaints should be welcomed because a good complaints handling process will establish a positive client relationship and reduce the adverse consequences from social media such as reputational damage or loss of market share. The proactive management of complaints can also be a good avenue for valuable insight into a company's operations and any systemic issues can be managed through a continuous improvement cycle that will increase client satisfaction and engagement.
The AFCA Framework
AFCA, as a single EDR body, will have the following key features:
- accessibility - free to consumers
- accountability - through regular independent reviews
- enforceability - all financial services companies will be required to comply with determinations as a condition of membership
- improve industry practice - monitoring, addressing and reporting systemic failures must be made to ASIC
- expertise - especially in complex disputes involving multiple providers
- community engagement - including raising awareness among consumers and the financial services industry.
On 20 June 2018, ASIC issued Regulatory Guide 267 which outlines how ASIC will perform its oversight role in relation to AFCA. It also includes AFCA membership obligations which are relevant to all financial services companies with section 1051(2)(a) of the Corporations Act detailing that membership of AFCA is open to every entity that is required to be a member of an EDR scheme under:
- a law of the Commonwealth;
- an instrument made under such law; or
- the conditions of a licence or permission issued under such a law.
Importantly, all AFS licence holders must have a dispute resolution system that consists of IDR procedures that comply with ASIC's Regulatory Guide 165 and they mus also be a member of AFCA for EDR procedures.
By 1 November 2018 (AFCA commencement date) all AFS licence holders must have updated their EDR internal and immediate customer communication documents like websites and customer service information updates. AFS licence holders have until 1 July 2019 to update external EDR documentation like product disclosure statements (PDS).
The Transition Period for AFCA
AFCA will be a significant change in EDR for the financial services industry, promoting a streamlined process for resolving complaints and increasing client satisfaction with the EDR process.
Key dates which AFS licence holders should be aware of include:
- September 2018 - release of the finalised AFCA Rules (date unknown)
- 21 September 2018 - requirement that all AFS licence holders join AFCA
- 1 November 2018 - AFCA operational and ready to receive complaints - new complaints for FOS and CIO will go through AFCA and old complaints will be transferred.
- 1 July 2019 - Final date for all clients to have external EDR documents updated with AFCA details including financial services guides, PDS and periodic statements about superannuation interest.