Improving Financial Service Providers’ Dispute Resolution and Complaints Management

Need for better management of complaints from consumers of financial services

In its Final report, published in May 2017, the Review of the financial system external dispute resolution and complaints framework (Ramsay review), made 11 recommendations for more fair, timely and effective resolution by financial services providers of consumer complaints. The recommendations included:

  • establishing a single external dispute resolution (EDR) body for all complaints about financial services providers, including superannuation entities, to replace the Financial Ombudsman Service, Credit and Investments Ombudsman and the Superannuation Complaints Tribunal.
  • improving financial service providers’ internal dispute resolution (IDR) through increased reporting of IDR activity to ASIC and increased tracking of IDR disputes by the new EDR body.

The Government’s response was to establish the Australian Financial Complaints Authority (AFCA), which started operation on 1 November 2018 (see our article published in June 2018). Under the establishing legislation, all financial firms are to report to ASIC on their IDR data, which ASIC has the power to publish in aggregate and at the level of the individual firm.

Shortly after AFCA came into operation, ASIC released a report it had commissioned on the consumer journey through the IDR process of financial service providers.

By this time, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry had been established and had conducted seven rounds of public hearings. As described in an article in The Guardian (“It’s not even scratched the surface”: bank victims demand royal commission 2.0, 1 December 2018) after 68 days of hearings, 134 witnesses, 400 witness statements and 6,500 documents, victims of misconduct in the financial services industry were saying that the Royal Commission — although thorough and on occasions a brutal exposé of the industry’s shortcomings – had not gone far enough.

ASIC’s Report 603 found that there were many obstacles for consumers who intended to pursue a complaint about a financial services provider. These obstacles could be categorised as being related to:

  • structure – such as difficulty in finding a firm’s contact details, having to follow up too many times or having to talk to too many contact people
  • transparency — where, for example, a complainant was not given an explanation of the IDR process at the first contact, progress updates or, in the case of an unfavourable conclusion, an adequate explanation
  • customer service — where staff were unhelpful, or complainants felt they had not been listened to or taken seriously.

According to Report 603, while approximately 3.2 million Australian adults considered making a complaint to a financial services provider in the previous 12 months, more than half did not do so.

When it released Report 603, ASIC indicated its work to improve IDR standards and transparency within all financial firms that deal with retail clients and all superannuation trustees would encompass:

  • onsite monitoring of the IDR functions at the four major banks and AMP, under ASIC’s Close and Continuous Monitoring Program (which ASIC had announced a couple of months previously, with the goal of modifying the behaviour of the large institutions to encourage them to place consumers first and to identify and respond to conduct that produces unfair outcomes)
  • public consultation on Regulatory Guide (RG) 165 Licensing: Internal and external dispute resolution and
  • proposals for the collection of IDR performance data from financial firms.

In its first six month report, AFCA made several comments about financial service providers’ IDR processes. For example, regarding general insurance complaints, AFCA observed that “complaints relating to delays or service quality should be able to be resolved by financial firms internally and should not be one of the top issues in complaints we receive” (page 12).


ASIC’s proposed changes to Regulatory Guide 165

ASIC released Consultation Paper 311 in May 2019, seeking comments on its proposed updates to RG 165 by 9 August 2019. ASIC indicated that a revised RG and legislative instruments would be released at the end of the year.

The proposed updates:

  • align RG 165 with the new statutory framework established by the AFCA legislation, including expanding the requirements to cover superannuation trustees
  • reflect that AS/NZS 10002:2014 has superseded AS ISO 10002–2006 as the Standard for effective complaints handing, which means introducing a new and expanded definition of “complaint” that would include “an expression of dissatisfaction made to or about an organisation …where a response or resolution is explicitly or implicitly expected or legally required”. In ASIC’s view, this would capture complaints made by identifiable customers on a firm’s social media platform. (We note that ASIC does not mention ISO 10002:2018, the most recent international standard on complaints handling. ASIC is required by regulation 7.6.02(1) and 7.9.77(1) of the Corporations Regulations 2001 (Cth), and corresponding provisions in the National Consumer Credit Protection Regulations 2010 (Cth) to take into account AS NZS 10002:2014 in considering standards and requirements regarding internal dispute resolution.)
  • introduce new requirements:
    • to record all complaints received, including those resolved to a complainant’s satisfaction at the first point of contact
    • to record a unique identifier and collect a prescribed minimum data set for each complaint received. Financial firms would be required to provide six monthly IDR reports to ASIC as unit record data, and ASIC would publish IDR data at both aggregate and firm level. ASIC has advised that it intends to consult further in the first half of 2020 regarding the collection and reporting of IDR data
    • for the content of IDR responses to complainants to clearly set out the reasons for the decision. When a complaint is rejected or partially rejected, the complainant must be given enough detail to understand the basis of the decision and to be fully informed when deciding whether to escalate the matter to AFCA
    • that reduce the maximum timeframes for providing IDR responses
      • for superannuation complaints – from 90 days to 45 days
      • for all other complaints — from 45 days to 30 days (excluding some credit complaints where the maximum timeframe is generally 21 days)

and provide that IDR delay notifications can only be issued in exceptional circumstances

    • for firms to have in place processes to ensure systemic issues are identified, escalated, followed up and reported to the board and executive committees

Reports to the board and executive committees must also include metrics and analysis of consumer complaints.

ASIC’s proposed timeframe was that firms be ready to comply with all the new requirements immediately on publication of the updated RG 165, with the following exceptions:

Providing IDR responses within the new timeframes 31 March 2020
Recording all complaints, assigning unique identifiers and collecting data 30 June 2020
Reporting IDR data to ASIC 30 June 2021.


In Consultation Paper 311, ASIC also advised that it intended to issue a legislative instrument that would make the core IDR requirements of RG 165 enforceable. It also proposed modifications to ss 912A(1) and 1017G(1) of the Corporations Act 2001 (Cth) (Corporations Act) and s 47(1) of the National Consumer Credit Protection Act 2009 (Cth). In ASIC’s view, the requirement for financial firms to have a dispute resolution procedure that includes an IDR process that meets ASIC’s standards and requirements is insufficient – there should be an explicit requirement to have and comply with ASIC’s IDR requirements.

Further, ASIC noted that the definition of “small business” in the Corporations Act affects whether a business is classified as a retail client or wholesale client for the purposes of Chapter 7 and, in turn, whether a licensee’s IDR process must cover the business. ASIC intended to expand the required scope of licensees’ IDR processes by modifying the definition of small business in the Corporations Act to align it with the definition in the AFCA rules.


Feedback on the proposals

Investment Magazine (ASIC paper raises thorny issues for super funds, 2 September 2019) reported that the most contentious proposal is the reduction in time for decision-making. The article noted that consumer groups have welcomed the proposals but are generally pushing for 30-day timeframes.

According to Super Review (ASIC warned on rush to IDR changes, 20 August 2019), the submission from the Association of Superannuation Funds of Australia (ASFA) urged that implementation dates for the proposed dates be extended. The ASFA argued that, with the final version of updated RG 165 not being published until December 2019, at the earliest, the implementation timeframes “appear to be unrealistically tight”. The ASFA argued that it would be inappropriate for any aspects of updated RG 165 to commence immediately on publication and that the “non-transitional requirements” should not commence before 1 July 2020. The ASFA also expressed concern about the proposal that the definition of “complaint” captures expressions of dissatisfaction made through social media.


Transitional arrangements

The ASIC Corporations and Credit (internal Dispute Resolution — Transitional) Instrument 2019/965 and ASIC Corporations and Credit (Repeal) Instrument 2019/966 (repealing three Class Orders relating to internal dispute resolution) were registered on the Federal Register of Legislation on 26 September 2019. The Explanatory Statement that was published with these instruments states Instrument 2019/965 grandfathers the existing policy in the Class Orders in a single instrument for a transitional period, until 30 June 2020, pending the expected finalisation of ASIC’s new policy on internal dispute resolution.

Regarding the consultation on RG 165, the Explanatory Statement notes that ASIC received 68 written submissions from a range of stakeholders including consumer advocate groups, industry associations, financial firms and individuals. ASIC conducted meetings with stakeholders throughout September to discuss issues raised in submissions.

It is not clear whether ASIC’s proposed timeframe for implementing the updated RG will change. It appears financial services providers will have to wait until December 2019, when the final version of updated RG 165 is released, to know timing expectations. While Consultation Paper 311 indicated that the legislative instruments would be released at the same time, it is also unclear when the enforceability of the core requirements of RG 165 will take effect.


How CompliSpace can help

Combining specialist advice with practical, technology-enabled solutions, CompliSpace helps financial services providers to manage their governance, risk and compliance requirements in an increasingly complex regulatory environment. We will continue to monitor developments in this critical area of dispute resolution and complaints handling and reflect the new regulatory requirements in our programs.

For more information, contact us on 1300 132 090.

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