14 June, 2018
Consultation on AFCA's terms of reference to start in June 2018.
What you need to know
On 1 May 2018 the Australian Financial Complaints Authority (AFCA) was authorised as the new single external dispute resolution scheme for financial firms, replacing FOS, CIO and the SCT.
AFCA will commence on 1 November 2018, and financial firms will need to join AFCA by 21 September 2018.
Consultation on AFCA's terms of reference will take place sometime in June 2018.
What you need to do
If you are a financial firm that is required to have a dispute resolution system to deal with complaints, then you must:
- Apply for membership by no later than 21 September 2018.
- Prepare for imminent consultation on AFCA's terms of reference and interim funding model.
- Prepare for ASIC to announce its position on disclosure relief in relation to external dispute resolution changes.
The Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Act 2018 (AFCA Act) creates a new, single external dispute resolution (EDR) scheme for all financial services, credit and superannuation complaints. The scheme is to be known as the Australian Financial Complaint Authority (AFCA). AFCA is operated by a company limited by guarantee and is to be funded by all member firms.
The AFCA Act implements the Australian Government’s response to the Review of the financial system external dispute resolution and complaints framework (Ramsay Review), the first comprehensive and independent review of the financial services dispute resolution framework.
AFCA was authorised by the Hon. Kelly O’Dwyer MP, Minister for Revenue and Financial Services, on 1 May 2018 as the "one-stop shop" external dispute resolution (EDR) scheme for consumers and small businesses in relation to products and services provided by financial firms. AFCA will commence operating on 1 November 2018. Under AFCA, superannuation complaints remain subject to an unlimited monetary jurisdiction, as has always been the case under the SCT and other financial complaints will be subject to significantly higher monetary and compensation limits than under current EDR schemes.
AFCA will replace the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal (SCT), and "will have greater powers of redress compared with its predecessor schemes."
All financial firms that are required to have a dispute resolution system to deal with complaints from consumers and small businesses must become members of AFCA by 21 September 2018. This includes trustees of regulated superannuation funds who are currently subject to the SCT.
Superannuation
Complaints can be lodged with the SCT up to and including 31 October 2018. The SCT will continue to operate after the 1 November 2018 commencement date of AFCA, to resolve the complaints still open at that date. Complaints that have been lodged with the SCT before 1 November 2018 will not be able to be transferred to AFCA.
Superannuation trustees will also need to ensure that they have joined the AFCA scheme by 21 September 2018.
Other financial firms
Consumers will be able to lodge complaints with FOS and CIO up to and including 31 October 2018.
From 1 November 2018, AFCA will take over complaints that were previously directed to FOS and CIO.
AFCA will operate FOS and CIO until all outstanding complaints are finalised.
Existing members of FOS and CIO must become members of AFCA by 21 September 2018. They must also retain their existing membership of the FOS or CIO scheme until further notice.
Complaints made to the FOS and CIO schemes before 1 November 2018 which remain unresolved at that date will be dealt with by AFCA under the rules/terms of reference that applied when the complaint was originally made.
Membership fees
Application fees currently published on the AFCA website cover membership to 30 June 2018. Information on application fees for the 2018/2019 financial year will likely be made available in June 2018.
Additional fees will also apply for any disputes handled by FOS, in accordance with its terms of reference.
As part of AFCA's interim funding arrangements, there will be separate arrangements for the funding of superannuation disputes.
ASIC's role
ASIC is responsible for oversight of AFCA, which includes approving any material changes to the scheme. ASIC also has a new general directions power over AFCA, and an explicit directions power to increase monetary limits and ensure the scheme is adequately financed.
ASIC is also taking the lead in consulting with the Australian Prudential Regulation Authority (APRA), the Commissioner of Taxation and the authorised AFCA scheme about practical implementation of the new legislative reporting requirements. AFCA will have an obligation to give particulars of a contravention, breach, refusal or failure to APRA, ASIC or the Commissioner of Taxation (as appropriate) if it becomes aware, in connection with a complaint under the AFCA scheme, that:
- a serious contravention of any law may have occurred;
- a contravention of the governing rules of a regulated superannuation fund or an approved deposit fund may have occurred;
- a breach of the terms and conditions relating to an annuity policy, a life policy or an RSA may have occurred; or
- a party to the complaint may have refused or failed to give effect to a determination made by AFCA .
ASIC has already consulted on an updated Regulatory Guide 139 (RG 139) (CP 298 Oversight of the Australian Financial Complaints Authority: Update to RG 139, released 5 March 2018). In CP 298, it advised that the revised Regulatory Guide will be issued on 1 November 2018.
ASIC has also announced that it will publicly consult on new IDR standards and the mandatory IDR reporting requirements that are also contained in the AFCA Bill – but this consultation will not take place until after AFCA commencement.
Current legislative IDR requirements for superannuation trustees and retirement savings account providers (including 90-day timeframes and requirements for written reasons) will continue to apply in their current form until ASIC consults on and then issues updated IDR policy (RG 165).
What next?
AFCA will shortly consult publicly on its terms of reference, which will be subject to ASIC approval.
AFCA will be funded by contributions of members, however the interim funding model will also be the subject of public consultation.
ASIC will also announce its position on the need for disclosure relief for financial firms in relation to the EDR changes in the near future.
For further information, please contact:
Lisa Simmons, Partner, Ashurst
lisa.simmons@ashurst.com
