Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017 (AFCA Bill) which will establish a new external dispute resolution framework under which the Minister will authorise a new 'one stop shop' to deal with financial system complaints (the Australian Financial Complaints Authority (AFCA)), passed both houses on 14 February and will become law. AFCA will start hearing disputes no later than 1 November 2018.
Key Points
- The Bill will amend the Corporations Act 2001 and other Commonwealth Acts to introduce a new external dispute resolution (EDR) framework and an enhanced internal dispute resolution (IDR) framework.The Revised Explanatory Memorandum states that:
- EDR Framework: 'The new EDR framework will ensure that consumers have easy access to a single EDR scheme, known as the Australian Financial Complaints Authority (AFCA), which will resolve disputes about products and services provided by financial firms. The AFCA scheme will replace the Superannuation Complaints Tribunal (SCT) and the existing EDR schemes approved by the Australian Securities and Investments Commission (ASIC)'.
- IDR Framework: 'The enhanced IDR framework will require financial firms to report their IDR activities in accordance with ASIC requirements and allow ASIC to publish information it receives under new reporting requirements. This will allow ASIC to improve transparency about the performance of financial firms in relation to their IDR activities'.
New EDR Framework
- Context — The reform of the External Dispute Resolution Framework: As announced in the 2017-2018 Budget and consistent with the recommendations of the Ramsay Review of the financial system's external dispute resolution and complaints framework (see: Governance News 15/05/2017) the Bill will establish a new external dispute resolution (EDR) framework under which the Minister will be able to authorise a new 'one stop shop' EDR scheme, the Australian Financial Complaints Authority (AFCA), to handle financial disputes and to provide 'fast and fair resolution of financial complaints in a way that is binding on Financial Firms'.The Revised Explanatory Memorandum notes that 'In relation to superannuation complaints, limited rights of appeal [to the Federal Court] on a question of law will be maintained, which is consistent with the approach under the SCT'.
- 'Financial Firms' will be required to be members of the AFCA scheme: Australian financial services licensees (AFS licensees), unlicensed product issuers, unlicensed secondary sellers, Australian credit licensees and credit representatives, regulated superannuation funds (other than self-managed superannuation funds ), approved deposit funds, retirement savings account (RSA) providers, annuity providers, and life policy funds and insurers (collectively, Financial Firms) will all be required to be members of AFCA.
- AFCA will replace three existing EDR bodies: the Superannuation Complaints Tribunal (SCT); the Financial Ombudsman Service (FOS); and the Credit and Investments Ombudsman (CIO).
- AFCA will be based on an ombudsman model, and will be established by industry as a public company limited by guarantee.The operator of the scheme will be authorised by the Minister.AFCA will have a board comprising an independent chair and equal numbers of directors with industry and consumer backgrounds.The Government is currently seeking a proposal for a not-for-profit company to operate the AFCA scheme to be lodged with Treasury by 15 March 2018.
- AFCA will hear a wider range of disputes than was originally envisaged: The Minister stated that in line with the recommendations of the AFCA Transition Team, chaired by Dr Malcolm Edey the types of disputes AFCA will be empowered to deal with have been broadened to include:
- Small business matters: Businesses with fewer than 100 employees will qualify.
- Small business primary production producers can apply to AFCA concerning disputes about credit facilities of up to $5m, with a maximum compensation of $2m available.
- Income stream insurance policy disputes. The cap on these disputes will increase from the current $8,300 to $13,400 per month.
- Uninsured third party motor vehicle claims disputes. The cap on these disputes will increase from $5,000 to $15,000.
- General insurance broker disputes. The cap on these disputes will increase from $174,000 to $250,000.
- Minister O'Dwyer commented that the changes (redefining a small business as any business with fewer than 100 employees, and by lifting the compensation available to those small businesses that are primary producers to $2 million) would enhance access to AFCA.
- Funding arrangements? The scheme will be financed through contributions by members of the scheme with funding arrangements to be 'determined by the board of the operator of the scheme'.
- Timeline: AFCA will start hearing disputes no later than 1 November 2018: The Revised Explanatory Memorandum states that the timing of key application dates will be set by the Minister (currently, expected to be the Minister for Revenue and Financial Services) by notifiable instrument to enable AFCA to commence operations in a way that minimises disruption to industry and consumers.Minister O'Dwyer said that based on Dr Edey's advice, the Government has decided that AFCA will start receiving disputes from no later than 1 November 2018.
Enhanced Internal Dispute Resolution
- Schedule 2 of the Bill will amend the Corporations Act 2001, National Consumer Credit Protection Act 2009, Retirement Savings Accounts Act 1997 (RSA Act) and the Superannuation Industry (Supervision) Act 1993 (SIS Act) to introduce an enhanced IDR framework.
- IDR Firms will be required to report their IDR activities in accordance with ASIC requirements.According to the Revised Explanatory Memorandum, 'generally' an IDR firm will be an Australian Financial Services (AFS) licensee, product issuer for the purposes of section 1017G of the Corporations Act 2001 or an Australian credit licensee.
- ASIC will be provided with additional powers to determine the content and form of IDR reporting by IDR Firms and to publish this data at both the aggregate and firm level.
- The Revised Explanatory Memorandum states that 'This will allow ASIC to require IDR Firms to report information in a standardised manner about their IDR activity and determine the content and format for that reporting'.
[Sources: Minister for Revenue and Financial Services Kelly O'Dwyer media release 14/02/2018; Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017; Revised Explanatory Memorandum]
Transition arrangements: ASIC Statement
ASIC has issued a statement welcoming the passage through parliament of the Bill to Australian Financial Complaints Authority (AFCA) and confirming transition arrangements.
Transition to the new scheme
- ASIC stated that it would work with Government and scheme stakeholders to ensure that the transition to the commencement of AFCA is as smooth as possible and confirmed that it will retain oversight of the two existing ASIC approved schemes the FOS and the CIO in the interim.ASIC added that separate arrangements are in place for the ongoing operation of the SCT to enable it to deal with existing complaints.
- In order to maintain access to external dispute resolution for consumers in the lead up to commencement of AFCA, ASIC states that it will monitor member compliance with existing EDR scheme requirements as well as the effectiveness of scheme operations.
- Members of each of CIO and FOS (including licensees and credit representatives) must continue to maintain their EDR membership through this period, including paying membership and other scheme fees in full as required. ASIC has asked the two schemes to report any failure of members to do so.
- ASIC notes that a memorandum of understanding between CIO and FOS will prevent members inappropriately moving between the schemes in the transition period.
Consultation on details of ASIC's oversight of AFCA: ASIC will be shortly be consulting on an updated Regulatory Guide 139 Approval and oversight of external complaints which will set out details of ASIC's oversight of AFCA. ASIC writes that this will be finalised and published when AFCA commences operations.
Consultation on new Internal Dispute Resolution Standards and reporting requirements
- ASIC will also publicly consult on new IDR standards and the mandatory IDR reporting requirements that are also contained in the AFCA Bill.ASIC states that 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 ASIC states (Regulatory Guide 165: Internal and external dispute resolution).
ASIC Deputy Chair Peter Kell said, 'Fair, timely and effective dispute resolution is a cornerstone of the financial services consumer protection framework…The establishment of a single scheme for all financial services and superannuation complaints is a very positive development, building on the outcomes achieved over many years by the existing three schemes: the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal…Higher monetary limits and compensation caps, including for primary production businesses, will give more consumers and small businesses access to a free and independent forum to resolve their complaints.'
[Source: 18-041MR ASIC welcomes establishment of the Australian Financial Complaints Authority]
The Australian Bankers' Association has welcomed the passage of the Bill stating that it 'delivers a big win for Australian bank customers by creating a "one stop shop" for resolving issues in the financial services industry'.
Anna Bligh, CEO of the Australian Bankers’ Association, said 'Merging three complaints authorities into a "one stop shop" is common sense reform and should lead to speedier resolution of issues experienced by Australian bank customers… Australian banks have supported this change from its inception as a recommendation from the Ramsay review to ensure efficient and easier access to help for customers'.
[Source: Australian Bankers' Association media release 14/02/2018]
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