21 Jun 2018
A new financial dispute resolution scheme on the horizon – what you need to know now
By Gemma O'Connor
Financial firms, including superannuation trustees, will need to get ready now for the Australian Financial Complaints Authority, the new external dispute resolution scheme.
From 1 November 2018, the Australian Financial Complaints Authority (AFCA) will replace the existing two ASIC-approved external dispute resolution (EDR) schemes, the Financial Ombudsman Service (FOS) and the Credit and Investments Ombudsman (CIO), as well as the Superannuation Complaints Tribunal (SCT).
AFCA’s draft rules are currently open for consultation until 29 June 2018.
Transitioning to the Australian Financial Complaints Authority
Consumers will continue to be able to lodge complaints with FOS or CIO up to and including 31 October 2018; the same cut-off date applies to superannuation members and other eligible complainants lodging complaints with the SCT.
From 1 November 2018:
- Unresolved complaints lodged with FOS and CIO before 1 November 2018 will be handled by AFCA under the rules of the EDR scheme applicable when the complaint was lodged.
- Unresolved complaints lodged with the SCT before 1 November 2018 will continue to be handled by the SCT.
AFCA will handle any new complaints from 1 November 2018.
Joining the scheme
Australian financial services licensees, credit licensees and other entities required under the Corporations Act 2001 or National Consumer Credit Protection Act 2009 to be a member of an EDR scheme, and superannuation trustees, will need to join AFCA by 21 September 2018.
Existing members of FOS and CIO must join AFCA by that date. They must also retain their existing membership of CIO or FOS until further notice.
Updating your disclosure and other documents
ASIC announced on 31 May 2018 that it will provide transitional relief allowing financial firms until 1 July 2019 to update EDR details in mandatory disclosure documents, periodic statements and exit statements.
However, RG 165 has been amended to require information about predecessor schemes and AFCA to be provided to complainants from 21 September 2018. Financial firms intending to rely on disclosure relief will need to familiarise themselves with the updated text under RG165.88.
Monetary jurisdiction and compensation caps
The monetary and jurisdictional limits on AFCA’s jurisdiction, and compensation caps, are not open for consultation.
Notably the draft rules include the following monetary limits for complaints (other than superannuation complaints):
- claim for direct financial loss by a complainant other than a small business or primary producer: jurisdictional limit of $1 million and a compensation amount limit per claim of $500,000;
- claim by a borrower for direct financial loss arising from a credit facility provided to a small business: credit facility must not exceed $5 million and a compensation amount limit per claim of $1 million; and
- claim by a borrower for direct financial loss arising from a credit facility provided to a primary producer: credit facility must not exceed $5 million and a compensation amount limit per claim of $2 million.
For the purpose of the draft rules, small business means a primary producer within the meaning of section 995.1(1) of the Income Tax Assessment Act 1997, or other business that had fewer than 100 employees at the time of the act or omission by the financial firm that gave rise to the complaint. A primary producer must also be a small business.
Claims by a guarantor to set aside a guarantee supported by security over the guarantor’s principal place of residence do not have a compensation amount limit (though the credit facility must not exceed $5 million where provided to a small business or primary producer).
These monetary limits reflect the significant increase in monetary jurisdiction and enhanced access to redress for small business recommended by the Ramsay Review.
Superannuation complaints do not have a monetary limit.
What should you do next?
Financial firms, including superannuation trustees, should:
- By 29 June 2018
- Make any submissions on the AFCA draft rules
- By 21 September 2018
- Join AFCA; and
- Update IDR final response letters and "delay letters" to provide information about existing EDR schemes and AFCA as set out in RG165.88.
- By 1 November 2018
- Update IDR final response letters and "delay letters" to make it clear that only AFCA can receive complaints from 1 November 2018; and
- Ensure broader consumer communications (including websites) are updated with AFCA’s details.
- By 1 February 2019
- Ensure any references to predecessor EDR schemes are removed from IDR final response letters and "delay letters".
- By 1 July 2019
- End of transitional disclosure relief. Ensure mandatory disclosure documents, periodic statements and exit statements are compliant.
Further updates and information about AFCA and the draft rules will continue to be released on AFCA’s website until AFCA becomes operational on 1 November 2018.