27 Jun 2019

Changes to AFCA Rules approved and amended Operational Guidelines released for legacy complaints

By Narelle Smythe, Nicholas Mavrakis and Welton Chan

Financial firms need to be sufficiently resourced and ensure their complaint resolution and document retention procedures are ready in order to handle legacy complaints.

On 18 June 2019, ASIC announced that it has approved amendments to the Australian Financial Complaints Authority Rules (AFCA) Rules which will allow AFCA to accept particular complaints about conduct which occurred on or after 1 January 2008, for a period of 12 months commencing on 1 July 2019.

AFCA's expanded jurisdiction follows the introduction of the AFCA Scheme (Additional Condition) Amendment Authorisation 2019 which requires AFCA, for 12 months, to accept complaints about conduct dating back to 1 January 2008, the period examined by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

AFCA has also released updated Operational Guidelines which provide guidance on how AFCA will deal with complaints which fall within its expanded jurisdiction.

As a result of the changes, current members of AFCA will need to:

  • understand the scope of AFCA's expanded jurisdiction and its approach in considering legacy complaints;
  • be equipped with sufficient resources to respond to and resolve legacy complaints referred by AFCA;
  • be prepared to respond to legacy complaints referred by AFCA within the timeframes prescribed by AFCA; and
  • review their document retention practices and consider if additional or alternative procedures need to be implemented to ensure relevant information is collected and documents are located within AFCA's required timeframes.

What complaints are covered?

AFCA's expanded jurisdiction covers legacy complaints. A legacy complaint is a complaint that meets all of the following criteria:

The complaint is made by an eligible person (as defined in the AFCA Rules) that relates to a compulsory member of the AFCA scheme and who is a member of the scheme at the time the complaint is made.

  • A compulsory member is a financial firm that is required or obliged to hold AFCA membership (for example, as a licensee or credit representative), rather than having joined the AFCA scheme voluntarily.
  • The compulsory member needs to be the same entity responsible for the disputed conduct; and
  • Whether the complainant is an eligible person is determined at the time the complaint is submitted to AFCA. This means an eligible person may be eligible to make a legacy complaint to AFCA, even though they were not eligible to make such a complaint under a predecessor scheme.

The complaint is about conduct by the compulsory member that occurred on or after 1 January 2008. AFCA, in its Operational Guidelines, states that conduct means acts or omissions resulting in loss suffered by the complainant; and

The complaint is made to AFCA in the period from 1 July 2019 to 30 June 2020 inclusive.

What complaints are not covered?

However, the following complaints are not covered:

  • Complaints about conduct that occurred and ended before 1 January 2008;
  • Complaints in relation to which a decision or determination:
    • has been made by a court or tribunal. AFCA, in its Operational Guidelines, states this is where final orders have been made (whether made on the merits or in the absence of the complainant's defence);
    • about the merits of the complaint has been made under the predecessor scheme or AFCA;
  • Complaints that have previously been finally settled by the person making the complaint and the financial firm to whom the complaint relates (other than a complaint which can still be made under the AFCA Rules). This means a complaint may still be made under the AFCA Rules where AFCA chooses not to exercise its discretion under the AFCA Rules in excluding complaints from its consideration where they have been settled in full and final satisfaction of the parties' obligations;
  • Complaints in relation to a superannuation death benefit; or
  • Complaints that solely relate to a right or obligation arising under the Privacy Act.

How will AFCA deal with legacy complaints about conduct that occurred many years ago?

In its Operational Guidelines, AFCA states that when considering a legacy complaint, it will apply the AFCA Rules as at 30 June 2019 (except for Rule B.4 which prescribes time limits on when complaints can be made), subject to any subsequent amendments, regardless of the rules or Terms of Reference of any predecessor scheme[1]which were applicable:

  • at the date the loss or right to bring an action arose; or
  • when that complaint was lodged through a predecessor scheme.

AFCA may apply remedies under the AFCA Rules which were previously not available under a predecessor scheme.

AFCA's Operational Guidelines also provide additional guidance on how AFCA will deal with legacy and other non-legacy complaints about conduct that occurred many years ago including, relevantly:

  • "AFCA will have regard to the relevant law, codes, and industry practice that were in place at the time of the disputed conduct".
  • it would be unfair to apply contemporary views and approaches currently taken to historical conduct for reasons including where the past conduct was consistent with obligations and community expectations at the earlier date.
  • "it may be appropriate to apply a current approach to reach a fair outcome where the law that applied at the time of the disputed conduct is unclear, inconsistent with community expectations or non-existent, or where the interpretation of the law has changed over time and the current approach reflects this".

The recognition that it is unfair to apply current standards and approaches to conduct that happened over 10 years ago is welcome and sensible. However, it remains to be seen how AFCA determines matters such as community expectations or standards were historically. Financial firms will need to consider how they will assess that for the purposes of dealing with individual cases.

Timeframes for responding to complaints

AFCA will still refer the complaint back to the financial firm and set a timeframe for the financial firm to either resolve the complaint or to provide its position (unless AFCA considers it appropriate to commence investigating or otherwise progress the complaint immediately).

However, AFCA has stated in its Operational Guidelines that it may:

  • apply particular approaches to legacy complaints, given the difficulties in gathering evidence about historical conduct.
  • modify the processes it applies when dealing with legacy complaints, including varying the timeframes for financial firms to resolve legacy complaints referred by AFCA, conducting a greater number of conciliation conferences and referring legacy complaints more directly to a decision made by AFCA, if legacy complaints cannot be quickly resolved by agreement.

AFCA has further stated in a recent media release[2] that it expects financial firms to proactively resolve legacy complaints and will commence investigating complaints from 1 October 2019 where firms are unable to satisfactory resolve the complaints.

Document retention  

Like non-legacy complaints, the complainant has the initial burden of providing information and documents with the financial firm requiring to respond to the claim and establish its position. AFCA has stated in its Operational Guidelines that:

  • it can draw adverse inferences if the financial firm does not provide the information AFCA reasonably requires, and does not have a reasonable excuse. However, it would not normally draw an adverse inference if the financial firm cannot provide the information because it was destroyed after the expiry of the timeframe for which it should be kept.
  • it will not lightly exclude a complaint on the basis that there is so little information that AFCA cannot resolve the complaint fairly and in accordance with its obligations under the AFCA Rules.
  • where a claim (by the customer) is unsupported by documentary information, AFCA will try to reach a conclusion based on the weight of the information available. This serves as a reminder for financial firms to ensure they present all available information to AFCA in order for AFCA to holistically consider the circumstances and make its conclusion.

It may be that the older the complaint, the more difficult it may be to obtain information and locate documents. Financial firms need to consider if additional or alternative procedures need to be put in place to ensure the relevant information is collected and documents are located within AFCA's required timeframes.

Next steps

1 July 2019 marks the commencement of a 12 month period which expands AFCA's jurisdiction for receiving particular complaints about historical conduct. Financial firms need to be sufficiently resourced and ensure their complaint resolution and document retention procedures are ready in order to handle legacy complaints. Financial firms need to also keep an eye out for additional guidance AFCA may publish, including on its website.


[1] A predecessor scheme means the Banking and Financial Services Ombudsman Limited, the Financial Industry Complaints Service Limited, the Insurance Ombudsman Service Limited, Credit Union Dispute Resolution Centre Pty Limited, Insurance Brokers Dispute Limited, Financial Ombudsman Service Limited, Credit and Investments Ombudsman Limited and the Superannuation Complaints Tribunal.Back to article

[2] Australian Financial Complaints Authority, 18 June 2019, AFCA welcomes ASIC approval for legacy complaints.Back to article

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.