This article was written by Katherine Forrest and Mizu Ardra.
After a year of consultation, reforms to Australia's financial services external dispute resolution schemes have come into effect – these will apply to banking, credit, insurance, funds and superannuation complaints.
AFCA is a 'one stop shop' which replaces three existing external dispute resolution schemes:
- Credit and Investments Ombudsman;
- Financial Ombudsman Service (FOS); and
- Superannuation Complaints Tribunal.
In order to facilitate the transition of FOS to AFCA, the membership base, employees and assets and liabilities of FOS were transitioned to AFCA Ltd. The final AFCA Terms of Reference (to be known as 'The Rules') were released in September 2018.
A regulatory oversight regime for AFCA has also been established by the Treasury Laws Amendment (Putting Consumers First – establishment of the Australian Financial Complaints Authority) Act 2018 which came into force on 5 March 2018. This Act, amongst other things, amends the Corporations Act 2001 (Cth) by establishing an enhanced ASIC regulatory supervision regime for AFCA.
Transition from FOS to AFCA - What do you need to know?
Some of the key differences and similarities between AFCA and FOS are as follows:
- Larger jurisdiction: AFCA will have jurisdiction over a larger volume of disputes as the monetary threshold for acceptable consumer credit claims has been increased from $500,000 under FOS to $1 million under AFCA. AFCA will also be able to award higher compensation amounts compared to FOS.
- Systemic Issues: Unlike the FOS scheme, under the proposed AFCA scheme, AFCA will have a broad directions power in respect of systemic issues to require the member firms to do or refrain from doing any act which AFCA considers necessary to achieve one or more specified objectives which include remedying loss suffered by the relevant complainant and preventing foreseeable loss. When dealing with systemic issues, it is also expected that AFCA and ASIC will engage in a 'two way' sharing of information. This is different to the position of systemic issues under FOS where ASIC was limited in what information it could provide to FOS.
- Remediation: As part of its new powers, AFCA expects to be more involved in remediation – including setting up programs with financial institutions.
- Appeal Rights: The position regarding appeal from decisions is not materially less favourable to the financial services providers under AFCA than FOS. AFCA has almost identical rules to FOS regarding appeals of decisions. Specifically:
- There is no straightforward path to appeal a determination relating to an individual customer.
- Like FOS, there is a procedure for bringing a test case on a particular matter if AFCA agrees to this and to satisfy certain conditions (for example, complaintants costs to be covered).
- Courts have taken the view in the past in relation to FOS that other appeal rights are extremely limited. However there are unlikely to be any administrative law remedies available as FOS is a voluntary EDR scheme and FOS's decisions are viewed as not of an administrative character. It may be that there are better arguments for seeking this type of review going forward owing to the "one stop shop" nature of AFCA.
However unlike FOS, AFCA has a broad directions power in respect of systemic issues that goes beyond the customer making the complaint. So the limited appeal rights potentially become more concerning in this context.