Updated Internal Dispute Resolution Requirements

This article was written by Sarah Yu and Tracey Yeung.

ASIC has released a new regulatory guide on internal dispute resolution (IDR) for Australian financial services licensees and other financial firms: Regulatory Guide 271 - Internal dispute resolution (RG271).

A legislative instrument sets out the enforceable IDR requirements and standards.[1] These apply to complaints received by financial firms on or after 5 October 2021.

The legislative instrument and regulatory guide contains updated requirements for how financial firms deal with consumer and small business complaints under their IDR procedures and details what these firms must do to have a compliant IDR system in place. All Australian financial services licensees will have a new duty under section 912A of the Corporations Act 2001 (Cth) (Corporations Act) to comply with their internal dispute resolution procedure that must comply with the enforceable IDR requirements and standards. Similarly, all credit licensees must have an IDR procedure that complies with the enforceable IDR requirements and standards and comply with their IDR procedure.

Some of the key changes are:

• Maximum timeframes of IDR responses:
  • Standard complaints: no later than 30 calendar days after receiving the complaint (previously 45 days);
  • Traditional trustee complaints: no later than 45 calendar days after receiving the complaint (previously 90 days);
  • Superannuation trustee complaints not related to death benefit distributions: no later than 45 calendar days after receiving the complaint (previously 90 days); and
  • Superannuation death benefit distribution complaints: no later than 90 calendar days after the expiry of the 28 calendar day period for objecting to a proposed death benefit distribution referred to in section 1056(2)(a) of the Corporations Act) (previously 90 days concurrently with the 28 day period).
• Exceptions to the maximum IDR timeframes: These are if there is no reasonable opportunity to provide the IDR response within the relevant timeframe due to the complexity of the resolution (that will be useful for remediation projects that involve reconstruction of account information and complex superannuation death benefits) or there are circumstances that are beyond the firm's control that are causing the delay (e.g. waiting on information from third parties).
• Written reasons for superannuation death benefits: non-complaining potential beneficiaries must also be provided with the same information that is provided to the complainant (subject to any privacy and confidentiality requirements).
• Resourcing: There are some stringent requirements in relation to resourcing the IDR function as
  • the IDR process must be resourced so that it operates fairly, effectively and efficiently and that this is regularly reviewed by the firm;
  • staffing numbers must be sufficient to deal with complaints in a fair and effective manner within the maximum IDR timeframes, including when there are intermittent spikes in complainant volume; and
  • relevant staff must be provided with appropriate authority to be able to resolve complaints and authorities for deciding complaints must facilitate the fair and efficient resolution of complaints.
• Publicly available complaints policy: A firm must have a publicly available complaints policy.
• Internal complaints management procedure: A firm must have an internal complaint management procedure that is a comprehensive and useful tool for staff who deal with complaints that provides a step-by-step guide for the whole IDR process and clearly sets out staff roles and responsibilities.
• Systemic issues: Boards are required to set clear accountabilities for complaints handling functions, including management of systemic issues identified through consumer complaints. This should be considered when Boards are considering accountabilities in implementing the Financial Accountability Regime (when the relevant legislation is enacted).

What is considered a 'complaint' and representatives

ASIC considers that it is a complainant's expression of dissatisfaction that triggers a firm's obligation to deal with the matter according to ASIC's IDR requirements, not the referral of a complaint to a specialist complaints or IDR team.

Definition of complaint

A complaint is an expression of dissatisfaction made to or about an organisation, related to its products, services, staff or the handling of a complaint, where a response or resolution is explicitly or implicitly expected or legally required.

Financial firms should not categorise an expression of dissatisfaction that meets the definition of 'complaint' as 'feedback', an 'inquiry', a 'comment' or similar merely because:

• the complainant expresses their dissatisfaction verbally;
• the firm considers that the matter does not have merit; or
• a goodwill payment is made to the complainant to resolve the matter without any admission of error.

ASIC has also provided new guidance that social media posts on an account or social media channel owned by the financial firm that is the subject of the post is considered a complaint, where the author of the post is identifiable and contactable.

Complaints lodged by a representative

ASIC has provided guidance about how firms should deal with representatives who lodge complaints on behalf of complainants. A representative is not just a person with legal authority to act on behalf of a complainant (e.g. a legal representative) as ASIC considers it includes a financial counsellor, family, friends and members of parliament. ASIC states that once the firm is notified that a complainant has authorised a representative, the complainant should not be contacted unless (among other reasons):

• the firm reasonably believes that the representative is not acting in the complainant's best interests; or
• is acting in a misleading or deceptive manner with the complainant and/or the firm.

When dealing with a representative who does not have legal authority to act on behalf of a complainant, ASIC's position could cause issues in relation to:

• privacy and confidentiality obligations owed to the complainant (especially when dealing with complaints that involved competing claims from family members such as superannuation death benefit claims); and
• whether the firm has satisfied its obligation to provide information to the complainant.

IDR responses and timeframes

Acknowledgment of complaint

ASIC expects a financial firm to acknowledge the receipt of a complaint within 24 hours, one business day or as soon as practicable of receiving it.

What an IDR response must contain

An 'IDR response' is a written communication from a financial firm to the complainant, informing them of:

• the final outcome of their complaint at IDR (either confirmation of actions taken by the firm to fully resolve the complaint or reasons for rejection or partial rejection of the complaint);
• their right to take the complaint to AFCA if they are dissatisfied; and
• the contact details for AFCA.

If the complaint relates to a superannuation death benefit distribution, the decision-maker must also give the complainant information about the 28 calendar day time limit (under section 1056 of the Corporations Act) for lodging a complaint with AFCA. This time limit must be included in a death benefit decision-maker's notice.

If the complaint is rejected in whole or part, the IDR response must set out the reasons for the decision by:

• identifying and addressing the issues raised in the complaint;
• setting out the financial firm's findings on material questions of fact and referring to the information that supports these findings; and
• providing enough detail for the complainant to understand the basis of the decision and to be fully informed when deciding whether to escalate the matter to AFCA or another forum.

ASIC expects the level of detail in an IDR response should reflect the complexity of the complaint and the nature and extent of any investigation conducted by the firm. ASIC does not expect firms to provide information in an IDR response which would breach privacy or legislative obligations.

Maximum timeframes for an IDR response

The maximum IDR response timeframes are set out in the table below.

Complaint management delays – exceptions to the maximum IDR timeframe requirements

There is an exception to the maximum IDR timeframe requirements when:

Delay notifications

Before the relevant maximum IDR timeframe expires, the firm must give the complainant an 'IDR delay notification' that informs the complainant about:

• the reasons for the delay;
• their right to complain to AFCA if they are dissatisfied; and
• the contact details for AFCA.

Superannuation trustees satisfy the requirement to provide written reasons for the failure by a trustee to make a decision on a complaint[2] when they provide an IDR delay notification.

No IDR response is required

A financial firm does not need to provide an IDR response to a complainant if the firm closes the complaint by the end of the fifth business day after receipt because the firm has either:

A written IDR response must always be provided if:

• the complainant requests a written response; or
• the complaint is about:
• hardship;
• a declined insurance claim or the value of an insurance claim; or
• a decision of a superannuation trustee.

Insurance in superannuation complaints

A complainant may lodge a complaint about insurance in superannuation with the insurer or the trustee and trustees, insurers and administrators must have arrangements in place to ensure the maximum IDR timeframe is complied with regardless of the party that receives the complaint.

Objections to superannuation death benefit distributions

A death benefit decision maker may go through claims staking process that involves notice being sent to all potential beneficiaries about the proposed decision about the payment of the death benefit with notice of a 28 calendar day objection window.[3] Any objection to a proposed death benefit distribution is a complaint and will trigger the start of the IDR process.

When an objection is made, the 90 calendar day maximum IDR timeframe begins from the end of the 28 calendar day objection period.

After reviewing any objections, the decision-maker may either:

• amend the previous decision and give all potential beneficiaries additional notice that the decision-maker proposes to make a new decision (and further objections must be notified within 28 calendar days); or
• maintain the previous proposed decision and give all potential beneficiaries notice that they have made the decision (and eligible complainants can make a complaint to AFCA within 28 calendar days).

When the death benefit decision-maker gives notice of a new proposed decision in response to an objection, they must:

• provide each complainant with a response that meets the minimum IDR response requirements (see 'What an IDR response must contain' above) except for the AFCA-related requirements as a compliant must be made to the superannuation trustee rather than AFCA; and
• provide any non-complaining beneficiaries with the same information as the complainant, while complying with any obligations under privacy laws and obligations of confidentiality.

When the death benefit decision-maker gives notice that they have made the decision, they must:

• provide each complainant with a response that meets the minimum IDR response requirements (see 'What an IDR response must contain' above), including information about the complainant's right to refer the matter to AFCA within 28 calendar days of being given notice; and
• providing any non-complaining potential beneficiaries of the same information.

The role of customer advocates

A firm may offer a complainant the option for escalating their complaint to a customer advocate as an alternative to AFCA after the IDR process has been completed. However, this does not prevent (nor should it be presented as preventing) the customer from accessing AFCA.

Systemic Issues

ASIC's updated standards and requirements aims to sharpen the industry's focus on systemic issues, outlining examples of what ASIC consider to be a marker of systemic issues within a financial firm.

ASIC has adopted a broad definition of a systemic issue (being a matter that affects, or has the potential to affect, more than one consumer) that is similar to the definition that AFCA applies.

Boards are required to set clear accountabilities for complaints handling functions, including management of systemic issues identified through consumer complaints. This should be considered when Boards are considering accountabilities in implementing the Financial Accountability Regime (when the relevant legislation is enacted).

Reports to the board and executive committees must include metrics and analysis of consumer complaints, including about systemic issues that have been identified.

Financial firms must:

• encourage and enable staff to escalate possible systemic issues they identify from individual complaints;
• regularly analyse complaint data sets to identify systemic issues;
• promptly escalate possible systemic issues to appropriate areas within the firm for investigation and action; and
• report internally on the outcome of investigations, including actions taken, in a timely manner.

ASIC expects prompt action to be taken to identify consumers affected by systemic issues, and fair remediation to be provided.

IDR standards

ASIC has set out a number of IDR standards that cover the following areas:

Some of these standards are enforceable while others are ASIC's expectations. These can be adapted to suit the nature, scale and complexity of a firm's business.

The enforceable standards are noted in boxes below.

Commitment and culture

Financial firms must to develop and maintain a positive complaint management culture that welcomes and values complaints, with evidence of top-level commitment and a people focus expressed in the culture of the firm. The expected top-level commitment includes establishing and promoting a complaint management policy and procedure (see below).

Enabling complaints

The IDR process must be easy to understand and use, including by people with disability or language difficulties and free to complainants.

There is anecdotal evidence that the requirement for a complaints process to be free of charge can cause an increase in complainants with little merit with the complainant claiming an amount that is just below the cost to the firm of dealing with the complaint. Ultimately the cost of these complaints are borne by all consumers either directly and indirectly (depending on the relevant investment vehicle).

Information about how and where complaints may be made should be widely publicised by:

• publishing a complaints policy online and making it available in hard copy or request;
• including information about the IDR process in all product welcome packs; and
• providing training to all staff (not just IDR staff).

Resourcing

It is an enforceable requirement that:

• the IDR process must be resourced so that it operates fairly, effectively and efficiently and that this is regularly reviewed by the firm;
• staffing numbers must be sufficient to deal with complaints in a fair and effective manner within the maximum IDR timeframes, including when there are intermittent spikes in complainant volume; and
• relevant staff must be provided with appropriate authority to be able to resolve complaints and authorities for deciding complaints must facilitate the fair and efficient resolution of complaints.

ASIC expects staff who deal with complaints to have knowledge, skills and attributes needed to effectively perform their roles, which includes:

• knowledge of RG271, consumer protection laws relating to financial products and services, AFCA approaches and relevant industry codes of practice;
• an understanding of the products and services offered by the firm;
• empathy, respect and courtesy;
• awareness of cultural differences and the ability to identify and assist complainants who need additional assistance;
• strong verbal and written communication skills; and
• analytical thinking and good judgment.

Firms should incorporate these skills and attributes into key human resource documents for complaint management staff, and provide targeted induction and ongoing training to staff who handle complaints. Further, ASIC expects complainant management staff to be provided with adequate materials and equipment to handle complaints, and for financial firms to have health and safety policies to support staff involved in complaint management. The adequacy of these IDR resources should be regularly reviewed.

Responsiveness

Firms must comply with the maximum IDR timeframes and ensure that the complaint resolution outcome is implemented in a timely manner.

In addition, ASIC expects that IDR processes should work efficiently and provide early resolution where possible, triaging complaints effectively, responding flexibly with a broad range of possible remedies.

Objectivity and fairness

ASIC expects firms to develop processes that ensure each complaint is managed fairly, objectively and without any actual or perceived bias.

Policy and procedures

Firms must have a publicly available, readily accessible complaints policy and an internal complaint management procedure.

The complaints policy must set out:

• how consumers may lodge a complaint;
• the options available to assist complainants who might need additional assistance to lodge a complaint;
• the firm's key steps for dealing with complaints, including acknowledgement, assessment and investigation, and provision of an IDR response;
• response timeframes; and
• details about accessing AFCA where a complaint is not resolved.

The internal complaint management procedure must be a comprehensive and useful tool for staff who deal with complaints that provides a step-by-step guide for the whole IDR process and clearly sets out staff roles and responsibilities. The minimum content requirement is:

• the definition of 'complaint' and the types of matters that must be dealt with in accordance the IDR requirements;
• proactively identifying and assisting complainants who might need additional assistance;
• acknowledging complaints;
• assessing and prioritising complaints according to the urgency of the issues raised;
• dealing with unreasonable complainant conduct;
• investigating complaints, conducting negotiations and exploring resolution options, including appropriate remedies;
• providing an IDR response within maximum IDR timeframes;
• the content of IDR responses, including reasons for decision;
• closing complaints;
• identifying and escalating systemic issues and complaint trends; and
• reporting internally about complaints.

Data collection, analysis and internal reporting

Firms must have an effective system for recording information about complaints that enables the firm to track the process of each complaint. Reports about complaints data should be given regularly to senior management and the Board.

Firms must conduct ongoing data analysis and monitor the performance of the IDR processes. ASIC sets out the data that (at a minimum) it expects to be collected and analysed and reported to senior management and the Board.

ASIC also expects that a firm's annual report should report on complaints.

Continuous improvement

Firms should monitor and review the performance of their IDR processes, which includes monitoring of complaint metrics, ongoing quality assurance and regular reviews. Regular compliance audits should be undertaken at least annually. Further, senior management should conduct or arrange regular reviews of IDR processes, and following from this the firm should develop a plan to action review recommendations.

[1] ASIC Corporations, Credit and Superannuation (Internal Dispute Resolution) Instrument 2020/98.

[2] Section 101(1)(d) of the SIS Act.

[3] Section 1056(2)(a) Corporations Act.