Systemic Issues and AFCA

Systemic Issues and AFCA

From 1 November 2018, the Australian Financial Complaints Authority (AFCA) became operational and ready to receive complaints. AFCA is an “all-in-one” external complaints resolution scheme, replacing the roles of the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman, and the Superannuation Complaints Tribunal.

AFCA is charged with providing the necessary External Dispute Resolution (EDR) scheme for businesses that hold an Australian Financial Services Licence (AFSL). As part of its remit, AFCA is required to investigate and report on systemic issues.

As an AFSL-holder, you may have already dealt with AFCA’s predecessor – FOS – in relation to a systemic issue. Of course, AFCA’s powers are yet to be tested – but early indications support the view that a systemic issue investigation by AFCA is far more concerning than one by its precursor.

What Are Systemic Issues?

A systemic issue is an issue that has implications beyond the immediate actions and right of the parties to the instant dispute or complaint. When AFCA resolves a particular dispute or claim, it may form the view that the subject matter of the dispute likely affects more than just that particular claimant. In such a case, AFCA’s ‘systemic issue’ jurisdiction is enlivened.

Section 1052E of the Corporations Act 2001 (Cth) requires AFCA to refer contraventions, breaches, and systemic issues to ASIC, APRA, or the ATO. Sub-section (4) further requires AFCA to give the particulars of a systemic issue to one or more of APRA, ASIC, or the ATO.

Per ASIC Regulatory Guide 267 (RG 267) at RG267.66, the ‘particulars of a systemic issue’ include the names of the licensee, firm, representative, and even employees involved, as the case may require.

AFCA’s Process For Dealing With Systemic Issues

RG 267.201 and the AFCA Rules and Operational Guidelines set out the process AFCA will take when dealing with systemic issues. That process is comprised of the following stages:

1. Identification – AFCA is to identify systemic issues that arise from its principal dispute-resolution function;

2. Referral – AFCA must then refer the systemic issue to the licensee for response and action, which will involve:

- obtaining a report from the licensee as to the remedial action taken;

- continuing to monitor the matter until a resolution has been achieved that is acceptable to AFCA; and

3. Reporting – AFCA must report systemic issues to ASIC, APRA, or the ATO.

What’s Different About The New Process?

AFCA’s predecessor, FOS, also had a ‘systemic issue’ jurisdiction, and it was enlivened in much the same fashion as AFCA’s. But there are some striking differences between how the two organisations are empowered to respond to systemic issues. Some of the differences that we’ve already identified are:

Firstly – FOS, under its Terms of Reference and RG 139, was obliged to report systemic issues to ASIC. However, these reports did not identify the financial services provider and included essentially statistical information. It was only if a financial services provider refused or failed to rectify a systemic issue that FOS would lodge an ‘identifying report’ with ASIC, giving details about the identity of the licensee and the nature of the systemic issue.

With AFCA, the position is different. The wording of the legislation is clear. AFCA must report the systemic issue. AFCA’s operational guidelines make clear that AFCA will not wait until the underlying complaint or even the systemic issue investigation has been finalised before making a report. As soon as AFCA determines that a definite systemic issue exists, AFCA will lodge a report to the regulator(s).

Secondly – AFCA, unlike FOS, is able to report the systemic issue not only to ASIC but also to APRA and to the Commissioner of Taxation. A single complaint could potentially result in three investigations from separate government agencies.

Thirdly – AFCA, unlike FOS, is empowered under its Rules to compel licensees to act or refrain from acting in respect of a systemic issue. Where FOS’ jurisdiction was supervisory, AFCA, under clause A.17.4, can:

[…] require the Financial Firm to do or refrain from doing any act which AFCA considers reasonably necessary to achieve any one or more of the following objectives:

1. facilitating AFCA’s investigation of the systemic issue;

2. improving industry practice and communication;

3. remedying loss or disadvantage suffered by consumers or Small Businesses (whether or not they have complained about the systemic issue);

4. preventing foreseeable loss or disadvantage to consumers or Small Businesses;

5. minimising the risk of the systemic issue recurring; or

6. efficiently dealing with multiple complaints related to the systemic issue.

This is a broad compulsory power and it arguably goes beyond what is necessary to allow AFCA to follow the three-step process for dealing with systemic issues. The scope and limits of this power are, of course, yet to be charted, and it will be interesting to see how AFCA will yield its new powers moving forward.

O’Loughlin Westhoff

O’Loughlin Westhoff is able to advise on both sides of an AFCA dispute. If you are facing an AFCA dispute or considering lodging a complaint to AFCA and require further advice or clarification, we are able to offer advice and help.