On 14 September 2017, the Treasury Laws Amendment (Putting Consumers First - Establishment of the Australian Financial Complaints Authority) Bill 2017 was introduced into the Senate and received its second reading. If passed, this Bill will lead to the introduction of a new external dispute resolution (EDR) framework for Australia's financial system as well as increased reporting obligations for entities in relation to their internal dispute resolution (IDR) processes.
Under the proposed new EDR framework, a new scheme known as the Australian Financial Complaints Authority (AFCA) will be established. AFCA will replace the Superannuation Complaints Tribunal (SCT) and existing EDR schemes currently approved by ASIC, which include the Financial Ombudsman Service and the Credit and Investment Ombudsman.
This Bill was recently referred to the Senate Economics Legislation Committee which provided its report on 17 October 2017. The committee has recommended that the Bill be passed.
Why are these changes occurring?
On 3 April 2017, an expert panel appointed by Treasury and led by Professor Ian Ramsey published its report entitled "Review of the financial system external dispute resolution and complaints framework" (Ramsay Review). On 9 May 2017, the Federal Government accepted all 11 recommendations made by the Ramsay Review and released for public consultation the exposure draft of the Treasury Laws Amendment (External Dispute Resolution) Bill 2017.
The consultation received 42 submissions, and a variety of changes were made to the exposure draft of the Bill in light of those submissions.
How will the Australian Financial Complaints Authority operate?
AFCA will be an ombudsman-style authority which will have different composition and membership requirements compared with existing schemes. AFCA will be constituted as a company limited by guarantee and governed by a board made up of an equal number of directors with consumer and industry backgrounds. AFCA will also have an independent chair.
Membership of AFCA will be compulsory for financial and credit service entities and AFCA's operations will be financed through contributions made by these entities (such as Australian Financial Services licensees, approved deposit funds and unlicensed product issuers). The Explanatory Memorandum to the Bill states that financial and credit service entities will be bound by AFCA's terms of reference. These are operating rules which will be determined by the AFCA board and published by the Minister for Revenue and Financial Services. Matters which may be covered by the terms of reference include the parameters of AFCA's jurisdiction, the monetary limits for disputes and AFCA's approach to the use of expert panels to determine disputes.
AFCA will be required to refer and report disputes to ASIC, APRA or the ATO if it becomes aware that a financial entity has committed certain breaches or contraventions. For example, if a party to a complaint has seriously contravened any law or failed to give effect to an AFCA determination, this must be reported to the relevant regulator.
The Bill proposes to amend the Corporations Act 2001 and other Commonwealth Acts and repeal the Superannuation (Resolution of Complaints) Act 1993 in order to effect these changes.
Will ASIC's role change?
As a key regulator in this area, ASIC will be provided with powers to monitor AFCA. ASIC will be able to issue directions to AFCA to increase the remedies available to complainants and approve any material changes to the AFCA scheme.
Another important change from current practice will be that financial firms which are required to have an IDR system in place will need to report their IDR activities to ASIC. It will be up to ASIC to determine the data which will be required to be reported. ASIC will be able to publish this data to increase transparency between financial organisations about their IDR systems.
When will all of these changes take effect?
Although the Bill will come into effect on the day it receives Royal Assent as an Act, AFCA will not be considered to be established until the Minister for Revenue and Financial Services gives authorisation for it by notifiable instrument. Likewise, financial and credit services firms will be required to be members of AFCA (and not the CIO, FOS or SCT) on a date yet to be specified.
A transition team has been established by Treasury to assist with the change process and to provide guidance for the movement of disputes from the existing EDR schemes to AFCA.