The Australian Financial Complaints Authority (“AFCA“) has updated its rules to enable it to receive complaints about the conduct of an AFCA member’s representative, regardless of whether the representative was acting outside the scope of their authority. This change will affect all AFCA members, including both AFSL and ACL holders.
Prior to the case, AFCA was in the process of making a determination against DH Flinders, in response to a number of complaints received regarding financial services. In particular, a body corporate representative of DH Flinders had provided incorrect advice to a client and while providing this advice, had acted outside the scope of their authority under the DH Flinders AFSL.
DH Flinders rejected AFCA’s authority to handle the complaint and took their case to the Supreme Court. They alleged that AFCA’s jurisdiction at the time did not allow it to consider complaints against a licensee regarding the conduct of its authorised representatives, where that conduct was without or outside authority. The judge agreed.
In accordance with s. 917B of the Corporations Act, AFS licensees are responsible (and liable) for the conduct of their representatives regardless of whether that conduct is within their authority. This same obligation is conferred on ACL holders and their credit representatives under s. 75 National Consumer Credit Protection Act. At the time of the DH Flinders case, the AFCA rules did not reflect this same level of responsibility or liability.
Following the DH Flinders case, the AFCA rules have been updated to impose the same responsibility and liability in relation to representatives on AFS licenses and ACL holders as outlined in s. 917B of the Corporations Act and s. 75 National Consumer Credit Protection Act. The definition of a financial firm under the new AFCA rules specifically includes:
“…any representative of the financial firm regardless of whether the representative’s conduct is within or without authority…”
These new rules will apply to all complaints received by AFCA from 13 January 2021 onwards.
What does this mean for licensees?
The change to AFCA’s rules mean that the conduct of a licensee’s representatives can be the subject of an AFCA complaint and that any determination made by AFCA will be binding on the licensee.
Monitoring and supervision of your representatives is crucial, not only from a licensing perspective but also from a complaint management perspective. Ensuring your representatives do not act outside their authority and provide financial or credit services within the bounds of the legislation, regulation and your licence can be done in a variety of ways.
Depending on the size and structure of your business, this may take the form of:
- Client file reviews;
- Regular meetings with representatives;
- Review of telephone calls and/or written correspondence;
- Monitoring, review and approval of marketing or promotional material; or
- Regular review and discussion around any breaches or complaints.
Licensees must ensure they monitor and supervise their representatives on a regular basis and that all complaints received are reported to the licensee to ensure they are dealt with swiftly and resolved prior to being referred to AFCA (where possible).
Robust compliance procedures and reporting lines which apply to representatives are needed to ensure representatives understand their obligations and licensees are able to adequately monitor the representative’s compliance.
- DH Flinders Pty Ltd v Australian Financial Complaints Authority Limited  NSWSC 1690.
- ASIC Corporations (AFCA Regulatory Requirement) Instrument 2021/0002
- ASIC Regulatory Guide 267: Oversight of the Australian Financial Complaints Authority.
- AFCA Membership a Requirement for AFS and Credit Licensees
- AFCA Review in Progress after initial covid delay
Sophie Grace can assist you to develop compliance policies and procedures tailored to your representatives. Please contact us for further information.
 Section E1.1 Australian Financial Complaints Authority Complaint Resolution Rules, 13 January 2021.