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Tips for managing complaints both internally and with AFCA


Every Australian Financial Service Licence (“AFSL”) and Australian Credit Licence (“ACL”) holder (together, “Licensees”) dreads the thought of a customer complaint being escalated to the Australian Financial Complaints Authority  (“AFCA”). However, in the event this does occur, Licensees should have an understanding of the process. If you are a member of AFCA, take the time now to make sure your contact details are up to date. The registered contact details are how you will be contacted by AFCA if a complaint is received.

AFCA proceedings are not bound by any legal rules of evidence and therefore not subject to precedent, although the AFCA website states it tries to be consistent in its decision-making. AFCA has an obligation to carry out its consideration and resolution of disputes in a manner that is fair to the AFSL holder and the complainant bringing the dispute. AFCA is only required to draw out the facts but does not require parties to give evidence under oath.

How does AFCA work?

AFCA is an independent body and is governed by its own Rules. Disputes escalated to AFCA require no payment by the client. AFCA calculates the cost of a dispute upon closure of the matter which is payable by the Licensee. The fee is dependent on two (2) factors – the point in the External Dispute Resolution (“EDR”) process when the dispute has been resolved and the complexity of the dispute. All disputes are charged a once off registration, acceptance and initial case management fee.

Tips for Internal Dispute Resolution (“IDR”)

When implementing an IDR policy, you should:

  1. Ensure the response to the client is on company letterhead rather than on your legal or compliance firm’s letterhead. In February 2015, ASIC highlighted its concerns about QBE Insurance (Australia) Limited corresponding with clients on the letterhead of the company’s legal representative and the barriers it creates for clients. ASIC also found that corresponding with clients on legal letterhead was inconsistent with a licensee’s dispute resolution obligations and Australian standards for complaints handing.
  2. Consider whether the complaint is really about you or whether it is actually more appropriate that the client contacts a product provider or some other party. Tell them who to contact in writing.
  3. Do a cost benefit analysis in terms of the time you will spend defending the complaint versus the cost of settling the matter.
  4. Remember that complaints can feel personal and often responses become emotional. It is good practice to get someone external to the situation, i.e. a colleague, compliance consultant or lawyer, to proof read the response before it is sent out.

Points to consider

Where a licensee has an AFCA dispute bought against them, we recommend considering the points below:

  1. If you haven’t already let your PI insurer know about the complaint and the potential for paying compensation, now is the time to do so.
  2. Check the complaint has been through your IDR process and you have had the opportunity to provide a response to the complainant. If not let AFCA know.
  3. Do your cost benefit analysis again – speak with AFCA to get an indication of the fees that will be charged each step of the way through their process.
  4. If the AFSL holder does not feel that they are the appropriate person to be on the receiving end of a complaint, the AFSL holder should communicate this to AFCA and point AFCA toward a more appropriate firm / person to be the subject of the complaint.
  5. Can the dispute be excluded based on it falling outside the AFCA Rules? Read the provisions carefully. This may help you avoid a lengthy AFCA dispute.
  6. Have all necessary documents on hand and easily accessible to ensure you can provide responses to AFCA within the specified time frame and ensure the dispute is resolved in a timely manner. Ensure all correspondence with clients is kept and in an orderly manner will make this a lot easier.

Licensees avoiding determinations

Licensees are encouraged to follow the terms outlined in a determination. ASIC has recently brought proceedings against Lightspeed Finance for failure to comply with an AFCA determination. The Government has previously committed to funding thirty million dollars ($30,000,000) to cover the payment of legacy unpaid determinations from the now disbanded FOS and CIO.

Licensees should also ensure they have adequate Professional Indemnity (“PI”) Insurance to cover monetary payments required in an AFCA recommendation or determination. Licensees may find that the PI Insurance they currently hold is not sufficient in covering AFCA determinations or that the excess on the policy is prohibitive.

How will a dispute be resolved at AFCA?

After an initial complaint has been lodged, AFCA will refer the dispute back to the Licensee and set a time frame (21 days) for the Licensee to resolve the dispute. If the dispute has not previously been through the Licensee’s IDR process, the Licensee will have 45 days (or less in the case of financial hardship or superannuation disputes) to provide an IDR response.

Throughout the dispute process, AFCA may require a party to a dispute to provide any information that has been deemed necessary to understand all of the facts of the dispute. The party requested to provide information must comply within the specified time frame. In some circumstances, AFCA may require a party to attend an interview, request the Licensee investigate the dispute further or have an independent expert review the dispute and report back to AFCA on any matter pertaining to the dispute.

Throughout the EDR process, AFCA may allow/require another party to be joined to the dispute proceedings. After giving the parties to a dispute an opportunity to make submissions and provide information about matters in the dispute, AFCA will make a preliminary assessment. The preliminary assessment will be in writing and provided to all parties. AFCA’s recommendation will outline the action/s or monetary compensation arrangements the Licensee or the applicant will have to undertake. If both parties to the dispute accept the preliminary assessment within thirty (30) days (or seven (7) days for fast tracked disputes) of it being received, the dispute will be resolved on the basis of the preliminary assessment.

However, if either party does not accept the preliminary assessment the matter is referred to AFCA’s panel or an ombudsman for a decision. Before the determination is made, both parties will again be given an opportunity to make submissions and provide any further information, in response to the preliminary assessment. A determination is final, and the applicant can either accept or reject the determination reached by AFCA. If the applicant accepts the determination it becomes binding on both parties, however if the applicant rejects the determination it is not binding on the Licensee and the applicant can look to other means for dispute resolution i.e. court action. The Licensee can neither accept nor reject the determination. Where the Licensee does not comply with the determination, AFCA is required to report this to ASIC.

Dispute Resolution Systems

All AFS Licence holders that deal with retail clients and all Australian Credit Licensees are required to have adequate dispute resolution procedures in place to handle customer complaints. The Licensee should have an IDR system (this means a process for handling complaints that come direct to your business) and be a member of AFCA to effectively deal with consumer complaints. Where a complaint is brought against the Licensee, final IDR responses to clients should be issued within forty-five (45) days of first receiving the complaint.

Should membership with the EDR scheme cease, the Licensee is in breach of one of its licence obligations. ASIC will also need to be advised should EDR membership details change. ASIC is required to be notified within three (3) business days of EDR membership cessation or change of details.

New complaints handling requirements come into effect on 5 October 2021. These changes will apply to both AFS Licence holders dealing with retail clients and Australian Credit Licensees.  For more information on how to prepare for the new changes please read our article.

For further guidance on complaints handling contact us.

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