Starting 1 November 2018, the Australian Financial Complaints Authority (AFCA) replaces the Financial Ombudsman Service (FOS), Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal. The AFCA is now the ASIC approved External Dispute Resolution (EDR) scheme for consumer and small business complaints for Australian financial and credit industries.
All financial firms should now be members of the AFCA, as the deadline to register was 21 September 2018. For insurance industry participants, this includes holders of an Australian Financial Services Licence including insurers, brokers and other intermediaries.
The creation of the AFCA comes at a pivotal time, with a record number of 43,684 disputes received by the FOS in 2017-2018 (FOS Annual Review 2017-2018). This is an 11% increase on the previous year. The top two categories of complaints received by FOS in 2017-2018 related to credit and general insurance, having a share of 43% and 32% respectively.
What will the AFCA consider complaints about?
The AFCA will consider complaints about credit, insurance, banking deposits and payments, investment advice, and superannuation products.
In relation to insurance, this includes the following products:
- Home and contents insurance;
- Car insurance
- Travel and ticket insurance;
- Pet insurance;
- Sickness and accident insurance;
- Strata title insurance;
- Medical indemnity insurance;
- Life insurance; and
- Small Business Insurances including farm insurance.
The AFCA will also consider complaints about warranties (eg. extended warranties on consumer goods) issued (not just administered) by financial firms that are members of the AFCA.
How is the AFCA different?
The AFCA creates a one-stop shop for financial services disputes and has increased monetary limits and compensation caps. Previously, the monetary limit and compensation caps for most non-superannuation disputes were $500,000 and $323,500 respectively. These have now increased to a $1 million monetary limit and $500,000 compensation cap.
Once a complaint is lodged with the AFCA within its jurisdiction, it may be classified in one of three categories. The categories are:
- Fast Track – complaints that are low value and involve a single issue. It is proposed that these will be resolved by negotiation and not conciliation. If not resolved and either party rejects the AFCA’s preliminary assessment, an adjudicator will make a decision.
- Standard & Complex – complaints may be resolved by negotiation or telephone conciliation. If not resolved and either party rejects the AFCA’s preliminary assessment, an ombudsman or panel will make a decision.
- Financial Difficulty – where the situation primarily involves financial difficulty. It is intended that telephone conciliation will be the most common resolution method. If not resolved, and either party rejects the AFCA’s preliminary assessment, an ombudsman will make a decision.
In many ways, however, the AFCA’s operational guidelines and rules are similar to those of its predecessor EDR schemes.
What happens to existing disputes?
Existing disputes that were lodged with the predecessor schemes prior to 1 November 2018 will now be handled by the AFCA, but under the terms of reference and rules that applied at the time the complaint was originally made.
The next few months will be interesting as financial firms experience the AFCA’s process and approach to complaints in practice. While there are substantial similarities with the predecessor schemes, the AFCA may implement different approaches to various aspects of complaint handling to achieve timely resolution.