ASIC clarifies its oversight of new external dispute resolution body AFCA

The Australian Securities and Investments Commission (ASIC) has earlier today published regulatory guidance which outlines how the regulator will perform its oversight role in relation to the Australian Financial Complaints Authority (AFCA) – the new external dispute resolution (EDR) body for financial services firms.

ASIC reminds AFS licensees that they must have a dispute resolution system that consists of:

• IDR (internal dispute resolution) procedures that comply with the standards and requirements made or approved by ASIC that cover complaints made by retail clients in relation to the financial services provided; and
• membership of AFCA.

Let’s recall that AFCA was set up in response to the Ramsay Review which made 11 recommendations, such as the creation of a single EDR scheme for all financial complaints, as well as enhanced accountability and reporting arrangements, as well as new ASIC oversight powers.

ASIC has a range of powers in relation to AFCA under the Corporations Act. These include powers to:

• issue regulatory requirements;
• issue directions to AFCA if ASIC considers that AFCA has not done all things reasonably practicable to ensure compliance with the relevant legislative requirements.

The regulator may also issue directions to AFCA to increase limits on the value of claims that may be made or the value of remedies, as well as take measures to ensure that the operations of AFCA are sufficiently financed.

Whereas ASIC has an enhanced oversight role over AFCA, the scheme remains independent and responsible for its own internal processes and the management of complaints. ASIC has no role in individual complaints handling and will not intervene in the decision-making processes of AFCA.

AFCA must give particulars of a contravention, breach, refusal or failure to APRA, ASIC or the ATO (the regulators), as appropriate, if it becomes aware, in connection with a complaint under the AFCA scheme, that a serious contravention of any law may have occurred. According to the regulator, serious contraventions reportable to it include serious contraventions of financial services and credit laws.

The new body will also report to ASIC on a quarterly basis about all complaints received about its complaints handling service (service complaints). This will include information about all complaints it has received and dealt with, including those that are escalated to and dealt with by the independent assessor. AFCA must publish information about complaints received and closed, with an indication of the outcome, against each scheme member on an annual basis.

ASIC has a range of administrative responses available when a firm is in breach of its licence obligation to maintain AFCA membership. For instance, subject to holding a hearing, ASIC might:

• impose or vary licence conditions, including imposing a condition that requires ongoing compliance with its AFCA membership requirements;
• suspend or revoke the licence for the failure of the licensee to conduct business efficiently, honestly and fairly.

AFCA commences accepting new disputes on November 1, 2018.