This article was co-authored with Samantha Brandon.

On 24 November 2021, a review of the Australian Financial Complaints Authority (AFCA) was tabled in Parliament (Review). The purpose of the Review was to analyse AFCA's initial operations and to consider what changes may be necessary to improve on its effectiveness going forward. The Review considered feedback provided by consumers, small businesses and financial firms regarding AFCA's alternative dispute resolution services and financial institution complaints management over the first two years of its operation.

The Review concluded that AFCA has performed well under difficult conditions in its establishment phase, including the impact of COVID-19 and the changing regulatory landscape. The Review makes a number of recommendations that may be implemented by AFCA to ensure it meets its statutory objectives of resolving complaints in a fair, efficient, timely and independent manner.

The findings in the Review have broad Governmental support and may lead to important changes in AFCA's operations. Understanding the recommendations made in the Review and the improvements that may follow which will be of interest to those involved with AFCA's alternative dispute resolution services and complaints management.

Summary of recommendations

There are 14 recommendations contained within the Review which focus on increased transparency for those involved with a complaint and improvements to AFCA's decision making processes. The Review further outlines improvements to be made to AFCA's funding model and provides clarification of AFCA's role in relation to its systemic issues function.

The Review groups each of the recommendations into categories which share thematic similarities. We have summarised the key points.

1. Is AFCA resolving complaints in a fair, independent, efficient and timely manner?

The Review makes several recommendations concerning AFCA's performance against its obligation to the principles of fairness and independence.

While on the whole the Review found AFCA's decision making to be adequate, it noted that AFCA should, when making decisions, consider what is fair in all of the circumstances and have primary regard to the four factors identified in its Rules, being legal principles, industry codes, good industry practice and previous determinations.

It also recommended that AFCA better manage users' expectations around timeframes and focus on speeding up the process of considering complaints that remain unresolved beyond 12 months.

2. Jurisdiction

With regards to AFCA's monetary limits and compensation caps, the Review found these to be appropriate, specifically with respect to primary production disputes. The Review recommended that AFCA should exclude complaints from sophisticated or professional investors, with the exception of those that have been incorrectly or inappropriately classified.

3. Funding and fee structures

In light of feedback from financial firms that AFCA's fee structure can force them to settle unmeritorious complaints, the Review recommended that AFCA's funding model should not disincentivise defending these complaints, and that AFCA should better take into account the circumstances of small financial firms.

The Review recommended that AFCA increase the transparency of its fees for financial firms and show how these fees are being used to support AFCA's activities.

4. Accountability

Although the Review found that a further merits review of AFCA decisions is not necessary, it recommended that the substance of a determination should be reviewable with respect to its application to future cases. AFCA has also been encouraged to enhance its existing forward-looking review mechanisms, including for those seeking to challenge a particular decision making approach with ongoing ramifications for a class of consumers, businesses or transactions.

5. Other matters

As complaints made to AFCA can intersect with a systemic issue being investigated by a regulator, the Review recommended that AFCA not investigate the systemic issue and leave it to the regulator to take appropriate action. The Review also recommended that AFCA enhance its transparency in its public reporting of systemic issues.

Finally, the Review recommended amending the National Consumer Credit Protection Act 2009 (Cth) so that authorised credit representatives are no longer required to be members of AFCA, as the requirement provides limited benefit in terms of enhanced consumer protection.

The Government's response to the Review supports AFCA acting on the recommendations and agrees to the recommendation to amend the National Consumer Credit Protection Act 2009 (Cth).

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