ASIC RG 267 — ASIC Regulatory Guide – RG 267 Oversight of the Australian Financial Complaints Authority

Page 1 REGULATORY GUIDE 267 Oversight of the Australian Financial Complaints Authority September 2021 About this guide This regulatory guidance sets out how we will perform our oversight role in relation to the Australian Financial Complaints Authority (AFCA). It also includes the financial firms’ AFCA membership obligations. This guide should be read in conjunction with Regulatory Guide 271 Internal dispute resolution (RG 271). Note 1: Regulatory Guide 165 Licensing: Internal and external dispute resolution (RG 165) applies to complaints received by financial firms before 5 October 2021, when RG 271 comes into effect. We will withdraw RG 165 on 5 October 2022. Note 2: From 27 July 2020, applications for relief should be submitted through the ASIC Regulatory Portal. For more information, see how you apply for relief. Page 2 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 2 About ASIC regulatory documents In administering legislation ASIC issues the following types of regulatory documents. Consultation papers: seek feedback from stakeholders on matters ASIC is considering, such as proposed relief or proposed regulatory guidance. Regulatory guides: give guidance to regulated entities by:  explaining when and how ASIC will exercise specific powers under legislation  explaining how ASIC interprets the law  describing the principles underlying ASIC’s approach  giving practical guidance (e.g. describing the steps of a process such as applying for a licence or giving practical examples of how regulated entities may decide to meet their obligations). Information sheets: provide concise guidance on a specific process or compliance issue or an overview of detailed guidance. Reports: describe ASIC compliance or relief activity or the results of a research project. Document history This guide was issued in September 2021 and is based on legislation and regulations as the date of issue. Note 2 on the front page was inserted on 27 July 2020. Previous versions:  Superseded Regulatory Guide 267, issued June 2018  Consultation draft of Regulatory Guide 139 Oversight of the Australian Financial Complaints Authority, released with Consultation Paper 298 Oversight of the Australian Financial Complaints Authority: Update to RG 139 Disclaimer This guidance does not constitute legal advice. We encourage you to seek your own professional advice to find out how the Corporations Act, credit legislation and other applicable laws apply to you, as it is your responsibility to determine your obligations. Examples in this guidance are purely for illustration, they are not exhaustive and are not intended to impose or imply particular terms of reference or requirements. Page 3 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 3 Contents A Overview ........................................................................................... 4 Financial services dispute resolution framework ............................... 4 ASIC’s role ......................................................................................... 7 Terminology ....................................................................................... 7 B AFCA membership .......................................................................... 9 Who can join AFCA ........................................................................... 9 Financial firms’ EDR requirements .................................................... 9 C Oversight of AFCA ......................................................................... 14 Principles of the governance framework ......................................... 14 The AFCA board .............................................................................. 15 ASIC’s powers ................................................................................. 15 Material changes to the AFCA scheme ........................................... 16 Reporting requirements ................................................................... 17 D AFCA compliance requirements .................................................. 25 Accessibility ..................................................................................... 25 Independence .................................................................................. 29 Fairness ........................................................................................... 31 Efficiency and effectiveness ............................................................ 32 Accountability ................................................................................... 43 Appendix: EDR Benchmarks ................................................................ 47 Key terms ............................................................................................... 48 Related information ............................................................................... 53 Page 4 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 4 A Overview Key points Financial firms must have a dispute resolution system that consists of: • internal dispute resolution (IDR) procedures that meet the standards or requirements made or approved by ASIC; and • membership of the Australian Financial Complaints Authority (AFCA). Each year, the IDR and external dispute resolution (EDR) framework provides access to redress for hundreds of thousands of Australian consumers, small businesses and superannuation fund members who have a complaint against a financial firm. Our dispute resolution guidance includes: • Regulatory Guide 271 Internal dispute resolution (RG 271), which updates and replaces Regulatory Guide 165 Licensing: Internal and external dispute resolution (RG 165) for complaints received after 5 October 2021. RG 271 sets out how financial firms that are required to comply with IDR requirements can meet their obligations; and • this guide, which sets out how we will administer ASIC’s powers and perform our oversight role over AFCA. This guidance updates our previous policy on financial services EDR to reflect the reforms introduced by the Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Act 2018 (AFCA Act). The AFCA Act implemented the Australian Government’s response to the Review of the financial system external dispute resolution and complaints framework, which commenced in October 2016 (Ramsay Review). Financial services dispute resolution framework RG 267.1 Financial firms must have in place a dispute resolution system that consists of: (a) an IDR procedure that complies with standards and requirements made or approved by ASIC (see RG 271); and Note: The standards, requirements and guidance in RG 271 apply to complaints received by financial firms on or after 5 October 2021. For complaints received by financial firms before 5 October 2021, RG 165 applies. We will withdraw RG 165 on 5 October 2022. (b) membership of AFCA, the EDR scheme for financial complaints in Australia. Note: See s912A(1)(g) and 1017G(1) of the Corporations Act 2001 (Corporations Act), s47(1) of the National Consumer Credit Protection Act 2009 (National Credit Act), s101(1) and (1A) Superannuation Industry (Supervision) Act 1993 (SIS Act), and s47(10) and (2) of the Retirement Savings Accounts Act 1997. Page 5 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 5 RG 267.2 Certain financial firms, including most credit representatives and exempt special purpose funding entities (exempt SPFEs), do not have IDR requirements but must be a member of AFCA: see s64 and 65 of the National Credit Act and regs 23B and 23C of the National Consumer Credit Protection Regulations 2010 (National Credit Regulations). Note: Table 2 sets out the dispute resolution requirements by type of financial firm. RG 267.3 The Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Act 2018 (AFCA Act) significantly reshaped the Australian financial services dispute resolution framework. The AFCA Act amended the Corporations Act and other financial services and credit laws and repeals the Superannuation (Resolution of Complaints) Act 1993. RG 267.4 The AFCA Act implemented the Australian Government’s response to the Ramsay Review, which was a comprehensive and independent review of the financial services dispute resolution framework. The Ramsay Review made 11 recommendations, including: (a) the creation of a single EDR scheme for all financial complaints based on an industry ombudsman model and including specific legislative provisions to support the effective resolution of superannuation complaints; (b) increased access for individual and small business consumers through higher monetary limits and compensation caps; (c) enhanced accountability and reporting arrangements, as well as new ASIC oversight powers; and (d) improved transparency of IDR performance. RG 267.5 The Explanatory Memorandum to the Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017 (Explanatory Memorandum) states at paragraph 1.4: The new EDR framework will ensure that consumers and small businesses are able to access an EDR scheme that provides fast and fair resolution of financial complaints in a way that is binding on financial firms. RG 267.6 The operator of AFCA was authorised by the Hon. Kelly O’Dwyer MP, Minister for Revenue and Financial Services on 23 April 2018. AFCA replaces the predecessor EDR schemes—the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the statutory Superannuation Complaints Tribunal (SCT). Note: AFCA will begin accepting complaints on 1 November 2018. FOS, CIO and the SCT will continue to accept complaints until AFCA commences. Complaints made to the predecessor schemes will continue to be dealt with under the terms of reference and rules of those schemes. The SCT will continue to resolve open complaints for a period of time after the commencement of AFCA. Page 6 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 6 RG 267.7 AFCA will also apply for recognition by the Information Commissioner, to enable it to handle privacy-related complaints, in accordance with s35A of the Privacy Act 1988. Note: See the AFCA Scheme Authorisation 2018. AFCA authorisation criteria RG 267.8 In authorising an EDR scheme, the Minister must be satisfied that the mandatory requirements under s1051 will be met. The Minister must then take into account the general considerations (in s1051A) and any other matters the Minister considers relevant: see s1050. Only one EDR scheme can be authorised by the Minister at any time. Note: Table 1 sets out the key definitions we apply in this guidance. RG 267.9 The authorisation criteria require AFCA to meet the mandatory requirements under s1051, which are: (a) organisational requirements; (b) operator requirements; (c) operational requirements; and (d) compliance requirements. RG 267.10 In taking into account the general considerations for the AFCA scheme under s1051A, the Minister will consider the: (a) accessibility of the scheme; (b) independence of the scheme; (c) fairness of the scheme; (d) accountability of the scheme; (e) efficiency of the scheme; and (f) effectiveness of the scheme. RG 267.11 The general considerations are based on the principles in the Benchmarks for Industry-Based Customer Dispute Resolution (EDR Benchmarks), first published by the then Department of Industry, Science and Tourism in 1997 and updated and reissued by Treasury in 2015. Note: See the appendix for further information on the EDR Benchmarks. RG 267.12 The EDR Benchmarks formed the basis of our previous approach to approving the industry-based EDR schemes. RG 267.13 We have provided guidance on industry-based EDR schemes for many years: see Regulatory Guide 139 Approval and oversight of external dispute resolution schemes (RG 139). This guide retains our previous guidance where it is now reflected in the legislation or consistent with the Ramsay Review recommendations that were accepted by the Australian Government. Page 7 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 7 ASIC’s role RG 267.14 The objectives of Ch 7 of the Corporations Act are to promote: (a) confident and informed decision making by consumers of financial products and services while facilitating efficiency, flexibility and innovation in the provision of those products and services; (b) fairness, honesty and professionalism by those who provide financial services; (c) fair, orderly and transparent markets for financial products; and (d) the reduction of systemic risks. Note: See s760A of the Corporations Act. RG 267.15 Within this framework, we are responsible for overseeing the effective operation of the dispute resolution system, which includes setting the standards and requirements for financial firms’ IDR processes and providing oversight of AFCA. Consumer and small business access to fair, timely and effective dispute resolution is a central part of the financial services consumer protection framework. RG 267.16 ASIC’s oversight role and specific powers in relation to AFCA are dealt with in Section C. Terminology RG 267.17 Table 1 sets out the key definitions we apply in this guidance. Table 1: Terminology Term Meaning in this document AFCA Australian Financial Complaints Authority—The EDR scheme for which an authorisation under Pt 7.10A of the Corporations Act is in force. consumer or complainant A person or small business eligible to make a complaint to AFCA. It includes, at a minimum:  an individual consumer or guarantor;  a superannuation fund member or third-party beneficiary eligible to make a complaint under s1053, or taken to be a member of a regulated superannuation fund or approved deposit fund, or a holder of a retirement savings account (RSA), as provided for by s1053A;  a small business with less than 100 employees, including a primary production business (as defined in the Income Tax Assessment Act 1997). Page 8 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 8 Term Meaning in this document financial firms Firms covered by s1051(2)(a), which includes:  Australian financial services (AFS) licensees;  unlicensed product issuers;  unlicensed secondary sellers;  Australian credit licensees (credit licensees);  credit representatives;  exempt SPFEs;  regulated superannuation funds (other than self-managed superannuation funds (SMSFs);  approved deposit funds;  RSA providers;  annuity providers;  life policy funds; and  insurers. This may also include financial firms that the AFCA board has accepted as eligible members to the scheme in accordance with its constitution. s1051 (for example) A section of the Corporations Act (in this example numbered 1051), unless otherwise specified. Note: For a full list of the terms used in this guide, see the key terms. Page 9 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 9 B AFCA membership Key points This section sets out: • who can join AFCA; and • financial firms’ EDR requirements. Who can join AFCA RG 267.18 Under s1051(2)(a) it is an organisational requirement that membership of AFCA is open to every entity that is required to be a member of an EDR scheme under: (a) a law of the Commonwealth; (b) an instrument made under such a law; or (c) the conditions of a licence or permission issued under such a law. Note: See Table 2 for a list of financial firms covered by s1051(2)(a). RG 267.19 The AFCA board may accept eligible members to the scheme in accordance with the scheme’s constitution. RG 267.20 In addition to the financial firms set out in Table 2, AFCA is also able to accept other categories of members, including firms operating under an exemption (e.g. the fintech licensing exemption provided by ASIC’s regulatory sandbox framework). Other firms may also elect to join AFCA (e.g. exempt public-sector superannuation schemes). RG 267.21 With some exceptions (e.g. credit representatives and exempt SPFEs), financial firms must also have IDR procedures that comply with the standards and requirements made or approved by ASIC: see RG 271. Financial firms’ EDR requirements RG 267.22 Table 2 sets out in detail financial firms’ dispute resolution requirements and their requirements to be members of AFCA. Page 10 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 10 Table 2: Dispute resolution requirements by type of financial firm Firm type Description Dispute resolution requirements AFS licensees An AFS licensee is a business carrying on financial services. This includes businesses that:  provide financial product advice to clients;  deal in a financial product;  make a market for a financial product;  operate a registered scheme;  provide a custodial or depository service; or  provide traditional trustee company services. Under s912A, AFS licensees must have a dispute resolution system that consists of:  IDR procedures that comply with the standards and requirements made or approved by ASIC (see RG 271) that cover complaints made by retail clients in relation to the financial services provided; and  membership of AFCA. Unlicensed product issuers and unlicensed secondary sellers An unlicensed product issuer is an issuer of a financial product who is not an AFS licensee. An unlicensed secondary seller is a person who offers the secondary sale of a financial product under s1012C(5)(b) or (8) and who is not an AFS licensee. Under s1017G(2), unlicensed product issuers and unlicensed secondary sellers are required to have a dispute resolution system that consists of:  IDR procedures that comply with RG 271 that cover complaints made by retail clients in relation to the financial services provided; and  membership of AFCA. Superannuation trustees A trustee of a regulated superannuation fund or of an approved deposit fund, other than an SMSF. Under s101(1)(a)–(c) of the SIS Act, each superannuation trustee must:  be a member of AFCA; and  have an IDR procedure that complies with the standards and requirements set out in s912A(2)(a)(i) of the Corporations Act. Note: However, s101(1)(a)–(c) of the SIS Act does not apply to a trustee if the trustee is required under the Corporations Act to have a dispute resolution system complying with s912A(2) or 1017G(2) of the Act. Credit licensees Credit providers and lessors, including those who are assigned the contractual rights of a credit provider or lessor (which can include debt collectors who purchase a debt from a credit provider or lessor). Credit service providers (such as brokers and other intermediaries), and others (such as debt collectors) who act on behalf of the credit provider or lessor. Under s47 of the National Credit Act, credit licensees are required to have a dispute resolution system that consists of:  IDR procedures that comply with RG 271 that cover disputes relating to credit activities they and their credit representatives engage in; and  membership of AFCA. Page 11 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 11 Firm type Description Dispute resolution requirements Credit representatives A credit representative is a person authorised to engage in specified credit activities on behalf of a credit licensee under s64 or 65 of the National Credit Act. The employees and directors of a credit licensee do not need to be formally authorised—they act as representatives of the credit licensee without a specific authorisation. A person can also be authorised as a credit representative by more than one credit licensee. Credit representatives do not need to have IDR procedures that meet the standards and requirements made or approved by ASIC. This is because a credit licensee’s IDR procedures must cover disputes relating to its credit representatives. Under s64 and s65 of the National Credit Act, most credit representatives are required to be separate members of AFCA. However, a person who has been sub- authorised under s65(1) of the National Credit Act, and is an employee or director of the body corporate that gave the sub-authorisation, does not need to be a separate member of AFCA. Note: See reg 16 of the National Credit Regulations. Page 12 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 12 Firm type Description Dispute resolution requirements Unlicensed carried over instrument (COI) lenders (including prescribed unlicensed COI lenders) A ‘carried over instrument’ is a contract or other instrument that was made and in force, and to which an old Credit Code applied immediately before 1 July 2010: see s4(1) of the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009. Unlicensed carried over instrument lenders (unlicensed COI lenders) are credit providers or lessors who only have a closed pool of carried over instruments and have chosen not to obtain a credit licence (or to restrict their activities to their carried over instruments, and subsequently cancel their credit licence). Note: A ‘prescribed unlicensed COI lender’ is an unlicensed COI lender who fails to meet certain probity requirements and who has restrictions placed on their conduct in relation to their carried over instruments. A prescribed unlicensed COI lender must not engage in credit activities with respect to their carried over instruments (other than the activities engaged in solely by being the credit provider or lessor). They must instead appoint a credit licensee to act as a ‘representative’ to engage in credit activities on their behalf with respect to their carried over instruments. Unlicensed COI lenders (including prescribed unlicensed COI lenders):  must have IDR procedures that comply with RG 271 and cover complaints in relation to the credit activities they engage in with respect to their carried over instruments; and  may choose to join AFCA. Note 1: Details of the obligations of unlicensed COI lenders are set out in Information Sheet 110 Lenders with carried over instruments (INFO 110), Regulatory Guide 205 Credit licensing: General conduct obligations (RG 205), Regulatory Guide 206 Credit licensing: Competence and training (RG 206) and Regulatory Guide 207 Credit licensing: Financial requirements (RG 207). Note 2: A prescribed unlicensed COI lender may arrange for their credit licensee’s dispute resolution system to cover complaints in relation to their carried over instruments. However, the prescribed unlicensed COI lender remains responsible for ensuring that the dispute resolution system meets the requirements and standards set out in RG 271. Unlicensed COI lenders who choose not to join AFCA must keep a register of each of the following:  complaints relating to their carried over instruments;  hardship notices made under s72 of the National Credit Code (at Sch 1 to the National Credit Act); and  requests for postponement of enforcement proceedings under s94 of the National Credit Code. Note 1: Unlicensed COI lenders that are not members of AFCA must still meet these register requirements, even if they have arranged for another person’s dispute resolution systems (including AFCA membership) to cover complaints relating to their carried over instruments. Note 2: See s47(1A) of the National Credit Act (inserted by Sch 2 of the National Credit Regulations) for details of the information the registers must include. Page 13 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 13 Firm type Description Dispute resolution requirements Exempt SPFEs Special purpose funding entities (SPFEs) include securitisation entities and fundraising special purpose entities that make (or buy) loans or leases and repackage them as investment products to sell to investors: Note: See the definition of ‘special purpose funding entity’ in s5 of the National Credit Act (inserted by Sch 3 to the National Credit Regulations). SPFEs can either operate under a credit licence or as exempt SPFEs: see the licensing exemption in regs 23B and 23C of the National Credit Regulations. Note: See the definition of ‘exempt special purpose funding entity’ in reg 3 of the National Credit Regulations. These entities may rely on a licensing exemption: see regs 23B and 23C of the National Credit Regulations. If they do, they must:  enter into a servicing agreement with a credit licensee under which that licensee acts on their behalf; and  be a member of AFCA. Exempt SPFEs do not have any IDR requirements. We expect that the credit licensee’s IDR process will cover complaints about both:  credit activities engaged in by the licensee under a servicing agreement; and  the conduct of the exempt SPFE (including where changes are sought to the terms of the contract—for example, on the basis of hardship or because the contract was unsuitable or unjust). Credit licensees acting on behalf of exempt SPFEs under a servicing agreement A credit licensee acting on behalf of an exempt SPFE, such as a securitisation entity that makes (or buys) loans or leases and repackages them as investment products to sell to investors. When performing this role for an exempt SPFE, the credit licensee must:  notify ASIC when they enter into a servicing agreement with an exempt SPFE and provide details of its membership with AFCA; and  notify ASIC when they cease to be a party to the servicing agreement. The credit licensee should also ensure that their IDR procedures cover  the exempt SPFE’s activities; and  complaints that arise when they act as the representative of the exempt SPFE and complaints about the conduct of the exempt SPFE. The credit licensee must inform a complainant of their right to complain to AFCA or directly refer them to AFCA. Page 14 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 14 C Oversight of AFCA Key points This section describes the broad AFCA governance framework and sets out ASIC’s oversight role in relation to AFCA. This includes ASIC’s powers to issue regulatory requirements, give directions and approve material changes to the scheme. It also sets out how we will administer the reporting requirements in the AFCA Act, including AFCA’s obligation to: • refer matters to appropriate authorities; • refer settled complaints; • refer systemic issues; and • report on scheme statistics. Principles of the governance framework RG 267.23 Stakeholder confidence in the independent and effective operation of AFCA is supported by a robust and transparent accountability and governance framework. This framework comprises Ministerial authorisation and ongoing AFCA board and ASIC oversight. It will also be supported by: (a) a forward-looking, responsive and independent organisational culture; (b) a public commitment to continuous learning and improvement; and (c) systems and reporting arrangements that create trust and confidence in AFCA. RG 267.24 We will approach our oversight responsibilities in a way that: (a) ensures compliance with the mandatory requirements; (b) is consistent with the Ministerial authorisation and conditions; (c) respects the operational independence of AFCA; and (d) supports AFCA to deliver independent, timely and fair decisions for consumers and financial firms. RG 267.25 From time to time, we will review this guidance and any relevant legislative instruments in consultation with AFCA, financial firms, consumer representatives and other interested stakeholders. Page 15 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 15 The AFCA board RG 267.26 The Minister authorised the operator of the scheme on 23 April 2018. Australian Financial Complaints Authority Limited is a company limited by guarantee that is operated on a not-for-profit basis. RG 267.27 The AFCA board has an independent chair and an equal number of directors with industry and consumer representative experience. The board must ensure that the mandatory requirements are complied with: see s1052. It must also comply with any conditions that are specified by the Minister at the time of authorisation and with any ASIC regulatory requirements on an ongoing basis. RG 267.28 The board is also responsible for appointing AFCA decision makers and the independent assessor, conducting independent reviews of the scheme, and reporting to ASIC and publicly. ASIC’s powers RG 267.29 ASIC has a range of powers in relation to AFCA under the Corporations Act. These include powers to: (a) issue regulatory requirements, including by legislative instrument, relating to compliance with: (i) the mandatory requirements under s1051; or (ii) any of the general considerations scheme under s1051A; (b) issue directions to AFCA if we consider that AFCA has not done all things reasonably practicable to ensure compliance with the relevant legislative requirements (s1052C); (c) issue directions to AFCA to: (i) increase limits on the value of claims that may be made or the value of remedies that may be determined (s1052B); and (ii) take measures to ensure that the operations of AFCA are sufficiently financed (s1052BA); and (d) approve material changes to the AFCA scheme (s1052D). RG 267.30 The Explanatory Memorandum confirms that while 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. Page 16 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 16 RG 267.31 Our regulatory requirements form part of the compliance requirements for AFCA. If AFCA fails to comply with any regulatory requirement, we may issue specific directions (under s1052B or s1052BA) or a general direction (under s1052C) to AFCA requiring it to comply. RG 267.32 We will use these directions powers as a last resort, and give AFCA adequate notice of any intention to issue a direction (as required by the Corporations Act). RG 267.33 AFCA must also refer (or report) certain matters to one or more of ASIC, the Australian Prudential Regulation Authority (APRA) and the Commissioner of Taxation (referred to in this guide as ‘the ATO’). These include referring: (a) contraventions and breaches (s1052E(1) and (2)); (b) settled complaints (s1052E(3)); and (c) systemic issues (s1052E(4)). Material changes to the AFCA scheme RG 267.34 It is a mandatory requirement under s1051(5)(b) that material changes to the scheme are not to be made without the approval of ASIC under s1052D. RG 267.35 AFCA may ask ASIC to approve a material change to the AFCA scheme. In considering whether to approve the change, we must take into account: (a) the mandatory requirements under s1051; (b) the general considerations under s1051A; (c) any conditions imposed by the Minister on the authorisation of the scheme under s1050(5)(b); and (d) any regulatory requirements under s1052A. RG 267.36 Examples of changes to AFCA that we would consider material include changes to: (a) the scheme’s jurisdiction, as set out in AFCA’s Rules of Complaint Resolution Scheme (AFCA Rules); (b) the terms of reference of the independent assessor; and (c) relevant time limits, including time limits for accessing the scheme and for ‘refer back’ arrangements. RG 267.37 Changes that may require ASIC approval are not limited to what is in the AFCA Rules; they could extend to matters dealt with in operational guidelines or other documents, if these have a material impact on the scheme or its users. AFCA will consult publicly about changes it is proposing to the scheme. Page 17 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 17 Reporting requirements Referring matters to appropriate authorities RG 267.38 Section 1052E(1) requires that 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) a serious contravention of any law may have occurred; (b) a contravention of the governing rules of a regulated superannuation fund or an approved deposit fund may have occurred; (c) a breach of the terms and conditions relating to an annuity policy, a life policy or an RSA may have occurred; or (d) a party to the complaint may have refused or failed to give effect to a determination made by AFCA (see s1052E(1)). Note: Section 1052E(2) relates to the requirements for reporting serious contraventions where the complaint relates to the scheme provided for by the Australian Defence Force Cover Act 2015. This guidance does not address these requirements. RG 267.39 Under the previous EDR framework, ASIC-approved schemes reported serious misconduct to ASIC in accordance with policy settings in RG 139. This test had been applied to include fraudulent conduct, grossly negligent or inefficient conduct, wilful or flagrant breaches of relevant laws, and non- compliance with scheme decisions or processes. Serious contraventions RG 267.40 AFCA must refer contraventions and breaches to appropriate authorities: s1052E. RG 267.41 We consider that a contravention will be serious, and therefore reportable by AFCA to the regulators under s1052E, if: (a) there are sufficient facts or information to found an objectively reasonable belief that it is serious; or (b) AFCA in good faith forms the view that a serious contravention of the law may have occurred. RG 267.42 A reasonable belief will be formed if a reasonable person would expect AFCA to report the matter to a regulator. RG 267.43 In considering what constitutes a ‘serious contravention of any law’ reportable by AFCA to ASIC or the other regulators, AFCA should take into account the Explanatory Memorandum, which states at paragraph 1.87 that: In relation to serious contraventions of law, it is intended that this will generally relate to laws relevant to the subject matter and circumstances of a complaint made to AFCA and the complaint handling processes, rather than necessarily to a contravention of any law (emphasis added). Page 18 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 18 RG 267.44 We expect that serious contraventions reportable to ASIC under s1052E will include serious contraventions of financial services and credit laws. For the avoidance of doubt, this includes relevant superannuation legislation. RG 267.45 It is likely that there will continue to be some ‘grey areas’ in which the need for referral is not straightforward. AFCA should consult with ASIC, the ATO or APRA (as appropriate) if it is unsure about whether or not to refer a particular matter. RG 267.46 The primary purpose of the reporting requirement in s1052E is to require AFCA to give information to a regulator so that it may consider whether regulatory action—beyond the resolution of any underlying complaints—is necessary. RG 267.47 The obligation to report applies to serious contraventions of laws by financial firms, including by licensees and their representatives or employees. RG 267.48 The particulars of the contravention (which are required to be provided under s1052E(1)) include the name of the financial firm, licensee, representative or employee, as appropriate. Where a serious contravention relates to the conduct of a specific and identified individual or individuals, the report will include the name of the individual(s). RG 267.49 Reports made to regulators in accordance with s1052E are subject to each regulator’s confidentiality requirements. For example, information obtained by ASIC under s1052E is protected information obtained by ASIC ‘while exercising its powers or functions’: see s127 of the Australian Securities and Investments Commission Act 2001 (ASIC Act). This means that we are generally precluded from publishing or releasing the name of the firm or individual identified in a report from AFCA. Note: The confidentiality requirements of the Australian Taxation Office (ATO) are contained in Div 355 of the Taxation Administration Act 1953, and s355-25 of that Act prohibits the ATO from disclosing protected information its receives. APRA’s confidentiality requirements are found in s56 of the Australian Prudential Regulation Authority Act 1998. Section 56(2) prohibits APRA from disclosing protected information in its possession except in a limited range of circumstances, set out in s56. RG 267.50 It is not a requirement that AFCA notify a firm before reporting a serious contravention to a regulator under s1052E. Financial firm self-reporting requirements RG 267.51 AFS licensees are required to report certain significant breaches (or likely breaches) of financial services laws to ASIC: s912D. Credit licensees must also lodge an annual compliance certificate with ASIC and certify that they are complying with their credit licence obligations. RG 267.52 While there may be some overlap between the content of the self-reporting requirements and issues reportable by AFCA to ASIC under s1052E, we Page 19 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 19 consider that these requirements, operating together, will enhance the effective and timely identification and reporting of issues of regulatory concern to ASIC. RG 267.53 AFCA and ASIC will liaise about matters that may be subject to dual reporting, particularly where they relate to the remediation of systemic issues identified in the handling of complaints. RG 267.54 In its response to Treasury’s ASIC Enforcement Review taskforce report, released in April 2018, the Australian Government announced that it would defer implementation of the recommendations on the self-reporting of contraventions by AFS licensees and credit licensees to take into account any findings arising out of the Royal Commission into misconduct in the banking, superannuation and financial services industry. Subject to the outcome of this process, we may update our regulatory guidance. Note: See the Hon. Scott Morrison MP, Treasurer, and the Hon. Kelly O’Dwyer MP, Minister for Revenue and Financial Services, Boosting penalties to protect Australian consumers from corporate and financial misconduct, joint media release, 20 April 2018. See also Regulatory Guide 78 Breach reporting by AFS licensees (RG 78). Reporting to ASIC RG 267.55 Table 3 sets out examples of the types of matters that we consider AFCA should report to ASIC, in accordance with s1052E, if AFCA becomes aware of the matter in connection with a complaint. Table 3: Examples of serious contraventions reportable to ASIC Area Example Mortgage broking A mortgage broker has engaged in misleading and deceptive, and possibly fraudulent, conduct in the preparation of loan applications. Credit A lender may have contravened either s47(1)(e) or (1)(g) of the National Credit Act by continuing to rely on documents submitted by a broker after the lender identified that the broker had lodged loan applications supported by false documents. General insurance A firm may have engaged in unconscionable conduct when selling insurance products to consumers by selling them cover they do not need or would be unable to make a claim on. Life insurance An insurer may have engaged in misleading and deceptive conduct in the sale and promotion of life insurance policies. Stock broking A firm failed to ensure that client money was deposited into client trust accounts in accordance with the client money requirements in the Corporations Act. Managed discretionary account (MDA) A firm has serious compliance failures by acting outside the scope of its authorisation in providing MDA services to clients. Page 20 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 20 Reporting to the ATO RG 267.56 Table 4 sets out are examples of matters the ATO considers AFCA should report to the ATO, in accordance with s1052E, if they become aware of these matters in connection with a complaint. Table 4: Examples of serious contraventions reportable to the ATO Area Example Aggressive tax planning A financial firm is engaging in aggressive tax planning (e.g. promoting certain investment products solely for the purposes of reducing tax liabilities) in contravention of relevant tax rulings. Illegal early release of superannuation An authorised representative of a member firm is promoting or facilitating the illegal early release of superannuation benefits. Timing and format of reports RG 267.57 AFCA must make a report to a regulator as soon as practicable—but no later than 15 days—after becoming aware that a serious contravention has occurred or may have occurred. RG 267.58 We expect that if the conduct suggests ongoing harm or a continuing risk of consumer losses, AFCA will report as soon as practicable on becoming aware that a serious contravention has occurred or may have occurred. This means that AFCA should not necessarily wait until a complaint has been finalised before reporting. RG 267.59 ASIC may specify the required form of reports of serious contraventions. In specifying requirements, we will consult with APRA, the ATO and AFCA with a view to harmonising and streamlining reporting arrangements as far as practicable. Referring settled complaints RG 267.60 If the parties to a complaint made under the AFCA scheme agree to a settlement of the complaint and AFCA thinks the settlement may require investigation, AFCA may give particulars of the settlement to one or more of the regulators: see s1052E(3). RG 267.61 To the extent it is practical to do so, we expect AFCA to oversee settlement arrangements to ensure that they are: (a) limited to the subject matter of the complaint; (b) not drafted so broadly that they preclude a consumer lodging a further complaint or taking other action in relation to matters that are not the subject of the complaint; (c) not drafted to preclude a consumer referring a complaint to a regulator; Page 21 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 21 (d) not offered on onerous or unjust terms, or in circumstances designed to avoid the scrutiny of AFCA; and (e) not being entered into as a result of duress or misrepresentation. RG 267.62 The factors above may be relevant to AFCA when deciding whether a settlement agreement requires investigation. The particulars of the settlement under s1052E(3) may include the name of the financial firm, licensee, representative or employee involved (as appropriate). RG 267.63 When AFCA identifies issues arising from settlements that warrant referral under s1052E(3), it should make a report within a reasonable time—but no later than 15 days—of forming the belief that a settlement may require investigation. RG 267.64 We may revisit our guidance in light of the operational experience of the scheme. Referring systemic issues RG 267.65 If AFCA considers that there is a systemic issue arising from the consideration of complaints under the AFCA scheme, AFCA must give particulars of the issue to one or more of the regulators, as appropriate: see s1052E(4). Note: See RG 267.198–RG 267.209 for detailed guidance on AFCA’s systemic issues role. RG 267.66 The particulars of systemic issues reportable to the regulators under s1052E(4) include the name of the financial firm, licensee, representative or employee involved (as appropriate). RG 267.67 Consistent with our guidance in RG 267.201, AFCA must have systems and processes in place to: (a) identify systemic issues that arise from its consideration of complaints; (b) refer these matters to the financial firm for response and action; and (c) report systemic issues in accordance with s1052E(4). RG 267.68 AFCA may identify a possible systemic issue in the course of resolving a complaint that, after investigation, AFCA decides is not systemic and therefore not reportable. AFCA may also identify systemic issues that relate to general industry practices or that involve multiple financial firms. AFCA should report the particulars of such issues or concerns to the regulators, as appropriate. Reporting to ASIC RG 267.69 Table 5 sets out some examples of the types of systemic issues that we consider AFCA should report to ASIC in accordance with s1052E(4). Page 22 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 22 Table 5: Examples of systemic issues reportable to ASIC Area Example Responsible lending AFCA identifies a potential systemic issue involving a failure to meet responsible lending obligations, including failure to make reasonable inquiries about expenses in the provision of consumer credit. After investigation, AFCA considers the issue is systemic and reports the issue to ASIC. Credit reporting errors After investigation, AFCA identifies a systemic issue involving errors in credit reporting processes, leading to incorrect default listings being made to a credit reporting body. AFCA reports the issue to ASIC. Poor IDR procedures AFCA identifies a systemic issue involving significant delays in complaints handling at IDR, affecting a number of firms who outsource their IDR procedures to third- party providers. RG 267.70 Reports should be made as soon as practicable, but no later than 15 days after AFCA considers that there is a systemic issue. AFCA should not necessarily wait until the underlying complaint or the systemic issue investigation has been finalised before reporting to the regulators, but generally the firm(s) involved will have an opportunity to respond to AFCA before a report is made. Information sharing RG 267.71 Officers and other staff members of APRA, ASIC and the ATO may disclose protected information to AFCA to assist it to perform its functions. Note: See s56(5)(aa) of the Australian Prudential Regulation Authority Act 1998, s127(4)(aa)(i) of the ASIC Act, and s355-65(3) in Sch 1 to the Taxation Administration Act 1953. RG 267.72 AFCA should ensure it has appropriate processes for the receipt and management of information shared by APRA, ASIC or the ATO in accordance with these provisions. RG 267.73 The AFCA Rules may also provide for the release of information to other regulators—including the Office of the Australian Information Commissioner, a regulated securities exchange, or a disciplinary body where appropriate procedures are in place between AFCA and the body to provide for the release of such information. Statistical reporting requirements RG 267.74 AFCA will collect, record and report information to ASIC on a quarterly basis about: (a) the number of complaints received; (b) the demographics of consumers that lodge complaints; (c) the number of complaints that fall outside AFCA’s Rules (with reasons); Page 23 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 23 (d) the scheme’s current caseload, including the age and status of open cases; (e) the time taken to resolve complaints; (f) the profile of complaints to enable identification of: (i) the type of product or service involved; (ii) the product or service provider; (iii) the nature of the complaint; and (iv) any systemic issues or other trends; (g) the number of complaints closed, and an indication of the outcome of each closed dispute; (h) the stage of AFCA’s process where the complaint closed; and (i) firms’ performance in resolving complaints at the refer back stage. RG 267.75 A comprehensive summary and analysis of this information must also be contained in AFCA’s annual report. RG 267.76 AFCA 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. RG 267.77 We may, in consultation with AFCA, develop additional reporting requirements—including for how information is to be provided to ASIC. We will seek to harmonise and streamline data collection and reporting with other relevant data sets, such as firm-level IDR data. Public reporting of AFCA complaint data RG 267.78 AFCA must publish information about complaints received and closed, with an indication of the outcome, against each scheme member on an annual basis. AFCA may exercise discretion not to publish information about members whose level of complaints fall below a certain threshold. AFCA must be transparent about its publication methodology. This data supports comparability between member firms that operate similar businesses. RG 267.79 We expect AFCA to: (a) ensure this information is accurate; and (b) present the information in the appropriate contextfor example, by categorising member information according to industry sector and/or size of business. Page 24 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 24 Further review and communication of our reporting guidance RG 267.80 This reporting guidance provides a basic framework within which AFCA should operate. This framework will be subject to periodic review in consultation with AFCA, APRA, the ATO, industry, consumer representatives, and other interested stakeholders (as required). We may issue more detailed regulatory requirements about reporting from time to time: see s1052A. RG 267.81 We will hold regular meetings with AFCA scheme staff to discuss the operation of the reporting guidelines and relevant operational issues. Page 25 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 25 D AFCA compliance requirements Key points We may issue regulatory requirements that form part of AFCA’s compliance requirements. These relate to: • compliance with the mandatory requirements under s1051; or • any of the general considerations under s1051A. This section sets out our guidance relating to the general considerations for an EDR scheme, which are the principles of: • accessibility; • independence; • fairness; • efficiency and effectiveness; and • accountability. These principles have been applied to the oversight of ASIC-approved industry-based EDR schemes for many years, and will continue to apply to AFCA. Accessibility RG 267.82 To meet the accessibility requirements, AFCA must: (a) be free of charge for complainants; (b) clearly communicate who is eligible to complain and the complaints it can and cannot deal with; (c) provide clear reasons for excluding complaints that it determines to be outside jurisdiction; (d) promote awareness of and access to the scheme; (e) communicate in a clear, timely and relevant way to consumers, financial firms and other stakeholders and ensure scheme processes are easy to use and understand, and simple to navigate; and (f) clearly set out in the AFCA Rules how and when legal proceedings may be brought in relation to a complaint that has already been lodged with the scheme (see RG 267.101–RG 267.112). Cost to consumers RG 267.83 It is a mandatory requirement that complainants are exempt from payment of any fee or charge in relation to a complaint: s1051(2)(d). This applies not only to a complainant accessing AFCA, but also to having their complaint dealt with in full by the scheme. Page 26 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 26 Complaints AFCA can and cannot deal with RG 267.84 It is a mandatory requirement that membership of AFCA is open to every firm that is required to be a member of an authorised EDR scheme: s1051(2)(a). See RG 267.18 for more information. RG 267.85 The AFCA Rules set out AFCA’s jurisdiction—who is eligible to complain and what complaints it can and cannot deal with. RG 267.86 The Corporations Act also includes specific provisions for the resolution of superannuation complaints, including: (a) when complaints relating to superannuation can be made (s1053); (b) AFCA’s powers in relation to superannuation complaints (s1054– 1054C); and (c) the determination of superannuation complaints (s1055–1055D). RG 267.87 Exclusions from AFCA’s jurisdiction are based on statutory exclusions and the well-established exclusions from the jurisdictions of the predecessor schemes. The discretion to exclude complaints will only be used in cases where there are compelling reasons for deciding that AFCA should not consider the complaint. RG 267.88 Examples of the types of complaints that may be excluded from AFCA, subject to specific drafting in the AFCA Rules, include complaints that: (a) have been dealt with in another forum; (b) are above the scheme’s monetary limit at the time the complaint was made; (c) are outside the scheme’s time limits; (d) relate to a firm’s commercial policy; (e) relate to the management of a fund as a whole; (f) relate solely to the underlying performance of an investment; or (g) are frivolous, vexatious, misconceived or lacking in substance. RG 267.89 Where the financial firm and consumer consent, AFCA may accept complaints that are outside the scheme’s jurisdiction. This may occur, for example, where a financial firm: (a) agrees to extend access and to be bound by the AFCA Rules and AFCA’s decisions for certain complaints that may have otherwise been excluded (e.g. out of time); or (b) is running a remediation program and agrees to waive monetary or other limits to provide access to EDR for its affected customers. RG 267.90 While a financial firm may agree to waive time or monetary limits to provide access to AFCA, the scheme itself retains its power to exclude certain Page 27 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 27 complaints if it forms the view that the complaint is frivolous, vexatious or that the complaint should more properly be dealt with in another forum (e.g. a court). Promoting awareness of and access to AFCA RG 267.91 AFCA should actively promote the scheme with timely, targeted communications and stakeholder engagement strategies. RG 267.92 Demographic data about complainants should inform AFCA’s promotional and outreach activities, to ensure that vulnerable or under-represented groups are identified and effectively targeted. RG 267.93 Financial firms also have specific disclosure and regulatory obligations to make their customers aware of IDR and of their rights to complain to AFCA. Clear communications and easy to use processes RG 267.94 AFCA should adopt appropriate communication strategies for consumers, financial firms and other stakeholders, with a focus on promoting understanding of AFCA’s role, processes and decision making. RG 267.95 Communications should be clear, timely, and relevant to the audience. They should support the different access needs of different complainant types. RG 267.96 When developing communications strategies, AFCA should ensure that information is: (a) easy to access; (b) user friendly (taking into account plain language principles); (c) practically relevant; and (d) provided at key stages of the complaint resolution process. RG 267.97 AFCA should also consider behavioural principles when designing its communications, which include: (a) making it easy to lodge a complaint; (b) giving clear, timely and tailored communications to help consumers and member firms understand scheme processes and timeframes; (c) making it simple to engage with AFCA staff; and (d) making it easy to seek help at any stage of the process. RG 267.98 AFCA should review the effectiveness of scheme communications in response to survey data or other information. This may include, for example, feedback from the independent assessor or other internal quality assurance processes that suggests there may be a problem in member or complainant understanding of scheme processes, decisions or jurisdiction. Page 28 REGULATORY GUIDE 267: Oversight of the Australian Financial Complaints Authority © Australian Securities and Investments Commission September 2021 Page 28 Financial firm referrals to AFCA RG 267.99 From time to time, a financial firm may wish to directly refer a complaint to AFCA for resolution. This may be necessary where a firm has given an IDR response to the complainant, but the complaint remains unresolved and the complainant has not escalated it to AFCA. Firms making such referrals will require the consent of the complainant to do so. RG 267.100 For complaints involving hardship notices or requests for postponement of enforcement proceedings, there may be an increased need for financial firms to directly refer complaints to the AFCA, because interest and other default charges may continue to accrue. Legal proceedings by financial firms RG 267.101 The AFCA Rules must set out that legal proceedings should not be commenced by financial firms when a complaint has been lodged with AFCA, unless: (a) the legal limitations period is about to expire; or (b) the firm seeks to rely on the test case procedures. RG 267.102 By ‘test case procedures’, we mean complaints involving a novel point of law or circumstances requiring clarification in accordance with the AFCA Rules. RG 267.103 Commencing legal proceedings in relation to a complaint lodged with AFCA creates the potential for financial firms to undermine the EDR process. There is also the possibility that the same complaint will be dealt with in two competing forums, wasting time and resources. RG 267.104 However, we recognise the importance of allowing financial firms to preserve their legal rights where the legal limitations period is about to expire, and in specific test case situations. RG 267.105 The AFCA Rules set out the specific circumstances in which a financial firm may commence legal proceedings under test case procedures. This should include requiring that the firm: (a) institute proceedings in a court or tribunal—wi