Financial Services Regulation

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Unravelled: AFCA's powers and obligations – 'systemic issues'

13 November 2018

Written by Senior Regulatory Counsel Michael Mathieson

In his Interim Report, Commissioner Hayne rejected claims that misconduct in the financial services sector was the fault of 'a few bad apples' and did not raise 'broader or systemic concerns'. Commissioner Hayne's comments made me think about AFCA and what it can do (and must do) about 'systemic issues' identified in the course of handling complaints.

Under the Corporations Act, if AFCA considers that there is a systemic issue arising from its consideration of a complaint, AFCA must refer the matter to one or more of APRA, ASIC or the Commissioner of Taxation.

For banks, insurers and advice licensees, there is little new in this. Consistently with RG 139, FOS has long been required by its Terms of Reference to report systemic issues to ASIC. Indeed, ASIC has said: 'Identifying and dealing with systemic issues has been a mandatory feature of the industry-based financial services dispute resolution framework for more than 15 years'. That may be so, but it will be new for superannuation trustees. The Superannuation Complaints Tribunal has not been subject to any corresponding requirement.

Not only is it new for superannuation trustees, but AFCA's Scheme Rules go a lot further than FOS's Terms of Reference on the topic of systemic issues. FOS has had to refer a systemic issue to the relevant Financial Services Provider for remedial action and obtain a report on the remedial action undertaken. AFCA's Scheme Rules have the same requirement, but go on to say that, as part of dealing with a systemic issue, AFCA may require the Financial Firm to do, or refrain from doing, any act that AFCA considers reasonably necessary to achieve one or more stated objectives. The objectives include remedying loss or disadvantage suffered by consumers (whether or not they have complained about the systemic issue) and minimising the risk of the systemic issue recurring.

This is, plainly, a directions power for AFCA. It is the sort of power that APRA has long had in relation to banks and insurers and that it is set to gain in relation to superannuation trustees. It is also the sort of power that ASIC would very much like to have. Which makes it worth remembering that ASIC is responsible for the 'oversight' of AFCA – and pondering whether ASIC could be able to achieve indirectly (via AFCA) what it currently cannot do directly.

This all makes ASIC's views on systemic issues most interesting. They are set out in RG 267. ASIC says that AFCA should report a systemic issue to a regulator as soon as practicable and within 15 days 'after AFCA considers that there is a systemic issue'. Further: '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'. If ASIC is serious about the 15 day time limit (and presumably it is), AFCA is going to have to notify the financial firm in question very quickly and the firm is going to have to consider the matter and respond to AFCA very quickly too.

ASIC does not say anything about AFCA's power to give directions in relation to systemic issues. This may be because RG 267 was published long before AFCA's Scheme Rules were finalised. Or it could be for some other reason. It is certainly intriguing.

I understand that a superannuation law veteran reading this may well regard AFCA's obligation to report systemic issues involving superannuation funds as not such a big deal, since the SCT has had to report certain contraventions (which may or may not have involved systemic issues) to ASIC or APRA. If so, they may be right, although I am not convinced. Even if they are right, what cannot be disputed is that the SCT never had a power to give directions in relation to systemic issues. Quite the opposite. AFCA's power is a radical development and the use of that power will be very interesting to watch.

Other articles in this edition of Unravelled

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