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Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017

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2016-2017

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

SENATE

 

 

 

Treasury LAWS AMENDMENT (Putting Consumers First-Establishment of the Australian Financial Complaints Authority) BILL 2017

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

(Circulated by authority of the

Minister for Revenue and Financial Services, the Hon Kelly O’Dwyer MP)



Table of contents

Glossary.............................................................................................................. 1

General outline and financial impact............................................................ 3

Chapter 1               External dispute resolution................................................. 7

Chapter 2               Internal dispute resolution................................................ 49

Chapter 3               Statement of compatibility with human rights............... 57

Chapter 4               Regulation impact statement............................................ 59

 



The following abbreviations and acronyms are used throughout this explanatory memorandum.

Abbreviation

Definition

AFCA

Australian Financial Complaints Authority

AFS licensee

Australian financial services licensee

APRA

Australian Prudential Regulation Authority

ASIC

Australian Securities and Investments Commission

CIO

Credit and Investments Ombudsman

Corporations Act

Corporations Act 2001

EDR

External dispute resolution

EPSSS

Exempt public sector superannuation scheme

Financial Firms

Australian financial services licensees, unlicensed product issuers, unlicensed secondary sellers, Australian credit licensees, credit representatives , regulated superannuation funds (other than self-managed superannuation funds), approved deposit funds, retirement savings account providers, annuity providers, life policy funds and insurers

FOS

Financial Ombudsman Service

IDR

Internal dispute resolution

IDR Firms

Firms that are required to participate in the enhanced IDR framework

Ramsay Review

Review of the financial system external dispute resolution and complaints framework

RSA

Retirement savings account

RSA Act

Retirement Savings Accounts Act 1997

SCT

Superannuation Complaints Tribunal

SIS Act

Superannuation Industry (Supervision) Act 1993

SMSF

Self-managed superannuation fund

Superannuation Complaints Act

Superannuation (Resolution of Complaints) Act 1993

ToR

Terms of Reference

TPD

Total and permanent disability



External dispute resolution

This Bill will amend the Corporations Act 2001 (Corporations Act) and other Commonwealth Acts to introduce a new external dispute resolution (EDR) framework and an enhanced internal dispute resolution (IDR) framework for the financial system.

The new EDR framework will ensure that consumers have easy access to a single EDR scheme, known as the Australian Financial Complaints Authority (AFCA), which will resolve disputes about products and services provided by financial firms. The AFCA scheme will replace the Superannuation Complaints Tribunal (SCT) and the existing EDR schemes approved by the Australian Securities and Investments Commission (ASIC).

The enhanced IDR framework will require financial firms to report their IDR activities in accordance with ASIC requirements and allow ASIC to publish information it receives under new reporting requirements. This will allow ASIC to improve transparency about the performance of financial firms in relation to their IDR activities.

D ate of effect: The amendments repealing the Superannuation (Resolution of Complaints) Act 1993 (Superannuation Complaints Act) commence on a day to be fixed by proclamation.

The timing of key application dates in this Bill will be set by the Minister (currently, expected to be the Minister for Revenue and Financial Services) by notifiable instrument. This will enable AFCA to commence operations in a way that minimises disruption to industry and consumers.

The dates that may be set by notifiable instrument include the date the authorisation of AFCA comes into force, the date that financial firms need to become members of AFCA, the date financial firms no longer need to be members of existing EDR schemes approved by ASIC and the date that the SCT can no longer receive new disputes.

P roposal announced : T his measure was announced in the 2017-18 Budget as A More Accountable and Competitive Banking System — improving external dispute resolution’.

  Financial impact   : The measure is estimated to have the following financial impact over the forward estimates period:

2016-17

2017-18

2018-19

2019-20

2020-21

-

-$1.8m

$0.8m

$0.4m

..

- Nil

.. not zero but rounded to zero

  Human rights implications : This Bill does not raise any human rights issue. See Statement of Compatibility with Human Rights — Chapter 3.

Compliance cost impact : T his measure is estimated to have a compliance cost impact of $43.85 million each year.

Summary of regulation impact statement

Regulation impact on business

Impact : This measure is estimated to have a compliance cost impact of $43.85 million each year.

Main points     :

•        The Government has been informed of the regulatory impacts of various reform options by the Review of the Financial System External Dispute Resolution and Complaints Framework (the Ramsay Review). The Ramsay Review was commissioned by the Government in May 2016 and led by an expert panel, chaired by Professor Ian Ramsay. 

•        Extensive consultation with both industry and consumer stakeholders was undertaken as part of the Ramsay Review.

•        The review panel found that the current framework is a product of history rather than design and that reform is needed. The panel identified that the existence of multiple EDR schemes with overlapping jurisdictions means that:

-       it is difficult to achieve comparable outcomes for consumers with similar complaints;

-       it is more difficult for consumers to progress disputes involving firms that are members of different schemes; and

-       there is an increased risk of consumer confusion.

•        The panel also noted that the dispute resolution arrangements for superannuation were not effective and that superannuation disputes should be resolved by an ombudsman scheme, rather than a statutory tribunal.

•        Alternative reform options were considered and included having targeted reforms to the SCT and establishing a statutory tribunal.

•        The measure is estimated to result in compliance costs for financial firms as a result of the introduction of the new IDR reporting requirements and costs associated with the higher monetary limits on claims that may be brought under the new EDR framework.

•        The measure is also estimated to result in compliance costs associated with transitioning to the new framework, such as the costs of updating disclosure information and the costs for superannuation funds to move to an industry based scheme.



Chapter 1          

External dispute resolution

Outline of chapter

1.1                   Schedule 1 to this Bill amends the Corporations Act and associated Acts to introduce a new EDR framework for the financial system.

1.2                   The Minister will be able to authorise a new one stop shop EDR scheme for the purposes of the Corporations Act which will be known as AFCA.

1.3                   Certain firms that provide financial and credit services to consumers will be required to be members of AFCA. That is, Australian financial services licensees (AFS licensees), unlicensed product issuers, unlicensed secondary sellers, Australian credit licensees and credit representatives, regulated superannuation funds (other than self-managed superannuation funds ), approved deposit funds, retirement savings account (RSA) providers, annuity providers, and life policy funds and insurers (collectively, Financial Firms) will all be required to be members of AFCA.

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. In relation to superannuation complaints, limited rights of appeal on a question of law will be maintained, which is consistent with the approach under the SCT.

1.5                   All legislative references in this Chapter are to the Corporations Act, unless otherwise stated.

Context of amendments

Review of the EDR framework

1.6                   On 20 April 2016, the Government announced a package of measures to enhance the operation of ASIC and to improve outcomes for consumers in the financial system.

1.7                   As part of this package, the Government announced a review of EDR and complaints handling framework in the Australian financial system led by an expert panel, chaired by Professor Ian Ramsay (known as the Ramsay Review).

1.8                   The purpose of the Ramsay Review was to ensure that the three existing EDR bodies, the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the SCT, were working as effectively as possible to deliver the best possible outcomes for consumers and small businesses. In particular, the Ramsay Review was tasked with examining whether changes to current dispute resolution and complaints bodies in the financial sector were needed to deliver effective outcomes for consumers and small businesses.

1.9                   Currently, FOS and CIO are ASIC approved industry ombudsman schemes. AFS licensees, unlicensed product issuers, unlicensed secondary sellers , Australian credit licensees and credit representatives are required to be members of one of these schemes by law.  

1.10               The SCT is a statutory tribunal established under the Superannuation Complaints Act which considers complaints about superannuation.

Ramsay Review findings

1.11               The Ramsay Review found that:

•        the existence of multiple EDR schemes with overlapping jurisdictions means that it is difficult to achieve comparable outcomes for consumers with similar complaints;

•        multiple EDR schemes give rise to a duplication in costs for both industry and ASIC;

•        consumers and small businesses do not have adequate access to EDR as the existing monetary limits on access to EDR and the existing caps on compensation that can be awarded are too low; and

•        there are long-standing problems with the arrangements for resolving superannuation complaints in the SCT.

A new EDR framework

1.12               On 9 May 2017, the Government announced the creation of a new framework for dispute resolution with a ‘one stop shop’ EDR scheme which will be known as AFCA. AFCA will replace FOS, CIO and the SCT and will consider certain disputes about products and services provided by Financial Firms.

1.13               A key benefit of a one stop shop is that it enables consumers to approach a single scheme to resolve all financial complaints.

1.14               The Government announced that AFCA will be based on an ombudsman model and will be established by industry as a company limited by guarantee.

1.15               Financial Firms will be required to be members of AFCA. AFCA’s members will be contractually bound to comply with AFCA’s operating rules, which will be included in AFCA’s terms of reference (ToR).

1.16               AFCA will be required to comply with a number of mandatory requirements that are set out in this Bill. These requirements include the following:

•        the operations of the scheme must be financed by contributions made by members of the scheme;

•        the scheme must have an independent assessor, to focus on reviewing the handling of complaints;

•        consumers must be able to access the scheme cost-free;

•        the complaints mechanism under the scheme must be accessible to people who are dissatisfied with the response of a member of the scheme to their complaint; and

•        the scheme must resolve disputes in a way that is fair, efficient, timely and independent. ASIC will have regulatory oversight and undertake action where necessary to ensure that disputes are resolved in this way.

1.17               AFCA will be governed by a board comprising of an independent Chair and an equal number of directors with consumer and industry backgrounds. The Minister (currently expected to be the Minister for Revenue and Financial Services) may, within 6 months after the authorisation of the AFCA scheme, appoint a minority of the AFCA board, including the independent Chair.

1.18               The legislative framework for the AFCA scheme provides for:

•        the authorisation of the scheme by the Minister;

•        mandatory membership of the scheme for Financial Firms;

•        strengthened regulatory oversight; and

•        additional powers for AFCA for the resolution of superannuation complaints.

1.19               The scheme will be authorised by the Minister. To ensure that the scheme can satisfy its conditions of authorisation, and deliver benefits to consumers and small businesses, the Minister will consider whether it can meet the obligations set out in this Bill before providing authorisation.

1.20               Once authorised by the Minster, the scheme will be known as the AFCA scheme. The operator of the AFCA scheme will be known as AFCA.

1.21               Under the new EDR framework, the broad conditions under which the AFCA scheme must operate will be dealt with in legislation. However, the way the AFCA scheme operates will be determined by AFCA’s board and set out in its ToR. This will allow the scheme to be flexible where operational improvements can be implemented more quickly than would otherwise be the case if a legislative change was required, which is a key benefit of an ombudsman model.

Strengthened regulatory oversight

1.22               As the new EDR framework will involve a shift to a single EDR scheme (known as the AFCA scheme), there will be enhanced oversight and monitoring by ASIC. ASIC will have a new power to issue regulatory requirements that AFCA (being the operator of the AFCA scheme) must comply with.

1.23               ASIC will also have the power to approve material changes to the AFCA scheme by giving written notice to AFCA.

1.24               ASIC will also have a directions powers so that it can:

•        increase the limits on the value of claims or remedies that can be made under the AFCA scheme; and

•        require AFCA to comply with legislative or regulatory requirements that apply in relation to the AFCA scheme.

Additional powers for superannuation complaints

1.25               Although the operational aspects of the AFCA scheme will be based on private law (contractual) obligations between AFCA and the Financial Firms who are members of the AFCA scheme (and set out in the ToR), AFCA will be provided with certain statutory powers to allow it to manage superannuation complaints effectively.

1.26               Statutory powers are required because some superannuation complaints cannot be resolved by relying on contractual obligations between AFCA and the members of the AFCA scheme. For example, superannuation complaints may involve third parties who are not members of the AFCA scheme but may have an interest in the outcome of a complaint (such as third parties to a complaint who have an interest in a death benefit).

Summary of new law

1.27               Schedule 1 to this Bill introduces a new EDR framework which will be included in the Corporations Act and will ensure that consumers have easy access to a single EDR scheme to resolve disputes about products and services provided by Financial Firms.

1.28               These amendments create a new Part 7.10A ‘External Dispute Resolution’ in the Corporations Act which will consist of three divisions.

1.29               Division 1 of Part 7.10A establishes a new authorisation framework which:

•        provides the Minister with the power to authorise an EDR scheme for the purposes of the Corporations Act if he or she is satisfied that the scheme will meet the mandatory requirements (see Subdivision A);

•        provides the Minister with the power to specify conditions about the authorisation of the EDR scheme (see Subdivision A);

•        provides the Minister with the power to vary or revoke the authorisation of the EDR scheme at any time (see Subdivision A); and

•        outlines the mandatory requirements and general considerations that relate to the authorisation of the EDR scheme (see Subdivision B).

1.30               Once an EDR scheme has been authorised by the Minister, it will be known as the AFCA scheme. The operator of the scheme will be known as AFCA.

1.31               Division 2 of Part 7.10A is about regulating the AFCA scheme. This includes establishing an enhanced regulatory oversight regime by giving ASIC the power to:

•        issue regulatory requirements regarding the performance of the scheme functions;

•        approve any material changes to the scheme; and

•        issue directions to AFCA requiring it to:

-       increase monetary limits for the value of claims or remedies;

-       comply with a mandatory requirement;

-       comply with a condition of authorisation; or

-       comply with ASIC regulatory requirements.

1.32               In addition, Division 2 of Part 7.10A contains enhanced reporting obligations which require AFCA to refer certain matters to ASIC, the Australian Prudential Regulation Authority (APRA), or the Commissioner of Taxation, as appropriate. In certain circumstances, matters may need to be referred to the ministers administering the Australian Defence Force Cover Act 2015 and the Public Governance, Performance and Accountability Act 2013 .

1.33               Division 3 of Part 7.10A contains additional provisions relating to superannuation complaints. This includes providing AFCA with statutory powers which can be used to assist in resolving a superannuation complaint. The Division also includes provisions that deal with how a determination about a superannuation complaint is made, how questions of law about a superannuation complaint can be referred to the Federal Court and how appeals about superannuation complaints can be made to the Federal Court on a question of law.

1.34               AFCA’s statutory powers which can be used to assist in resolving a superannuation complaint are as follows:

•        the power to join certain third parties to a superannuation complaint;

•        the power to obtain information and documents which are relevant to a superannuation complaint;

•        the power to require people to attend conciliation conferences to assist in the resolution of a superannuation complaint; and

•        the power to refer a question of law arising in relation to a superannuation complaint to the Federal Court.

1.35               In relation to the making of a determination of a superannuation complaint, Division 3 also:

•        sets out the powers, obligations and discretions of AFCA in making a determination;

•        requires AFCA to give written reasons for a determination relating to a superannuation complaint; and

•        explains that a determination comes into operation immediately upon the making of the determination unless otherwise specified by AFCA.

1.36               AFCA’s determinations of superannuation complaints will be subject to appeal to the Federal Court on a question of law. Division 3 also includes rules about the status of a determination which is subject to appeal to the Federal Court. A right of appeal is maintained for superannuation complaints given the compulsory nature of superannuation and the obligation of trustees to act in the best interests of all beneficiaries of the fund. The outcome of a superannuation complaint may have wider implications on the future payment of benefits by a trustee to members. It is important that these types of decisions can be appealed where the law may have been incorrectly applied.

1.37               Division 3 also provides that AFCA staff members will be subject to secrecy requirements in relation to information that is compulsorily obtained from third parties as part of a superannuation complaint.

Comparison of key features of new law and current law

New law

Current law

The Minister will have the power to authorise one EDR scheme after taking into account a range of considerations set out in the legislation and may take into account the general considerations and any other relevant matters when considering whether to authorise the EDR scheme.

Once the EDR scheme has been authorised, it will be known as the AFCA scheme.

ASIC has the power to approve multiple EDR schemes.

There are a number of mandatory requirements which the Minister must be satisfied that the EDR scheme will meet at the time it is authorised.

 

The Minister may include additional conditions for authorisation at the time of authorising the EDR scheme.

The Minister will have the power to vary or revoke any additional conditions.

ASIC may make an approval of an EDR scheme subject to conditions specified in the approval.

The Minister will have the power to vary or revoke the authorisation at any time.

ASIC has the power to vary or revoke an EDR scheme’s approval.

AFCA must comply with mandatory requirements for the AFCA scheme at all times during the scheme’s authorisation.

No equivalent.

ASIC will have the power to issue regulatory requirements relating to compliance with the mandatory requirements and general considerations.  

No equivalent.

All material changes to the AFCA scheme must first be approved by ASIC.

Schemes must consult with ASIC on all proposed changes to their ToR.

ASIC will have the power to issue directions to the scheme operator to increase limits on the value of claims or remedies that may be awarded or to undertake specific measures to comply with a mandatory requirement, a condition of authorisation specified by the Minister or regulatory requirements.

No equivalent.

AFCA will have the power to join certain persons to a superannuation complaint.

The SCT has the power to join certain persons to a complaint.

AFCA will have the power to obtain information and documents from people where the information or documents are relevant to a superannuation complaint.

The SCT has the power to obtain information and documents.

AFCA will have the power to require persons to attend conciliation conferences in relation to a superannuation complaint.

The SCT has the power to require attendance at conciliation conferences.

AFCA may refer questions of law to the Federal Court in relation to a superannuation complaint.

The SCT may refer a question of law to the Federal Court.

When making a determination regarding a superannuation complaint, AFCA will have all the powers, obligations and discretions conferred upon the original decision-maker.

For the purpose of reviewing a decision, the SCT has all the powers, obligations and discretions conferred on the trustee or other decision-maker.

A determination of AFCA in relation to a superannuation complaint comes into effect immediately unless otherwise specified.

A determination of the SCT comes into effect immediately, unless otherwise specified by the SCT determination.

A party to a superannuation complaint may appeal to the Federal Court about a determination of AFCA on a question of law.

A party to a superannuation complaint may appeal to the Federal Court about a ruling of the SCT on a question of law.

Detailed explanation of new law

1.38               Schedule 1 to this Bill introduces a framework for the authorisation of an EDR scheme to consider complaints about Financial Firms.

1.39               This Chapter outlines:

•        how an EDR scheme is authorised;

•        how the authorised scheme (known as the AFCA scheme) is regulated; and

•        additional legislative provisions required to resolve superannuation complaints.

Authorisation of an EDR scheme

Minister authorises an EDR scheme

1.40               Schedule 1 to this Bill provides that the Minister may authorise an EDR scheme, by notifiable instrument, if the Minister is satisfied that the scheme will meet the mandatory requirements. In considering whether to authorise the EDR scheme, the Minister must take into account certain matters set out in the legislation. [Schedule 1, item 2, subsections 1050(1) and (2)]

1.41               The Minister must specify the day the authorisation comes into force. Only one authorisation of an EDR scheme may be in force at any one time. [Schedule 1, item 2, paragraph 1050(5)(a) and subsection 1050(3)]

1.42               Once an EDR scheme has been authorised, the operator of the authorised EDR scheme will be known as AFCA and the authorised EDR scheme will be known as the AFCA scheme.

1.43               Following authorisation, AFCA must ensure that the mandatory requirements of the AFCA scheme set out in the legislation are complied with at all times. AFCA will also need to comply with any additional conditions specified by the Minister in the notifiable instrument authorising the AFCA scheme and comply with any ASIC regulatory requirements.

1.44               The Minister may choose to revoke or vary the conditions specified by the Minister in the notifiable instrument and must specify the day the variation or revocation comes into force. [Schedule 1, item 2, subsection 1050(5)]

1.45               The Minister may vary or revoke the authorisation of the EDR scheme by notifiable instrument for any reason. For example, the Minister may revoke authorisation of the AFCA scheme if AFCA fails to satisfy one or more of the mandatory requirements of the AFCA scheme set out in the legislation. [Schedule 1, item 2, subsection 1050(4)]

Mandatory requirements

1.46               The Minister may authorise an EDR scheme if the Minister is satisfied that the scheme will meet certain organisational, operator, operational and compliance requirements. [Schedule 1, item 2, subsections 1050(1) and 1051(1)]

1.47               It will be necessary for the EDR scheme to include most of these requirements in its ToR.

Organisational requirements

1.48               The organisational requirements are that:

•        membership of the scheme must be open to every entity that is required to be a member of the scheme;

•        the scheme’s operations must be financed through contributions made by members of the scheme, with the funding arrangements to be determined by the board of the operator of the scheme;

•        the scheme must have an independent assessor to assess the handling of complaints, with a focus on reviewing the service provided to users in the handling of the disputes (if the assessor determines that the complaint was not handled satisfactorily, the assessor may recommend that AFCA take certain actions);

•        complainants must be exempt from the payment of any fees or charges in relation to a complaint.

[Schedule 1, item 2, subsection 1051(2)]

Operator requirements

1.49               The operator requirements are that:

•        the operator of the scheme must commission the conducting of independent reviews of the scheme’s operations and procedures;

•        the operator of the scheme must be a company limited by guarantee; and

•        the constitution of the operator of the scheme must provide that:

-       the operator must not be operated for profit;

-       the number of directors who have experience in carrying on the kinds of businesses operated by member firms (including firms which provide financial products and services, credit products and services, and superannuation) must equal the number of directors who have experience in representing consumers of financial, credit and superannuation products and services; and

-       the Minister may, within 6 months of the authorisation of the AFCA scheme, appoint any director (including the independent Chair of the board) if the total number of directors appointed by the Minister (including the Chair) would be less than half the total number of directors.

[Schedule 1, item 2, subsection 1051(3)]

Operational requirements

1.50               The operational requirements are that:

•        the complaints mechanism under the scheme must be appropriately accessible to persons dissatisfied with the response of a member of the scheme to their complaint;

•        complaints against members of the scheme must be resolved (including by making determinations relating to such complaints) in a way that is fair, efficient, timely and independent (ASIC will have regulatory oversight and undertake action where necessary to ensure that disputes are resolved in this way);

•        appropriate expertise must be available to deal with complaints;

•        reasonable steps must be taken to ensure compliance by members of the scheme with determinations;

•        determinations made by the operator of the scheme must be binding on members of the scheme, but not binding on complainants (however, this is subject to Division 3 of the Bill which provides additional provisions relating to determinations about superannuation complaints); and

•        in relation to superannuation complaints, there are no limits on either the value of claims that may be made or the value of remedies that may be determined. This is important given complaints involving superannuation can involve large sums of money accumulated over a long period of time, which members were required to contribute and generally cannot remove from the system before retirement.

[Schedule 1, item 2, subsection 1051(4)]

Compliance requirements

1.51               The compliance requirements are that the operator of the scheme must ensure that the following are complied with:

•        any conditions of the authorisation of the scheme, which have been specified by the Minister by notifiable instrument;

•        any regulatory requirements issued by ASIC, by legislative instrument, relating to compliance with the mandatory requirements or the general considerations;

•        directions from ASIC to increase limits on the value of claims made under the scheme;

•        directions from ASIC about specific actions the operator of the scheme must take to comply with the mandatory requirements, a condition of the authorisation of the scheme or regulatory requirements issued by ASIC;

•        requirements relating to referring matters to appropriate authorities such as APRA, ASIC or the Commissioner of Taxation; and

•         that material changes to the scheme must not be made without the prior approval of ASIC.

[Schedule 1, item 2, subsection 1051(5)]

Matters to be taken into account

1.52               When considering whether to authorise an EDR scheme, the Minister must take into account the accessibility, independence, fairness, accountability, efficiency and effectiveness of the scheme (these are known as the ‘general considerations’). The Minister may also take into account any other matter the Minister considers relevant (whether or not those other matters are consistent with the general considerations). [Schedule 1, item 2, subsection 1050(2) and section 1051A]

1.53               When considering whether the EDR scheme is ‘accessible’, the Minister may consider matters such as:

•        whether the scheme will make it easy for consumers and small businesses to lodge a complaint;

•        whether the scheme will be actively promoted to ensure that consumers and small businesses are aware of the scheme’s existence; and

•        whether the ToR for the scheme sets out the types of complaints that can be considered by the scheme.

1.54               When considering whether the EDR scheme is ‘independent’, the Minister may consider matters such as:

•        whether the decision-making will be independent; and

•        whether there will be sufficient funding for the scheme.

1.55               When considering whether the EDR scheme is ‘fair’, the Minister may consider matters such as whether the complaints handling procedures of the scheme will accord with the principles of natural justice and industry best practice.

1.56               When considering whether the EDR scheme is ‘accountable’, the Minister may consider matters such as:

•        whether the scheme will be committed to dealing with and reporting systemic issues to the relevant regulators;

•        whether the scheme will provide for an independent assessor, and

•        whether the scheme will provide for regular consultation with stakeholders and be subject to regular independent reviews.

1.57               When considering whether the scheme is ‘efficient’ and ‘effective’, the Minister may consider matters such as:

•        the adequacy of the coverage of the scheme, including dispute limits and compensation caps;

•        the time limits for bringing complaints under the scheme; and

•        the processes that the scheme will have in place to ensure compliance with its determinations and the remedies that can be provided under the scheme.

Regulating the AFCA scheme

1.58               AFCA must ensure that the mandatory requirements for the AFCA scheme, which are designed to promote robust and independent dispute resolution services, will be complied with at all times. These amendments provide ASIC with appropriate powers to ensure that AFCA complies with these requirements and other obligations on an ongoing basis.

1.59               ASIC will perform three main functions in relation to regulatory oversight of the AFCA scheme. These functions are:

•        to issue regulatory requirements;

•        to consider whether material changes to the AFCA scheme should be approved; and

•        to issue directions to AFCA, if necessary.

1.60               While ASIC will have an enhanced oversight role over AFCA, AFCA will remain independent and responsible for its own internal processes and management of disputes. ASIC will have no role in complaints handling and will not intervene in the decision-making processes of the AFCA scheme.

1.61               These amendments also introduce reporting obligations which require AFCA to refer certain matters to one or more of ASIC, APRA, the Commissioner of Taxation, the Minister administering the Australian Defence Force Cover Act 2015 or the Minister administering the Public Governance, Performance and Accountability Act 2013 .

AFCA must comply with mandatory requirements

1.62               AFCA has an obligation to comply with the mandatory requirements for the AFCA scheme at all times. [Schedule 1, item 2, section 1052]

ASIC may issue regulatory requirements

1.63               ASIC will have the power to issue regulatory requirements, by legislative instrument, which relate to compliance with the mandatory requirements or any of the general considerations for the AFCA scheme. [Schedule 1, item 2, section 1052A]

1.64               This power has a broad application so that ASIC has the flexibility to determine the requirements that AFCA must comply with in order to effectively comply with the mandatory requirements and the general conditions. ASIC may issue and update the regulatory requirements at any time.

1.65               The regulatory requirements issued by ASIC are part of the compliance requirements. Failure to comply with any regulatory requirement may result in ASIC issuing a general direction to AFCA requiring it to comply with the requirements specified in the direction.

ASIC’s directions power to increase claim and remedy limits

1.66               ASIC will have a specific directions power which permits it to direct AFCA to increase some or all of the monetary limits that relate to the value of claims that can be considered by AFCA or the value of the remedies that AFCA may determine. This will only be relevant for non-superannuation complaints made under the AFCA scheme, as one of the operational requirements for the AFCA scheme is that there are no monetary limits for superannuation complaints. [Schedule 1, item 2, subsection 1052B(1) and paragraph 1051(4)(f)]

1.67               This power is intended to be used as a last resort to ensure that the claim and remedy limits can be increased if they become inadequate over time.

1.68               Any increase in relation to the claim or remedy limits will be prospective and cannot apply in relation to complaints that the AFCA scheme receives prior to ASIC giving the direction. [Schedule 1, item 2, paragraph 1052B(2)(b)]

1.69               Before ASIC can give a written direction, ASIC must provide AFCA with at least one month notice of its intention to give a direction to change the claim or remedy limits. [Schedule 1, item 2, paragraph 1052B(2)(a)]

1.70               For the avoidance of doubt, a direction from ASIC requiring one or more claim or remedy limits to be increased is not a legislative instrument within the meaning of subsection 8(1) of the Legislation Act 2003 . [Schedule 1, item 2, subsection 1052B(5)]

1.71               Failure to comply with a direction is an offence (see subsection 1311(1) of the Corporations Act) and ASIC may seek a court order to enforce compliance with the direction. [Schedule 1, item 2, subsections 1052B(3) and (4)]

1.72               Compliance with a direction from ASIC is also part of the compliance requirements for the AFCA scheme. Failure to comply with such a direction may result in the Minister revoking the authorisation for the AFCA scheme. [Schedule 1, item 2, subsection 1051(5)]

ASIC’s general directions power

1.73               ASIC will also have a general directions power which permits it to direct AFCA to act in a particular way in relation to the AFCA scheme. A general directions power is required to ensure that AFCA complies with legislative and regulatory requirements.

1.74               The directions power is intended to be used as a last resort and can only be used by ASIC if it considers that AFCA has not done all things reasonably practicable to comply with:

•        the mandatory requirements;

•        any condition the Minister specifies in the authorisation for the AFCA scheme; and

•        any regulatory requirements issued by ASIC for the AFCA scheme.

[Schedule 1, item 2, subsection 1052C(1)]

1.75               Prior to issuing a direction, ASIC must advise AFCA that it intends to issue a direction. The advice must set out the specific measures that AFCA will need to undertake to comply with the direction. [Schedule 1, item 2, subsections 1052C(1) and (2)]

1.76               In addition, ASIC must state the reasons for its intention to give the direction, which may include any relevant information about AFCA’s failure to comply with the relevant conditions. [Schedule 1, item 2, paragraph 1052C(2)(b)]

1.77               In the event that AFCA fails to undertake the specific measures outlined in the written advice, and if ASIC still considers that it is appropriate to give the direction to AFCA, ASIC may issue a written direction which requires AFCA to carry out those specific measures. [Schedule 1, item 2, subsection 1052C(3)]

1.78               The written direction will include a statement of reasons and may also include the time by which AFCA must comply with the direction, or the period of time during which the direction is to be complied with. Any timeframe provided by ASIC to carry out the specified direction must be reasonable. [Schedule 1, item 2, subsections 1052C(3) and (4)]

1.79               The directions power allows ASIC to determine the level of corrective action which is required to rectify any non-compliance with one or more of the compliance requirements that the AFCA scheme is required to meet.

1.80               For the avoidance of doubt, a direction from ASIC is not a legislative instrument within the meaning of subsection 8(1) of the Legislation Act 2003 . [Schedule 1, item 2, subsection 1052C(5)]

1.81               Once a direction is issued, ASIC may vary or revoke that direction, by giving written notice to AFCA, if it considers that the direction is no longer necessary or appropriate. The direction has effect until the time the notice is revoked. [Schedule 1, item 2, subsections 1052C(8), (9) and (10)]

1.82               AFCA must comply with any direction issued by ASIC, as a failure to comply is an offence (see subsection 1311(1) of the Corporations Act) and ASIC may seek a court order to enforce compliance with a direction. Failure to comply with a direction may also result in the Minister revoking the authorisation of the AFCA scheme. [Schedule 1, item 2, subsections 1052C(6) and (7)]

ASIC approval of changes to the AFCA scheme

1.83               AFCA must not make material changes to the AFCA scheme without the prior approval of ASIC. This is one of the mandatory requirements for the AFCA scheme. Failure to comply with this requirement may result in ASIC issuing general directions to AFCA. [Schedule 1, item 2, paragraph 1051(5)(b)]

1.84               AFCA may request ASIC to approve a material change to the AFCA scheme and ASIC may approve such changes by providing a written notice to AFCA. [Schedule 1, item 2, subsections 1052D(1) and (2)]

1.85               In considering whether to approve the material change, ASIC must take into account the following matters:

•         the mandatory requirements for the AFCA scheme;

•         the general considerations for the AFCA scheme;

•         any conditions imposed on the authorisation by the Minister; and

•         any regulatory requirements issued by ASIC.

[Schedule 1, item 2, subsection 1052D(3)]

Referring matters to appropriate authorities

1.86               This Bill introduces enhanced reporting obligations for AFCA. AFCA will be required to provide particulars to one or more of ASIC, APRA or the Commissioner of Taxation if AFCA becomes aware that any of the following matters may have occurred in relation to a complaint: 

•        a serious contravention of a law;

•        a contravention of the governing rules of a regulated superannuation fund or of an approved deposit fund;

•        a breach in the terms and conditions relating to an annuity policy, a life policy or an RSA; or

•        a refusal or failure by a party to a complaint to give effect to a determination made by AFCA.

[Schedule 1, item 2, subsection 1052E(1)]

1.87               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. It is expected that ASIC will consult with stakeholders and issue regulatory guidance establishing appropriate thresholds for the referral of matters to authorities.

1.88               However, if a complaint relates to the scheme provided for by the Australian Defence Force Cover Act 2015 , AFCA must instead provide information to the Minister administering that Act and the Minister administering the Public Governance, Performance and Accountability Act 2013 if a serious contravention of any law may have occurred or a party to the complaint may have refused or failed to give effect to a determination made by AFCA. [Schedule 1, item 2, subsection 1052E(2)]

1.89               If a complaint made under the AFCA scheme is settled between the parties, AFCA may also give the particulars of the settlement to APRA, ASIC or the Commissioner of Taxation if AFCA believes that the settlement requires further investigation by any of these agencies. [Schedule 1, item 2, subsection 1052E(3)]

1.90               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 APRA, ASIC or the Commissioner of Taxation, as appropriate. [Schedule 1, item 2, subsection 1052E(4)]

Superannuation complaints

1.91               As superannuation complaints are often complex in nature, particularly where third parties are involved, this Bill provides additional powers to AFCA to facilitate the resolution of superannuation complaints.

1.92               The additional powers that will apply in relation to superannuation complaints are as follows:

•        a power to join certain persons to a superannuation complaint;

•        a power to obtain information and documents about a superannuation complaint;

•        a power to require people to attend a conciliation conference about a superannuation complaint; and

•        the ability to refer questions of law relating to a superannuation complaint to the Federal Court.

1.93               These additional powers are required for superannuation complaints because it may be necessary in some cases to require people who are not originally parties to a complaint to participate in the superannuation complaints process. The powers are consistent with the powers that the SCT currently has to resolve superannuation complaints.

1.94               This Bill also provides the ability for parties to a superannuation complaint to appeal determinations to the Federal Court on a question of law, as is currently the case for SCT determinations. A right of appeal is maintained for superannuation complaints given the compulsory nature of superannuation and the obligation of trustees to act in the best interests of all beneficiaries of the fund. The outcome of a superannuation complaint may have wider implications on the future payment of benefits by a trustee to members. It is important that these types of decisions can be appealed where the law may have been incorrectly applied.

1.95               This Bill also outlines secrecy obligations for AFCA staff members who receive confidential information obtained compulsorily under these provisions. Information that is not obtained compulsorily will be protected in accordance with the Privacy Act 1988 .

When superannuation complaints can be made

When superannuation complaints can be made under the AFCA scheme

1.96               A complaint relating to superannuation can be made under the AFCA scheme only if the complaint relates to one of the decisions or types of conduct outlined below and the complainant alleges that the decision or conduct was unfair or unreasonable.

Regulated superannuation fund

1.97               A superannuation complaint can be made about a decision of a trustee of a regulated superannuation fund or approved deposit fund in relation to a particular member or former member, or a particular beneficiary or former beneficiary, of the fund. [Schedule 1, item 2, paragraph 1053(1)(a)]

Life policy

1.98               A superannuation complaint can be made about a decision by a trustee maintaining a life policy to admit a member to the fund (or a failure to admit the member to the fund). [Schedule 1, item 2, paragraph 1053(1)(b)]

Annuity policy

1.99               A superannuation complaint can be made about the conduct of an insurer or a representative of an insurer in relation to the sale of an annuity policy. [Schedule 1, item 2, paragraph 1053(1)(c)]

1.100           A superannuation complaint can also be made about a decision of an insurer under an annuity policy. [Schedule 1, item 2, paragraph 1053(1)(d)]

Retirement savings accounts

1.101           A superannuation complaint can be made about the conduct of an RSA provider or a representative of an RSA provider in relation to the opening of an RSA. [Schedule 1, item 2, paragraph 1053(1)(f)]

1.102           A superannuation complaint can also be made about a decision of an RSA provider in relation to a particular RSA holder or former RSA holder. [Schedule 1, item 2, paragraph 1053(1)(g)]

1.103           A superannuation complaint can be made about the conduct of an insurer or a representative of an insurer, in relation to the sale of insurance benefits under a contract of insurance, where the premiums are paid from an RSA. [Schedule 1, item 2, paragraph 1053(1)(h)]

1.104           A superannuation complaint can also be made about a decision of an insurer in relation to a contract of insurance where the premiums are paid from an RSA. [Schedule 1, item 2, paragraph 1053(1)(i)]

Death benefits

1.105           A superannuation complaint can be made about a decision by a death benefit decision-maker relating to the payment of a death benefit. [Schedule 1, item 2, paragraph 1053(1)(j)]

Other

1.106           A superannuation complaint can be made about a decisio n of a superannuation provider to set out, in a statement given to the Commissioner of Taxation (as a result of certain legislative requirements), an amount or amounts in respect of a person. [Schedule 1, item 2, paragraph 1053(1)(e) and subsection 1053(2)]

Superannuation complaints

1.107           Complaints made in relation to the above decisions or conduct are known as superannuation complaints. [Schedule 1, item 2, subsection 1053(3)]

1.108           The making of a decision by a trustee, an insurer, an RSA provider or another decision-maker also includes making or failing to make a decision, or engaging in conduct or failing to engage in conduct which relates to making a decision. This is the case whether or not the decision or conduct involves the exercise of discretion. [Schedule 1, item 2, subsection 1053(5)]

Certain complaints relating to self-managed superannuation funds cannot be made under the AFCA scheme

1.109           Certain complaints about self-managed superannuation funds (SMSFs) cannot be made under the AFCA scheme. A key characteristic of an SMSF is that the trustees of an SMSF are also members of the SMSF. For this reason it would not be appropriate for an SMSF member to make a superannuation complaint relating to an SMSF to AFCA, as the decision of the trustee is also the decision of the member. These include complaints relating to:

•        a decision made by the trustee of an SMSF;

•        conduct engaged in by an insurer, or a representative of an insurer, in relation to the sale of an annuity policy maintained or to be maintained by the trustee of an SMSF on behalf of its members; or

•        a decision made by an insurer, or a representative of an insurer, under an annuity policy maintained by the trustee of an SMSF on behalf of its members.

[Schedule 1, item 2, subsection 1053(4)]

1.110             However, members of an SMSF may still lodge non-superannuation complaints with AFCA. For example, an SMSF may, as a consumer of financial advice, be permitted to bring a

non-superannuation complaint to AFCA regarding a financial adviser.

Persons taken to be members of regulated superannuation funds and approved deposit funds and holders of RSAs

1.111           For the purposes of Division 3 of this Bill, non-member spouses and other persons may be taken to be members of a regulated superannuation fund, an approved deposit fund or a holder of an RSA, so that they will have the same ability to make a complaint under the AFCA scheme as the member. This will apply to:

•        a non-member spouse in relation to a splitting order or superannuation agreement under the Family Law Act 1975 ;

•        a party to a marriage in relation to which an order (referred to in Part VIIIAA of the Family law Act 1975 ) has been made relating to a superannuation interest;

•        an eligible person within the meaning of section 90MZB of the Family Law Act 1975 ; and

•        a covered ADF member within the meaning of the Australian Defence Force Cover Act 2015 .

[Schedule 1, item 2, section 1053A]

Powers of AFCA

Power to join certain persons to a superannuation complaint

1.112           AFCA will have the ability to join certain people as parties to a superannuation complaint at any time. [Schedule 1, item 2, subsection 1054(1)]

1.113           The power to join parties to a superannuation complaint ensures that the interests of all relevant parties are adequately represented during the complaint resolution process. This power is consistent with the power that the SCT currently has to join parties to a superannuation complaint.

1.114           People who may by joined as a party to the superannuation complaint include:

•        a person who has applied to become a party to the complaint;

•        a trustee of a regulated superannuation fund or an approved deposit fund;

•        an insurer;

•        an RSA provider;

•        a superannuation provider; and

•        a person responsible for determining either or both the existence and extent of a person’s disability.

[Schedule 1, item 2, subsection 1054(1)]

1.115           However, a person who is responsible for determining whether a person has a disability can only be joined if the complaint relates to a disability benefit and AFCA decides that the person is responsible for determining either the existence or the extent of the disability (for example, whether the disability is a total and permanent disability (TPD)). [Schedule 1, item 2, paragraph 1054(1)(f)]

1.116           If the complaint relates to the payment of a death benefit, additional procedures must be followed before a person can be joined as a party to the complaint.

1.117           If a person is joined as a party to the complaint, AFCA must give written notice of its decision and the reasons for the decision to all parties. If AFCA decides not to join a person, AFCA must give written notice of its decision and the reasons for that decision to that person. [Schedule 1, item 2, subsections 1054(2) and (3)]

Example 1.1 : Joining third parties

Hermione makes a claim on a TPD insurance policy held by her superannuation fund. The claim is declined by the trustee on the basis that the superannuation fund’s insurer has determined that Hermione’s disability does not meet the definition of a TPD in the policy.

Hermione makes a complaint under the AFCA scheme about the trustee’s decision to reject her claim. AFCA joins the insurer as a party to Hermione’s complaint.

AFCA can review the decision of the trustee and the insurer.

AFCA reviews the information used by the trustee and insurer in making their decisions and determines that the insurer did not gather sufficient information about Hermione’s illness to properly determine whether she has a TPD.

AFCA remits the decision back to the trustee and insurer with directions requiring them to obtain further medical information about Hermione’s disability.

Example 1.2 : Joining third parties

Harry is deceased and has four adult children. Harry’s superannuation fund trustee pays Harry’s death benefit equally to each of Harry’s children.

One of Harry’s children makes a complaint under the AFCA scheme, saying that he should receive a greater share of the death benefit because Harry provided him with financial support so that he could be the full-time carer for his daughter, who has a rare neurological condition.

The other beneficiaries to Harry’s death benefit apply to be joined to the complaint and AFCA decides to join them to the complaint.

AFCA reviews the information provided by all the beneficiaries and determines that the trustee’s decision was unfair and unreasonable, and determines that a larger share of Harry’s death benefit should be paid to the complainant.

AFCA’s determination is taken to be the original decision of the trustee.

Power to obtain information and documents

1.118           AFCA will have the ability to obtain certain information and documents that are relevant to a superannuation complaint. This ensures that AFCA will have access to all appropriate information when making any determinations relating to a superannuation complaint. This power is consistent with the power that the SCT currently has to obtain information and documents in relation to superannuation complaints. [Schedule 1, item 2, section 1054A]

1.119           AFCA will be able to obtain the relevant information or documents from any person who AFCA has reason to believe is capable of providing the information or producing the documents required. [Schedule 1, item 2, subsection 1054A(1)]

1.120           The person who receives the written notice and who is required to give information or produce documents must comply with the requirements set out in the notice. However, the requirements set out in the notice must be reasonable.

1.121           The power to obtain information and documents will ensure that all the information relevant to a superannuation complaint is available to AFCA when making a determination.

1.122           If the person fails to comply with a requirement in the written notice given by AFCA, the person commits an offence (of strict liability) and will be liable to a penalty of 30 penalty units, unless the person has a reasonable excuse. [Schedule 1, item 2, subsections 1054A(3), (4) and (5)]

1.123           AFCA will have the authority to take possession of, make copies of, or take extracts from, a document produced by the person and may keep those documents for as long as necessary to resolve the superannuation complaint. However, AFCA must also permit a person who would have been entitled to inspect the document to have access to the document. [Schedule 1, item 2, subsection 1054A(2)]

Example 1.3 : Obtaining information from third parties

Ron makes a superannuation complaint under the AFCA scheme about his superannuation trustee’s failure to pay a TPD claim.

Ron suffered a hip injury during a soccer match. Ron’s TPD claim was declined on the basis that his condition was pre-existing and that Ron did not meet the ‘active employment’ definition contained in the insurance policy because he was on restricted duties while employed.

AFCA asks the insurer to provide the information it obtained about the duties carried out in the course of Ron’s employment. The insurer informs AFCA that it has been unable to find information about the duties that Ron carried out with his employer.

AFCA makes an order requiring Ron’s employer to provide information about his duties with the employer. The employer provides the information to AFCA and the information is exchanged with the parties to the complaint.

As a result of the new information, AFCA determines that the trustee and the insurer should pay the TPD benefit.

Power to require attendance at conciliation conferences

1.124           AFCA will have the ability to require certain people to attend conciliation conferences to participate in the resolution of a superannuation complaint. [Schedule 1, item 2, section 1054B]

1.125           This additional power is required because there may be third parties who will have information that is important to the resolution of the complaint who are not AFCA members and therefore will not be contractually obliged to participate in the resolution of the superannuation complaint. The inclusion of the power to require attendance will ensure that AFCA has the equivalent powers to the SCT in this respect.

1.126           AFCA must give written notice to the person who is required to attend, which must fix the date, time and place for the conference. [Schedule 1, item 2, subsections 1054B(1) and (2)]

1.127           A person must attend a conference in accordance with the written notice. If a complainant fails to attend a conference, AFCA may treat the complaint as being withdrawn. If a person other than the complainant fails to attend a conference when required to do so by AFCA, the person may commit an offence and will be liable to a penalty of 30 penalty units. [Schedule 1, item 2, subsections 1054B(3) and (4)]

Reference of questions of law to the Federal Court

1.128           AFCA may refer a question of law arising in relation to the making of a determination of a complaint to the Federal Court for decision. The Federal Court has jurisdiction to hear and determine such questions. AFCA may initiate a request to the Federal Court on its own initiative, or at the request of one of the parties to the complaint. [Schedule 1, item 2, subsections 1054C(1) and (2)]

1.129           In making a determination in relation to a complaint, AFCA must not do anything which is inconsistent with the relevant opinion of the Federal Court. This is consistent with the current requirements of the SCT. [Schedule 1, item 2, subsection 1054C(3)]

Determinations of superannuation complaints

Making a determination

1.130           In making a determination in relation to a superannuation complaint, AFCA will have all the powers, obligations and discretions conferred on the trustee, insurer, RSA provider or other decision-maker who made the original decision or engaged in conduct to which the superannuation complaint relates. This is consistent with the current powers of the SCT. [Schedule 1, item 2, subsection 1055(1)]

1.131           AFCA must affirm the decision or the conduct of the original decision-maker if it is satisfied that the decision in its operation in relation to the complainant, or the conduct, was fair and reasonable in all the circumstances. In relation to a payment of a death benefit, AFCA must affirm a decision if it is satisfied that the decision in its operation in relation to the complainant and any other person (who has an interest in the payment of the death benefit) joined as party to the complaint, was fair and reasonable in all the circumstances. [Schedule 1, item 2, subsections 1055(2) and (3)]

1.132           If AFCA is satisfied that the decision (in its operation in relation  to the complainant, or if the decision relates to the payment of a death benefit, in its operation in relation to the complainant and any other person who has an interest in the payment of the death benefit who has been joined as a party to the complaint) or the conduct, was unfair and unreasonable, AFCA may make a determination which:

•        varies the decision; or

•        sets aside the decision and substitutes a new decision; or

•        sets aside the decision and remits the decision back to the original decision-maker with directions.

[Schedule 1, item 2, subsections 1055(4) and (5) and paragraphs 1055(6)(a) and (b)]

1.133           However, AFCA will have the ability to make the following additional types of determinations if the complaint relates to the complainant being unfairly or unreasonably admitted into a life policy fund:

•        require a party to repay all money, or particular money, received under the life policy fund;

•        set aside the whole or part of the terms or conditions of the  life policy in their application to the complainant; or

•        vary the governing rules of the life policy fund in their application to the complainant.

[Schedule 1, item 2, paragraph 1055(6)(c)]

1.134           If the complaint relates to the complainant being unfairly or unreasonably sold an annuity policy, contract of insurance or RSA, AFCA may make a determination which:

•        requires a party to repay all money, or particular money, received under the policy, contract or RSA;

•        sets aside the whole or part of the terms or conditions of the policy, contract or RSA in their application to the complainant; or

•        varies the terms or conditions of the policy, contract or RSA in their application to the complainant.

[Schedule 1, item 2, paragraph 1055(6)(d)]

1.135           However, AFCA may only make a determination which removes any unfairness or unreasonableness, or both, from the original decision or conduct. [Schedule 1, item 2, subsections 1055(4) and (5)]

Example 1.4 : Making a determination to affirm the decision

James makes a superannuation complaint to AFCA about his father’s superannuation trustee’s decision to pay a death benefit to James and his sister Lily. James argues that he should have received a higher percentage of the death benefit than the trustee determined.

AFCA is satisfied that the decision made by the trustee, in its operation in relation to both James and Lily (who has been joined as a party to the complaint) was fair and reasonable in all the circumstances.

In making its determination, AFCA affirms the decision made by the trustee relating to the payment of the death benefit.

Example 1.5 : Making a determination to set aside the decision

Gus makes a superannuation complaint to AFCA about his superannuation trustee’s decision to decline a TPD claim that Gus has made. The TPD cover has been provided through a policy with an insurer. AFCA joins the insurer to the complaint and considers both the trustee’s and insurer’s decisions.

After considering the facts and circumstances surrounding the decision, AFCA determines that the decisions in their operation in relation to the complainant are unfair and unreasonable.

In making its determination, AFCA sets aside the decisions made by the trustee and insurer and substitutes them with a decision to pay the TPD claim, in line with the terms and conditions of the insurance policy. This decision is taken to be the decision of the trustee.

Limitations on determinations

1.136           Any determination made by AFCA must not be contrary to law, or governing rules of a regulated superannuation fund or approved deposit fund, or the terms and conditions of the annuity policy, contract of insurance or RSA. [Schedule 1, item 2, subsection 1055(7)]

1.137           However, this limitation does not apply to determinations which vary the governing rules, or which set aside or vary the terms or conditions in their application to the complainant. [Schedule 1, item 2, paragraphs 1055(6)(c) and (d) and subsection 1055(7)]

AFCA to give reasons

1.138           Once AFCA has made a determination relating to a superannuation complaint, AFCA must provide all parties to the complaint with written reasons for making the determination. [Schedule 1, item 2, section 1055A]

Operation of a determination about a superannuation complaint

1.139           AFCA’s determination will come into operation immediately upon the making of the determination, unless AFCA specifies that the determination should commence at another time. This is consistent with the operation of SCT determinations. [Schedule 1, item 2, subsections 1055B(1) and (2)]

1.140           An AFCA determination which varies the decision of another person (for example, a trustee of a superannuation fund) or substitutes a decision for a decision of another person will be treated as if the decision of AFCA was the decision of the trustee or original decision-maker. This is consistent with the operation of determinations made by the SCT. [Schedule 1, item 2, subsection 1055B(3)]

1.141           This means that superannuation determinations will have a different legal status to determinations made by AFCA in relation to other financial complaints. This is similar to the current distinction between determinations of the SCT and determinations of FOS and CIO (which are binding on the members of FOS and CIO, but not on the complainant).

Evidence of determination of a superannuation complaint

1.142           A document purporting to be a copy of AFCA’s determination, or a document that is certified by AFCA to be a true copy, is evidence of the determination in any proceeding. This is consistent with the current position in the SCT. [Schedule 1, item 2, section 1055C]

Compliance with determinations under the AFCA scheme

1.143           A person who is responsible for determining either the existence or the extent of a disability who is joined by AFCA as a party to a superannuation complaint (concerning a disability benefit) must comply with a determination made by AFCA. [Schedule 1, item 2, section 1055D]

Superannuation complaints relating to the payment of death benefits

Making decisions relating to the payment of death benefits

1.144           As superannuation does not generally form part of a deceased person’s estate, trustees and other death benefit decision-makers are required to identify potential beneficiaries and provide opportunities for potential beneficiaries to object to proposed payment decisions before a final decision is made to pay a death-benefit.

1.145           Complaints relating to the payment of a death benefit are complex as they may involve multiple third parties and potential beneficiaries (such as persons who may have an interest in the proceeds of a death benefit). The procedures for making a complaint to AFCA regarding the payment of a death benefit are set out in the legislation to provide certainty about the process.

1.146           Because of this complexity, it is also important for death benefit decision-makers to be able to make a decision about the allocation of a death benefit between beneficiaries and to have a degree of certainty that other parties will not be able to object to their final decision once the objection period has ended after the decision has been made.

When a death benefit complaint cannot be made

1.147           Before a person can make a complaint to AFCA about a decision by a death benefit decision-maker relating to the payment of a death benefit, the person must have an interest in the payment of the death benefit and satisfy certain requirements. [Schedule 1, item 2, subsection 1056(1)]

1.148           Death benefit decision-makers include a trustee of a regulated superannuation fund (other than a self-managed superannuation fund), an approved deposit fund, an insurer or a RSA provider. [Schedule 1, item 1, section 761A]

Notice of proposed decision - objections to death benefit decision-makers

1.149           When a death benefit decision-maker is required to pay a death benefit, the death benefit decision-maker will first try and identify the people who might have an entitlement to the death benefit. The death benefit decision-maker should notify those people that they are intending to pay a death benefit. The notification process is commonly known as ‘claim staking’. This allows people with a possible claim to the death benefit to participate in the process for determining the payment of a death benefit.

1.150           If the person received notice of the death benefit decision-maker’s proposed decision relating to the payment of a death benefit, and that notice specified that the person can object to the decision-maker within the period of 28 days after receiving notice, the person may only object to the proposed decision within that 28 day period. [Schedule 1, item 2, paragraph 1056(2)(a)]

1.151           When an objection is raised in relation to a proposed payment of a death benefit, the death benefit decision-maker will consider the objection and decide whether the proposed decision should stand or be amended. If the proposed decision is amended, the interested parties should receive another notice of the proposed payment with a specified timeframe of 28 days (after receiving notice) in which they can object to the new proposed decision.

1.152           This process continues until no more objections are made or the death benefit decision-maker decides that the proposed decision should be made. When this occurs, the death benefit decision-maker makes a ‘final decision’.

Notice of final decision complaints made to AFCA

1.153           Once the final decision is made, the death benefit decision-maker will notify the possible beneficiaries about the final decision.

1.154           If the person received notice of the decision-maker’s final decision relating to the payment of a death benefit, and that notice specified that the person must make a complaint to AFCA within the period of 28 days after receiving notice, the person may only make the complaint within that 28 day period. [Schedule 1, item 2, paragraph 1056(2)(b)]

1.155           This means that a person who received a notice of the decision-maker’s proposed decision and notice of the final decision cannot make a complaint to AFCA unless:

•        the person objected to the proposed decision within 28 days after receiving the notice; and

•        the person made a superannuation complaint about the final decision to AFCA within 28 days after receiving the notice.

1.156           This limitation is important because it provides the death benefit decision-maker and the beneficiaries with a degree of certainty about the final decision to pay the death benefit.

If notices were not received

1.157           However, if the person did not receive either the notice of the proposed decision or the notice of the final decision from the death benefit decision-maker, or if the notices did not specify the relevant timeframes, then that person may make a complaint to AFCA at any time.

1.158           AFCA must then be satisfied that the person making the complaint has both an interest in the payment of the death benefit and that it was unreasonable for the person not to receive those notices from the decision-maker. [Schedule 1, item 2, subsection 1056(3)]

1.159           Circumstances in which it may be reasonable for the decision-maker to have failed to provide a notice to a person may include situations where a person was provided notice of a proposed decision and subsequently informed the decision-maker that they did not wish to participate further in the complaint.

When persons can be joined as a party to a death benefit complaint

1.160           Once a death benefit decision-maker has been notified by AFCA that a complaint has been made in relation to the final decision about the payment of a death benefit, the death benefit decision-maker must give notice to each person (other than to the complainant) that the death decision-maker believes, after having made reasonable enquiries, may have an interest in the payment of that death benefit. [Schedule 1, item 2, subsection 1056A(1)]

1.161           The death benefit decision-maker must give notice to each person who may have an interest in the payment of the death benefit within a period of 28 days after receiving notification from AFCA of the complaint. [Schedule 1, item 2, subsection 1056A(1)]

1.162           The notice must include the following information:

•        that a complaint relating to the payment of a death benefit has been made to AFCA;

•        the details of the complaint; and

•        the timeframe (either 28 days after the person receives the notice or such longer period as allowed by AFCA) in which the person may apply to AFCA to be joined as party to the complaint.

[Schedule 1, item 2, subsection 1056A(2)]

1.163           AFCA may join a person as a party to the complaint if the person applied within the timeframe outlined in the notice, or if AFCA is satisfied in all the circumstances that the person should be joined. Persons that may be joined must have an interest in the payment of the death benefit and do not include a trustee, insurer, RSA provider, a superannuation provider or other death benefit decision-maker. [Schedule 1, item 2, subsection 1056A(3)]

Example 1.6 : Complaints relating to a death benefit

Robert dies from an unfortunate hunting accident and the trustee of his superannuation fund decides to pay the death benefit to Robert’s son (John) and his daughter (Danny) in equal parts.

John and Danny receive notice of the trustee’s proposed decision and are notified that they have 28 days (after receiving notice) to make an objection to the proposed decision to pay the death benefit in equal parts.

Danny objects to the proposed decision within 28 days and argues that she was financially dependent on Robert at the time of his death and that she should be the sole recipient of the death benefit. The trustee of Robert’s superannuation fund reviews the proposed decision and decides that the proposed decision should stand and makes the final decision.

Danny receives notice of the trustee’s final decision relating to the payment of the death benefit, which also specified that she can make a complaint to AFCA within 28 days (after receiving notice).

Danny makes a superannuation complaint to AFCA within 28 days about the trustee’s final decision. Danny states that it was unfair or unreasonable that she was not the sole recipient of the death benefit and that she should have been the sole recipient of the payment.

Upon receipt of the complaint, AFCA notifies the trustee that a complaint has been made in relation to the final decision about the payment of the death benefit. The trustee then provides notice to John that a complaint has been made in relation to the decision about the payment of the death benefit and the timeframe (either 28 days after the person receives the notice or such longer period as allowed by AFCA) in which John may apply to AFCA to be joined as party to the complaint.

John applies to AFCA within 28 days to be joined as a party to the complaint. AFCA then joins John as a party to the complaint.

George, a cousin of Robert, becomes aware of the final decision by the trustee relating to the payment of the death benefit and applies to AFCA to be joined as a party to the complaint.

AFCA determines that George does not have an interest in the payment of the death benefit (as he had no claim to dependency) and it was not unreasonable for George not to receive notices of the proposed decision or final decision from the Trustee. AFCA does not join George as a party to the complaint.

AFCA finds that the final decision by the trustee, in its operation in relation to Danny and John, was fair and reasonable in all the circumstances. AFCA therefore makes a determination to affirm the final decision of the trustee.

Example 1.7 : Complaints relating to a death benefit

Gary dies from an unfortunate rock climbing accident and the trustee of his superannuation fund decides to pay 70 per cent of the death benefit payment to his son, Ash, and 30 percent to his daughter, Angela.

Ash and Angela receive notice of the trustee’s proposed decision and are notified of a timeframe of 28 days (after receiving notice) in which they can object to the proposed decision.

Neither Ash nor Angela objects to the trustee about the proposed decision within 28 days. Since neither Ash nor Angela has objected to the trustee, neither is eligible to make a complaint to AFCA.

Appeals to the Federal Court

Appeal from a determination of a superannuation complaint

1.164           Each party to a superannuation complaint will have the right to appeal a superannuation determination to the Federal Court on a question of law. The appeal must be made in accordance with the specified timeframes and the rules of court made under the Federal Court of Australia Act 1976 . This is consistent with the current provisions in the Superannuation Complaints Act. [Schedule 1, item 2, section 1057]

1.165           In hearing and determining the appeal, the Federal Court may make any order it considers appropriate. This may include orders:

•        affirming or setting aside AFCA’s determination; and

•        remitting the matter back to AFCA to be determined again in accordance with the directions of the Court.

[Schedule 1, item 2, subsections 1057(3) and (4)]

1.166           However, the Federal Court must not make an order to award costs against a complainant if the complainant does not defend an appeal instituted by another party to the complaint. [Schedule 1, item 2, subsection 1057(5)]

Operation and implementation of a determination subject to appeal

1.167           Decisions of the decision-maker are subject to appeal to the Federal Court, but commencing an appeal in relation to a decision will not affect the operation of that determination or prevent any person from giving effect to it, unless the Federal Court makes an order which impacts the operation or implementation of the determination. [Schedule 1, item 2, section 1057A]

Disclosure and sending of documents

1.168           If an appeal in relation to a superannuation determination is commenced in the Federal Court, the decision-maker must provide the Court with all documents that relate to the superannuation complaint. The documents must be returned at the conclusion of the appeal proceedings. [Schedule 1, item 2, section 1057B]

Secrecy

Secrecy obligations for AFCA staff members

1.169           All personal information provided to AFCA will be subject to the Privacy Act 1988 , which regulates how personal information is handled. 

1.170           In addition, as AFCA has a number of statutory powers that can be used to compulsorily obtain information in the case of a superannuation complaint, the secrecy provisions make it an offence (unless an exception applies) to disclose or make records of information, or produce or permit access to documents, acquired by an AFCA staff member under AFCA’s statutory powers in connection with a superannuation complaint. 

1.171           An AFCA staff member includes a director, officer or employee of AFCA, as well as any consultants engaged to perform services for AFCA for the purposes of the AFCA scheme [Schedule 1, item 1, section 761A]

1.172           An AFCA staff member must not make a record, or disclose any information acquired in connection with a superannuation complaint, if the information was obtained under AFCA’s powers to obtain information and documents or during a conciliation conference that AFCA has required a party or person to attend. Further, an AFCA staff member must not produce such a document or permit access to such a document to any person. [Schedule 1, item 2, subsection 1058(1)]

1.173           Subject to a limited number of exceptions, failure to comply with the secrecy provision is an offence (of strict liability) and a court can impose a penalty of 30 penalty units. [Schedule 1, item 2,

subsections 1058(1) and (2)]

Exceptions to the secrecy provision

1.174           The secrecy provision will not apply to an AFCA staff member under the following circumstances:

•        if the record-making or disclosure of information, the production of documents or the provision of access to the document was for the purposes of external dispute resolution under Part 7.10 of the Corporations Act; 

•        if the information, document or access was provided to ASIC, APRA, the Information Commissioner or the Commissioner of Taxation;

•        if the person who provided the information consents in writing;

•        if the disclosure of information does not enable the identification of the parties to a complaint; or

•        if the disclosure of information was to a police officer because a threat has been made to an AFCA staff member or another person, or the AFCA staff member believes that a party to a complaint may commit an act of self-harm.

[Schedule 1, item 2, subsections 1058(3), (4) and (5)]

Entities which are required to be members of the AFCA scheme

1.175           Part 3 of Schedule 1 to this Bill includes amendments which require Financial Firms to be members of the AFCA scheme.

1.176           These amendments apply to all AFS licensees, unlicensed product issuers, unlicensed secondary sellers, credit providers, credit representatives, RSA providers and trustees of regulated superannuation funds (other than SMSFs) and approved deposit funds. [Schedule 1, items 32, 33, 35, 42 and 43, paragraphs 912A(2)(c) and 1017G(2)(c) of the Corporations Act, paragraphs 47(1)(i), 64(5)(c) and 65(6)(c) of the National Consumer Credit Protection Act 2009, paragraph 47(1)(a) of the Retirement Savings Accounts Act 1997 and paragraph 101(1)(a) of the Superannuation Industry (Supervision) Act 1993]

1.177           A trustee of an exempt public sector superannuation scheme (EPSSS) is not required to become a member of the AFCA scheme, but will be able to elect to do so. This is consistent with current arrangements that apply in relation to the SCT, which result in an EPSSS (that is named in regulations) being treated as a regulated superannuation fund for the purposes of the Superannuation Complaints Act.

Minor and consequential amendments

Excluding decisions made by AFCA from the Administrative Decisions (Judicial Review) Act 1977

1.178           Part 2 of Schedule 1 to this Bill includes amendments which ensure that the Administrative Decisions (Judicial Review) Act 1977 does not apply to decisions or determinations made by AFCA in relation to superannuation disputes. [Schedule 1, item 11, paragraph (hba) of Schedule 1 of the Administrative Decisions (Judicial Review) Act 1977 ]

1.179           In relation to superannuation disputes, determinations by AFCA will be binding on both Financial Firms and consumers, however all parties will be able to appeal on questions of law to the Federal Court. This is consistent with the existing practice for disputes handled by the SCT. As AFCA will be an industry body, this approach provides a more appropriate review and remedy process for individuals affected by determinations made by AFCA.

1.180           As is the case for determinations made by ASIC approved industry schemes, the Administrative Decisions (Judicial Review) Act 1977 will not apply to determinations by AFCA in relation to financial disputes (non-superannuation financial disputes). This is because those determinations would not be made under an enactment.

Other minor and consequential amendments

1.181           Part 1 of Schedule 1 to this Bill makes a number of minor amendments to the Corporations Act and other Commonwealth legislation. This includes adding definitions that are required for the new EDR framework in the Corporations Act and specifying the amount of penalties applicable to new offences introduced by these amendments. Also included are amendments designed to facilitate transitional arrangements associated with moving to the new EDR framework. [Schedule 1, items 1 and 3 to 10]

1.182           Parts 2 to 5 of Schedule 1 to this Bill make a number of minor and consequential amendments to a number of Commonwealth Acts to update various provisions to take into account the new EDR framework and to repeal provisions that are no longer necessary. This includes inserting a number of notes which notify a person that they may make a complaint under the AFCA scheme. [Schedule 1, Parts 2 to 5]

1.183           Schedule 3 to this Bill repeals the Superannuation (Resolution of Complaints) Act 1993 and makes a number of consequential amendments to give effect to the repeal. The Superannuation Complaints Act supports the operation of the Superannuation Complaints Tribunal, which is being abolished and replaced with AFCA. [Schedule 3]

Application and transitional provisions

Authorisation of AFCA

1.184           The amendments in Part 1 of Schedule 1 to this Bill, which introduce the new legislative framework for EDR schemes, commence on the day following Royal Assent. [Item 2, item 2 of commencement table]

1.185           Part 1 of Schedule 1 to this Bill includes amendments that insert a new Division 1 of Part 7.10A into the Corporations Act, which allows the Minister to authorise an EDR scheme by notifiable instrument.

1.186           Once the authorisation comes into force (on the date specified in the notifiable instrument), the scheme will be known as the AFCA scheme and the operator will be known as AFCA. It is envisaged that after the authorisation comes into force, there will be a period of time for AFCA to make preparations before it is ready to begin receiving complaints. See below for further information about the transitional period.

Amendments applying after first AFCA authorisation comes into force

1.187           Part 2 of Schedule 1 to this Bill makes minor and consequential amendments which apply on and after the day on which the first AFCA authorisation comes into force. [Schedule 1, item 31]

1.188            Part 2 of Schedule 1 includes amendments which allow officers and other staff members of APRA, ASIC and the Australian Taxation Office to disclose protected information to AFCA to assist it to perform its functions. These amendments apply in relation to disclosures of information on and after the day the first AFCA authorisation comes into force (whether the information was acquired before, on or after that day). [Schedule 1, items 13, 14 and 29, paragraph 56(5)(aa) of the Australian Prudential Regulation Authority Act 1998, subparagraph 127(4)(aa)(i) of the Australian Securities and Investments Commission Act 2001, table item 3 in subsection 355-65(3) in Schedule 1 to the TAA 1953]

Amendments applying after AFCA scheme begins receiving complaints

1.189           Part 4 of Schedule 1 to this Bill makes amendments which apply on and after a day specified by the Minister by notifiable instrument. The date specified by the Minister will be the date when no new complaints can be made to the SCT. This is expected to be the same day the AFCA scheme begins receiving complaints, including non-superannuation complaints. See below for further information. [Schedule 1, item 58]

1.190           The date specified will also be the date credit representatives and licensees are required to update credit guides and other documentation to include information about consumer access to the AFCA scheme. [Schedule 1, items 47 to 51, subparagraphs 113(2)(h)(ii), 126(2)(e)(ii), 127(2)(e)(ii), 136(2)(h)(ii), 149(2)(e)(ii), 150(2)(e)(ii) and 160(3)(f)(ii) and paragraph 158(2)(h) of the National Consumer Credit Protection Act 2009 and subparagraphs 72(4)(b)(iii), 88(3)(g)(i), 94(2)(b)(i), 177B(4)(b)(iii), 179D(2)(f)(i) and 179H(2)(b)(i) of Schedule 1 of the National Consumer Credit Protection Act 2009]

Transition to new system

1.191           This Bill introduces a new framework for EDR schemes, including amendments which require Financial Firms to become members of the AFCA scheme. Once fully operational, the AFCA scheme will replace the SCT and the existing EDR schemes approved by ASIC.

1.192           On 26 July 2017, the Government announced the establishment of a transition team led by Dr Malcolm Edey, which has the role of advising the Government on the most appropriate way to address issues associated with the transition to the new EDR framework.

1.193           These amendments empower the Minister to specify a number of key dates relevant to the transition. This flexibility is designed to accommodate the recommendations of the transition team, allow the smooth wind down of the SCT and to allow the Minister to be satisfied that during the transitional period, consumers will continue to have access to appropriate EDR services, with minimal disruption.

Transitional period for EDR membership

1.194           The Minister may specify by notifiable instrument the day from which membership of AFCA will be mandatory for AFS licensees, unlicensed product issuers, unlicensed secondary sellers, credit providers, credit representatives, RSA providers and trustees of regulated superannuation funds and approved deposit funds. However, if no date is specified by the Minister, membership of the AFCA scheme will be mandatory on the day that is 12 months after the day on which the authorisation of the AFCA scheme comes into force. [Schedule 1, item 44]

1.195           Financial Firms which are currently required to be members of one or more existing EDR schemes approved by ASIC must continue this membership for a transitional period of 12 months starting from the day from which membership of AFCA will be mandatory for Financial Firms. The Minister will have the ability to shorten this length of time by notifiable instrument, if required. [Schedule 1, item 58]

1.196           This may mean that Financial Firms will be required to be members of two EDR schemes for up to 12 months. This transitional period is required to enable the pre-existing EDR schemes to deal with the disputes that were lodged prior to the commencement of the AFCA scheme. In the event that the transition to the AFCA scheme takes place in a way that means that dual membership is no longer required (for example, if pre-existing disputes are transferred to the AFCA scheme when it commences operations), the Minister will have the ability to shorten this period to the day on which the AFCA scheme commences operations.

Arrangements for complaints lodged with SCT

1.197           The Minister may by notifiable instrument specify the date when no new complaints can be made to the SCT, which must be a date between the date when membership of AFCA will be mandatory for Financial Firms and the date when Financial Firms are no longer required to remain members of existing EDR schemes approved by ASIC. It is intended that this date will be the same date the AFCA scheme begins receiving complaints. [Schedule 1, items 53 and 58, section 14AB of the Superannuation Complaints Act]

1.198           This approach provides flexibility to ensure the Minister can be satisfied that appropriate operational arrangements are in place to enable the AFCA scheme to deal with new complaints starting from this date, before closing off the opportunity for consumers to bring complaints to the SCT.

1.199           The amendments in Schedule 3 to this Bill (which repeal the Superannuation Complaints Act and make associated consequential amendments) commence on a day to be fixed by proclamation. However, the repeal will automatically commence 4 years after the day of Royal Assent if a day has not been fixed by proclamation within the 4 year period. [Item 2, item 8 of commencement table]

1.200           This approach provides a transitional period of up to 4 years for the SCT to finalise any complaints it has received before the day when it cannot receive new complaints. This will include dealing with any complaints which are remitted back to the SCT from the Federal Court during this period of time.

1.201           Where the SCT has not made a final determination of a complaint, the complainant may choose to continue to progress the complaint with the SCT. Alternatively, the complainant may withdraw the complaint and progress the complaint with the AFCA scheme instead.

1.202           The automatic repeal of the Superannuation Complaints Act after 4 years is a restriction on how long commencement of the repeal may be deferred by proclamation. The exact length of time required for the Federal Court to finalise any appealed complaints and remit these back to the SCT for implementation of a decision is uncertain and not within the Government’s control.

1.203           A period of 4 years is considered to provide a reasonable timeframe for the Federal Court and the SCT to deal with such appeals. Therefore, allowing the repeal of the Superannuation Complaints Act to be deferred for this length of time is considered appropriate in the circumstances.

Amendments facilitating the efficient wind down of SCT

1.204           To enable the SCT to operate as effectively as possible during its winding down period, this Bill provides the SCT Chairperson with the ability to delegate any or all of his or her functions or powers to other SCT members, and removes the requirement for the SCT to engage staff under the Public Service Act 1999 . This will provide greater flexibility for the SCT in managing the backlog of complaints. [Schedule 1, items 5 to 10, subsections 7A(4) and (5), 59(1), 62(1), 62(2) and sections 61 and 63 of the Superannuation Complaints Act].

Existing determinations of the SCT

1.205           To provide certainty, determinations made by the SCT will be unaffected by the repeal of the Superannuation Complaints Act. Those determinations will continue to have the same legal status and apply as if the amendments under Part 2 of Schedule 3 to this Bill had not been made. [Schedule 3, item 32]



Chapter 2          

Internal dispute resolution

Outline of chapter

2.1                   Schedule 2 to this Bill will amend the Corporations Act, National Consumer Credit Protection Act 2009, Retirement Savings Accounts Act 1997 (RSA Act) and the Superannuation Industry (Supervision) Act 1993 (SIS Act) to introduce an enhanced IDR framework.

Context of amendments

2.2                   The Ramsay Review was asked to examine the dispute resolution and complaints framework for consumers of financial products and services, including links between EDR and IDR. IDR plays a critical role in the financial dispute resolution framework and is the primary avenue for aggrieved consumers to seek redress.

2.3                   Currently, it is a requirement for certain financial firms to have an IDR procedure in place which complies with ASIC standards and requirements. This requirement currently applies to all AFS licensees, unlicensed product issuers, unlicensed secondary sellers and credit providers.

2.4                   Trustees of regulated superannuation funds (other than SMSFs) and approved deposit funds are also subject to separate IDR requirements under the SIS Act . Such requirements also extend to the trustee of an EPSSS that is treated as a regulated superannuation fund for the purposes of both the Superannuation Complaints Act and the IDR arrangements in section 101 of the SIS Act. These entities are required to establish arrangements for dealing with inquiries and complaints by beneficiaries, former beneficiaries and other interested parties.

2.5                   RSA providers are subject to similar IDR requirements under section 47 of the RSA Act. RSA providers are required to establish arrangements for dealing with inquiries and complaints by holders of an RSA, former holders of an RSA and other interested parties.

Review of the IDR framework

2.6                   The Ramsay Review found that:

•        transparency around IDR needs to be strengthened as there is no comprehensive, consistent, comparable and publicly available IDR data about the operation and effectiveness of IDR for consumers of financial services and products; and

•        ASIC does not currently have the power to collect recurring data about financial firms’ IDR and firms are not legally required to report this information to ASIC.

Enhanced IDR framework

2.7                   All financial firms that are required to participate in the enhanced IDR framework (IDR Firms) will be required to have IDR procedures in place that comply with ASIC regulatory requirements.

2.8                   The enhanced IDR framework will also require IDR Firms to report their IDR activities in accordance with ASIC requirements. ASIC will be provided with the power to determine the content and form of IDR reporting by IDR Firms.

2.9                   This new reporting requirement is necessary to improve both the data that is collected and the format and reporting of IDR dispute data. Improved information will assist ASIC in monitoring trends, identifying emerging issues and determining regulatory priorities in the dispute resolution system.

2.10               ASIC will be able to publish information (including firm specific data) that it receives under the new reporting requirements. Publishing such information will provide valuable information to consumers and drive firms to improve their IDR practices by increasing transparency about the performance of their firm relative to other firms.

Summary of new law

2.11               Schedule 2 to this Bill introduces an enhanced framework for IDR which ensures that IDR Firms report their IDR activities in accordance with ASIC requirements.

2.12               ASIC will also be provided with additional powers to determine the content and form of IDR reporting by IDR Firms and to publish this data at both the aggregate and firm level.

2.13               These amendments also allow ASIC to replace the requirements relating to the giving of written reasons for decisions about complaints (currently set out in the SIS Act) with new requirements which will be set out in a legislative instrument made by ASIC. This will provide ASIC with the flexibility to align the requirements that apply for trustees of regulated superannuation funds or approved deposit funds with those that apply to other financial firms under the enhanced IDR framework. Similar amendments will ensure ASIC may also specify requirements for RSA providers relating to the giving of written reasons for decisions about complaints.

Comparison of key features of new law and current law



New law

Current law

IDR Firms are required to report their IDR activities to ASIC in accordance with ASIC requirements.

No equivalent.

ASIC has the power to determine the content and form of IDR reporting by IDR Firms.

No equivalent.

ASIC has the power to publish data relating to the IDR activities of IDR Firms.

No equivalent.

RSA providers and trustees of regulated superannuation funds (other than SMSFs) and approved deposit funds must have an IDR procedure that complies with ASIC requirements. Such requirements also extend to the trustee of an EPSSS that has elected to join the AFCA scheme.

RSA providers and trustees of regulated superannuation funds (other than SMSFs) and approved deposit funds are required to establish IDR arrangements for dealing with inquiries and complaints. Such requirements also extend to the trustee of an EPSSS that is treated as a regulated superannuation fund for the purposes of the Superannuation Complaints Act.

ASIC has the power to specify by legislative instrument the requirements to provide written reasons in relation to complaints that apply to trustees of regulated superannuation funds (other than SMSFs) and approved deposit funds and RSA providers. Such requirements also extend to the trustee of an EPSSS that has elected to join the AFCA scheme.

 

The SIS Act sets out the requirements to provide written reasons in relation to complaints that apply to trustees of regulated superannuation funds (other than SMSFs) and approved deposit funds. Such requirements also extend to the trustee of an EPSSS that is treated as a regulated superannuation fund for the purposes of the Superannuation Complaints Act.

No equivalent requirement to provide written reasons in relation to complaints that apply to RSA providers.

Detailed explanation of new law

2.14               Schedule 2 to this Bill introduces an enhanced framework for IDR which ensures that IDR Firms report their IDR activity in accordance with ASIC requirements and allows ASIC to publish information relating to the IDR activity of IDR Firms.

2.15               This Chapter outlines:

•        the financial firms that are subject to the new IDR framework (that is, which firms are IDR Firms);

•        new IDR reporting requirements;

•        ASIC’s power to publish information relating to the IDR activity of IDR Firms (including firm specific data); and

•        ASIC’s power to specify, by legislative instrument, requirements for trustees and RSA providers to provide written reasons for decisions in relation to complaints.

IDR Firms financial firms subject to new IDR framework

2.16               Generally, the enhanced IDR framework will apply to an IDR Firm because the firm is an AFS licensee, product issuer for the purposes of section 1017G of the Corporations Act or an Australian credit licensee. [Schedule 2, items 2, 4 and 5, paragraph 912A(1)(g) and subsection 1017G(1) of the Corporations Act and paragraph 47(1)(ha) of the National Consumer Credit Protection Act 2009 ]

2.17               These amendments ensure that trustees of regulated superannuation funds or approved deposit funds and RSA providers are required to be part of the new IDR framework. Generally, these trustees and RSA providers will also be either AFS licensees or product issuers for the purposes of section 1017G of the Corporations Act. These amendments ensure that a trustee or RSA provider that is not an AFS licensee or relevant product issuer will also be required to be part of the new IDR framework. [Schedule 2, items 6 to 9 , subsections 47(1) and (2) and section 47 of the RSA Act and subsections 101(1) and (1A) of the SIS Act]

2.18               These amendments also ensure that if a trustee of an EPSSS has elected to join the AFCA scheme, that they are required to be part of the new IDR framework. [Schedule 2, item 11, subsection 101(3) of the SIS Act]

IDR reporting requirements

2.19               Under the enhanced IDR framework, a new requirement will be placed on IDR Firms to give ASIC any information specified in an ASIC legislative instrument relating to the operation of the firm’s IDR procedures. [Schedule 2, items 2, 4, 5, 7 and 9,  paragraph 912A(1)(g) and subsection 1017G(1) of the Corporations Act and paragraph 47(1)(ha) of the National Consumer Credit Protection Act 2009, paragraph 47(1)(c) of the RSA Act and paragraph 101(1)(c) of the SIS Act]

ASIC’s power to determine content and form

2.20               ASIC will have the power to specify the information that IDR Firms must give about their IDR procedures and the operation of their IDR procedures through a legislative instrument. However, the type of information which ASIC may require IDR Firms to report cannot include ‘personal information’ within the meaning of the Privacy Act 1988 . [Schedule 2, item 3, subsections 912A(2A) and (2B) of the Corporations Act]

2.21               This will allow ASIC to require IDR Firms to report information in a standardised manner about their IDR activity and determine the content and format for that reporting.

ASIC may publish IDR data                

2.22               Under the enhanced IDR framework, ASIC will have the ability to publish IDR activity data (including firm specific data). Publishing IDR data will drive IDR Firms to improve their IDR practices, by providing industry benchmarks on how long it takes to resolve disputes by highlighting poor performing firms. This will also improve the ability to compare outcomes, identify product and service complaint trends and understand the number of complaints received by comparable firms.  

2.23               These amendments ensure that ASIC may publish information relating to IDR that is given to it under the reporting obligations introduced by these amendments. ASIC may also publish information that is derived from such information. [Schedule 2, item 1, subsection 243C(1) of the Australian Securities and Investments Commission Act 2001 ]

2.24               ASIC may publish information that relates to a particular entity, or information from which a particular entity may be identified. However, ASIC must not publish ‘personal information’ within the meaning of the Privacy Act 1988 . [Schedule 2, item 1, subsection 243C(2) of the Australian Securities and Investments Commission Act 2001]

ASIC’s power to specify requirements for certain trustees and RSA providers to provide written reasons in relation to complaints

2.25               As is the case under the current law, trustees of regulated superannuation funds (other than SMSFs) and approved deposit funds will be required to provide written reasons for decisions about complaints made by beneficiaries, former beneficiaries and other interested parties.

2.26               These amendments ensure such trustees are required to provide reasons about decisions, despite trustees not generally being required to provide reasons for decisions under the general trust law.

2.27               Prior to the amendments made by this Schedule, these requirements were set out in detail under section 101 of the SIS Act. These amendments repeal the current requirements in section 101 of the SIS Act and allow ASIC to set requirements about providing reasons for IDR decisions in a legislative instrument. [Schedule 2, item 9, subsections 101(1), (1A) and (1B) of the SIS Act]

2.28               ASIC may also set requirements for RSA providers to provide written reasons for IDR decisions in a legislative instrument. [Schedule 2, item 7, subsections 47(1), (2) and (2A) of the RSA Act]

2.29               This provides ASIC with the flexibility to align the requirements around giving reasons for IDR decisions made by these trustees to those that apply for other IDR Firms under the enhanced IDR framework.

Application and transitional provisions

2.30               The amendments in Schedule 2 to this Bill commence on the day following Royal Assent. [Item 2, item 7 of commencement table]

Transitional provision for giving written reasons

2.31               Schedule 2 includes amendments which allow ASIC to replace the requirements relating to the giving of written reasons for complaints set out in section 101 of the SIS Act with new requirements set out in a legislative instrument. The requirements relating to the giving of written reasons for complaints set out in section 101 of the SIS Act continue to operate until the day the legislative instrument made by ASIC comes into force (which is on the day the instrument is registered). [Schedule 2, item 10]



Chapter 3          

Statement of compatibility with human rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017

3.1                   This Bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

3.2                   This Bill will amend the Corporations Act and other Commonwealth Acts to introduce a new EDR framework and an enhanced IDR framework for the financial system.

3.3                   Schedule 1 and 3 of the Bill introduce the new EDR framework, which will ensure that consumers have easy access to a single EDR scheme, known as AFCA. The AFCA scheme will resolve disputes about products and services provided by Financial Firms and will replace the SCT and the existing EDR schemes approved by ASIC.

3.4                   Schedule 2 of the Bill introduces an enhanced IDR framework, which will require IDR Firms to report their IDR activities in accordance with ASIC requirements and allow ASIC to publish information it receives under the new reporting requirements. This will allow ASIC to improve transparency about the performance of IDR Firms in relation to their IDR activities.

Human rights implications

3.5                   This Bill does not engage any of the applicable rights or freedoms.

Right to a fair trial

3.6                   While Schedule 3 of this Bill will repeal the Superannuation (Resolution of Complaints) Act 1993 , and as a result, abolish the SCT, the right to a fair trial for persons with a superannuation complaint will not be impacted.

3.7                   The amendments in Schedule 1 of the Bill allow the Minister to authorise an EDR scheme for the purposes of the new framework. The Minister is required at the point of authorisation to, amongst other matters, take into account whether the scheme will provide fair, efficient, timely and independent dispute resolution. The Minister must also have regard to the ‘general considerations’ which include the fairness and independence of the scheme.

3.8                   As well as being a matter that must be considered by the Minister at the point of authorisation, the requirement to provide fair, efficient, timely and independent dispute resolution is an ongoing requirement that AFCA must comply with. Where AFCA does not satisfy this requirement, ASIC has a general directions power that can be used to compel compliance.

Arbitrary or unlawful interference with privacy

3.9                   The amendments in Schedule 2 of the Bill require IDR Firms to report their IDR activities in accordance with ASIC requirements and allow ASIC to publish the IDR activity information of particular IDR Firms. However, these amendments ensure that the information that must be reported and that may be published must not include personal information.

3.10               Therefore, these amendments do not engage any of the applicable rights or freedoms.

Conclusion

3.11               This Bill is compatible with human rights as it does not raise any human rights issues.



Chapter 4          

Regulation impact statement

 

4.1                   On 9 May 2017, the Government announced its response to the Ramsay Review, which was the first comprehensive review of the financial system’s EDR framework. The Ramsay Review was commissioned by the Government in April 2016 and led by an independent, expert panel comprising Professor Ian Ramsay, Ms Julie Abramson and Mr Alan Kirkland.

4.2                   Treasury has certified that the Ramsay Review and subsequent consultation as a process and analysis equivalent to a Regulation Impact Statement.

Policy objective

4.3                   The Government’s reforms to the EDR framework are intended to address problems with the dispute resolution arrangements in the financial system, primarily EDR. EDR is used when a consumer or small business has a complaint with a financial service provider and wishes to use an impartial out-of-court process to settle the dispute. EDR should provide low cost, fast and flexible access to redress to consumers.

4.4                   The current EDR arrangements in the financial system consist of FOS, CIO and the SCT. In 2015-16, FOS, CIO and SCT received 41,223 disputes in total, with FOS receiving 34,095 disputes (83 per cent), CIO receiving 4,760 disputes (12 per cent) and SCT receiving 2,368 disputes (6 per cent).

4.5                   The Ramsay Review was the first comprehensive review of the financial system’s EDR framework. It found that the current framework is the product of history rather than design and a number of features of the current system mean that it is not producing the best possible outcomes.

4.6                   Firstly, the Ramsay Review found the existence of multiple EDR schemes with overlapping jurisdictions means: it is difficult to achieve comparable outcomes for consumers with similar complaints; it is difficult for consumers to progress disputes involving firms that are members of different schemes; and there is an increased risk of consumer confusion. The Ramsay Review also found that multiple EDR bodies resulted in duplicative costs for industry and for the regulator.

4.7                   The Ramsay Review also found that allowing competition between schemes, as currently occurs between FOS and CIO, creates the risk that schemes compete in relation to benefits provided to Financial Firms, rather than on achieving better outcomes for consumers.

4.8                   The Ramsay Review found that the monetary limits and compensation caps of the schemes have fallen behind what is required to ensure access to justice for consumers and small business. FOS and CIO’s current monetary limit of $500,000 and compensation cap of $309,000 are no longer fit-for-purpose and bear little relationship to the value of some financial products (for example, mortgage balances, home insurance policies and some investments), which results in a gap in EDR coverage.

4.9                   The Ramsay Review also identified that small businesses do not have adequate access to EDR because the existing monetary limits of $500,000 for the value of the claim under dispute, and $2 million in relation to credit facilities and the existing compensation cap of $309,000, preclude many small business disputes from being able to be brought to the schemes.

4.10               Finally, the Ramsay Review found that the dispute resolution arrangements for superannuation require improvement. Although SCT has a highly professional staff and Chairperson, the Ramsay Review found it was unable to resolve disputes quickly, in contrast to FOS and CIO. For example, in 2015-16, for disputes that reached determination, it took an average of 796 days for the dispute to be resolved.

4.11               The Ramsay Review found that the problems facing SCT could be attributed to a lack of flexibility in its funding there is no link between SCT funding and the level of complaints it receives as well as outdated governance arrangements and limited flexibility to determine its dispute resolution processes. Additionally, there was a lack of focus on achieving system-wide improvements and the existing accountability mechanisms were passive and indirect. The Ramsay Review considered that these issues could not be addressed through retaining and reforming the SCT and a shift to an ombudsman scheme was required.

4.12               The Ramsay Review found that these problems of the existing framework are significant and cannot be seen as self-correcting. Market forces will not resolve the above problems, necessitating Government action.

Implementation options

Alternative Option: Maintain the status quo

4.13               This option would essentially maintain the current arrangements of multiple EDR bodies.

4.14               The Ramsay Review found that the pressures on SCT would increase as the superannuation system matures and an increasing proportion of the population moves from the accumulation to the drawdown (retirement) phase.

4.15               In addition, the Ramsay Review found that this option would not address problems arising under a multi-scheme framework with overlapping jurisdictions (consumer confusion, inconsistent outcomes for comparable disputes and duplicative costs). Therefore, this was not one of the recommendations of the Ramsay Review and was not one pursued by Government.

Alternative Option: Reform SCT only

4.16               Under this option, there would be some targeted reforms to the SCT to increase the way the SCT is funded (for example, volume based funding) and improved governance arrangements.

4.17               However, the Ramsay Review found that there was inherent inflexibility in retaining a tribunal structure, which could only be addressed through migrating superannuation disputes from a tribunal to an ombudsman structure.

4.18               In addition, reforming only the SCT would also not address the problems with other aspects of the EDR framework.

Recommended Option: Establish the AFCA as an industry based scheme based on Ramsay Review recommendations

4.19               This option would switch to a single EDR body to replace the FOS, CIO and SCT with a one stop shop dispute resolution body based on an industry ombudsman model.

4.20               The shift to a single EDR body will address a number of problems with the existing framework. It will improve outcomes for consumers by:

(i)      increasing consistency in processes and outcomes for similar complaints;

(ii)     making it easier to pursue disputes involving multiple Financial Firms; and

(iii)  decreasing consumer confusion.

4.21               A single EDR bodywill also eliminate duplicative costs for industry, the regulator and other stakeholders.

4.22               The Ramsay Review found that an ombudsman model carried advantages over the existing framework. For superannuation disputes in particular, a single EDR body based on an ombudsman model carries large benefits as it will provide flexibility and increase responsiveness to improve the timeliness of superannuation disputes. Ombudsman schemes provide complainants with an alternative to the judicial system. The traditional court system, which relies on lawyers, the rules of evidence and specific processes and procedures can be complex and intimidating for consumers. In this regard, a benefit of ombudsman schemes is that they provide claimants with a relatively simple process, led by the ombudsman, negating the need for formal legal representation. Furthermore, ombudsman services are not restricted to resolving legal issues; rather, they have scope to consider a broader range of factors.

4.23               Where there is a general problem in an industry affecting multiple consumers and a number of similar complaints are received about a particular issue, ombudsman schemes have the capacity to instigate and conduct investigations to identify systemic issues.

4.24               Ombudsman schemes are also able to promote access to justice through their ability to adapt and innovate in response to changes in the external environment. This has been particularly relevant in the financial system, which has seen rapid changes in the types of products being sold and the types of consumers purchasing them.

Assessment of impacts

4.25               Consumers and small businesses will be the primary beneficiaries of the new framework. The primary benefits will be increased access to justice and easier access to dispute services.

4.26               Increased limits and decreased confusion caused by multiple schemes will mean that consumers and small businesses will save more time and be able to bring higher value disputes to the schemes. Having a single dispute resolution body will also promote consistency of outcomes, which will provide industry and consumers with greater certainty as to what the outcome of a complaint will be when it is lodged with AFCA.

4.27               For superannuation complaints, the new scheme will reduce the time taken for complaints to be resolved. This will benefit both consumers and industry.

4.28               The Ramsay Review noted that a single dispute resolution scheme would have a greater ability to shift resources from those areas experiencing a reduction in dispute volumes to those areas experiencing higher dispute volumes.

4.29               There will be a number of costs associated with the transition to the new scheme. Impacts on industry include paying membership and dispute resolution fees to AFCA, having to update disclosure documents, and having to account for increased IDR reporting to ASIC. The increased monetary limits will also likely result in more disputes being lodged with AFCA, which will require additional funding from industry.

4.30               Superannuation funds will also need to be members of AFCA, meaning they will need to pay membership and dispute resolution fees and will also incur costs to update disclosure documents.

4.31               Treasury considers that the benefits to consumers, small businesses and industry will outweigh the costs associated with implementing the new framework.

Regulatory burden

4.32               Treasury has estimated the costs for business using the governments Regulation Impact Framework as required by the Office of Best Practice Regulation. The costs are shown below.

Average annual regulatory costs (from business as usual)

Change in costs ($ million)

Business

Community organisations

Individuals

Total change in costs

Total, by sector

$43.85 million

$

$

$43.85 million

Consultation

4.33               In the course of the Ramsay Review, the Panel conducted multiple rounds of consultation:

•        The Ramsay Review published an Issues Paper, which was released for public consultation for a period of four weeks from 9 September 2016 to 7 October 2016. The Panel received 127 submissions to the EDR Review Issues Paper, 33 of which were marked as confidential and 1 anonymous.

•        The Ramsay Review published an Interim Report, which was released for public consultation for a period of seven weeks from 6 December 2016 to 27 January 2017. The Panel received 56 submissions to the EDR Review Interim Report, four of which were marked as confidential.

•        The Ramsay Review invited parties to make submissions by 3 March 2017 on Recommendations 11 and 13 of the Australian Small Business and Family Enterprise Ombudsman’s report on the Inquiry into small business loans. The Minister for Revenue and Financial Services wrote to the Ramsay Review Panel asking them to take particular account of these recommendations as they prepared their final report. Four submissions were received on these recommendations.

•        The Panel held many roundtables and meetings with individual stakeholders as part of these consultation processes. The Panel also undertook site visits of each of the bodies: CIO (14 September 2016); FOS (16 September 2016) and SCT (16 September 2016).

 

4.34               Following the release of the final report and Government response, the Government consulted on exposure draft legislation (draft Bill and regulations) from 17 May to 14 June 2017. As part of this consultation, a range of consultation materials were published including a consultation paper on the new dispute resolution framework, draft explanatory memorandum, fact sheet and consultation note on the Ministerial authorisation process.

4.35               In the course of finalising the regulatory costings, Treasury has undertaken targeted consultation with key stakeholders to inform the parameters and assumptions used.

Conclusion and recommended option

4.36               The recommended option will involve:

•        establishing a new one-stop-shop dispute resolution body AFCA which will replace FOS, CIO and SCT and handle all financial complaints, including superannuation complaints;

•        ensuring AFCA will be overseen by a board comprising an independent Chair and equal numbers of directors with consumer and industry backgrounds;

•        requiring AFCA to be industry funded;

•        requiring all Financial Firms (including superannuation funds) to be members of AFCA; and

•        making ASIC responsible for overseeing AFCA to ensure that it meets the standards set out in the legislation. To fulfil this role, the legislation will provide ASIC with the ability to set regulatory requirements that AFCA must adhere to and also provide ASIC with a general directions power to compel AFCA to comply with standards in the legislation and in regulatory requirements.

Implementation and evaluation

4.37               AFCA will be established as part of the Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Bill 2017. Following passage of the legislation, a not-for-profit company will be authorised as AFCA by the Minister. AFCA will commence operations on 1 July 2018 and will receive all financial disputes, including superannuation disputes.

4.38               ASIC will be responsible for ongoing monitoring of AFCA to ensure that it meets the standards set out in legislation. In addition, AFCA will be subject to periodic independent reviews. AFCA will also be required to establish an independent assessor who will assess the processes by which AFCA makes decisions.

4.39               As an industry body, key elements of AFCA’s operations will be set out in its operating rules or ‘terms of reference’. The Minister for Revenue and Financial Services established a transition team, chaired by Dr Malcolm Edey, to lead the creation of AFCA. Dr Edey will provide advice to the Minister on the terms of reference, governance and funding arrangements, as well as transitional arrangements and the authorisation process. The transition team will consult extensively with ASIC, the existing EDR bodies, industry and consumer groups, thereby ensuring a smooth transition from the existing framework to AFCA.

4.40               The SCT, as a statutory body, will continue operation for an additional two years to resolve all legacy complaints. The legislation also makes provisions to allow FOS and CIO to continue operations for up to an additional 12 months to resolve legacy complaints.

.