'Year of transformation': AFCA explains problems and solutions

The Australian Financial Complaints Authority (AFCA) held virtual forums last week to spell out to members how it’s planning to tackle looming challenges, including significant delays in resolving complaints.

The keynote address by the external dispute resolution (EDR) body’s CEO and Chief Ombudsman David Locke covered several key themes, summarised below.

“2023 is set to be another big year for AFCA,” Mr Locke said.

“It is a year of transformation as we transition to a maturing EDR scheme, cementing our place within the broader financial services industry and the Australian consumer protection framework.”

AFCA was formed in 2018, taking over from the Financial Ombudsman Service, Credit and Investments Ombudsman and the Superannuation Complaints Tribunal.

Rising complaints and delays

Complaint numbers have soared since last year thanks to natural catastrophes and associated insurance claim delays, and an increasing number of scams affecting the banking sector.

Mr Locke warned complaint numbers could hit 100,000 this financial year, compared to 72,358 last financial year. AFCA is receiving an average of more than 7500 complaints a month. It received around 6000 complaints a month in FY22, and just over 5800 complaints a month in FY21.

General insurance complaints are up by 64% this financial year so far, compared to the same period in FY22.

“Natural disasters and the ongoing impacts of recent flooding across Australia has also added pressure on industry – particularly insurers who are dealing with delays and supply shortages caused by covid-19 and the war in Ukraine,” Mr Locke said.

The increasing number of complaints, especially around delays in insurance claim handling, is “severely impacting” AFCA’s ability to deal with disputes in an efficient and timely way “with delays in processing and allocating complaints across most product areas”.

But Mr Locke says the rising volume is not the only cause for concern.

“We are also seeing a decline in performance by industry to address and resolve complaints before they reach AFCA,” he said.

“Fewer complaints are being resolved after referral back to the financial firm, while more members are asking for extensions or not responding to complaints in the timeframes outlined in RG271.

“While EDR is an integral part of the dispute resolution process, schemes such as ours were never designed to be the only avenue for redress.”

Internal dispute resolution (IDR) is the “first port of call”, he says, and ensures better outcomes for consumers and companies.

“We understand the challenging environment. However, we are deeply concerned that firms are not meeting their IDR and EDR obligations – particularly in insurance.”

Mr Locke says AFCA is taking a number of steps to reduce delays but that these will come at a cost to members.

It is investing in technology solutions to speed up parts of the process, recruiting and re-assigning staff to high-impact product areas, batching complaints that lend themselves to one defined approach, and regularly communicating with complainants about the progress of their complaint.

IT transformation

AFCA says it is undertaking a major technology transformation project this year.

“We know that if we want to improve efficiency and timeliness and ensure your everyday interactions with AFCA are as good as possible, then we need world-class technology solutions that are fit for purpose, efficient, modern and user-friendly,” Mr Locke told forum participants.

“So, we are launching an updated member portal for financial firms; a new consumer portal for complainants; and a new case management system for our people in the 2023-24 financial year.”

Rules review

AFCA is currently focused on a Rules Review project, which is part of its response to an independent review carried out in 2021 by Treasury.

“Following a comprehensive review, we have developed a proposed package of rule and operational guideline changes on which we will consult with our stakeholders,” Mr Locke said.

“In addition to responding to the independent review recommendations, the proposed amendments include some additional changes to ensure our rules and guidelines remain accurate, up-to-date and provide clear guidance about our jurisdiction and processes.

“This is the most significant review of AFCA’s rules and operational guidelines since AFCA was established.”

Last-resort compensation scheme

AFCA says it supports the Federal Government’s intention to create a compensation scheme of last resort (CSLR).

“The Government’s aim now is to have the scheme start in December 2023,” Mr Locke told members. “We believe Australia needs a compensation scheme for people who have the right to a remedy for financial misconduct but who are left without redress when a financial firm becomes insolvent.

“I can share with you that AFCA has been asked by the Government to set up the entity that will operate the CSLR, if and when the legislation is passed by Parliament.

“The CSLR operator will be a subsidiary of AFCA; but I should stress that it will be a separate and independent entity, with its own board and operating under industry funding arrangements that the Government will put in place.

“Separately, in our role as the national ombudsman service, once the legislation is in place we will begin assessing the impact of the CSLR on the more than 4000 complaints we have had to place on pause because of a firm’s inability to pay.”