The establishment of the Australian Financial Complaints Authority (AFCA), which starts accepting complaints on 1 November 2018, represents a massive shift in the governance of financial issues in Australia, and one of which the insurance industry needs to be aware, says the law firm, William Roberts Lawyers (WR).
In a commentary, WR principal Robert Ishak and senior associate, Anthony Mangafas, say that by establishing AFCA, the government hopes to significantly improve how financial disputes are dealt with in Australia, including as to fairness, timeliness and effectiveness.
AFCA is a dispute resolution body for financial products and systems, which will replace the three existing schemes: the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal (SCT). On 14 September 2017, the Federal Treasury announced the establishment of the new body. Membership of FOS and CIO will be required to be maintained for up to 12 months after AFCA’s commencement, to ensure a smooth transition.
AFCA will nearly double existing financial limits, with a compensation cap of A$500,000 ($368,000) and a total monetary limit of A$1 million. This will provide both small businesses and consumers that suffer losses as a result of alleged wrongdoing, access to a free independent dispute resolution scheme for the resolution of their complaints.
Additionally, small businesses will be able to apply for the resolution of disputes in circumstances where the credit facility is of an amount up to A$5 million. AFCA will cap the potential compensation for small businesses involved in such disputes at A$1 million, almost triple the current respective monetary and compensation threshold.
In light of the increase in the respective monetary and compensation limits that will come into effect with AFCA, insurers and other financial institutions will most likely see a significant increase in the volume of complaints that are lodged with AFCA compared to the number of complaints previously lodged with the FOS, CIO and the SCT.
This will likely result in a decrease, to some extent, in the volume of litigated matters involving financial institutions that pass through Australian courts.