Learning to live with AFCA

Specialist barrister and member of the Superannuation Complaints Tribunal, Noel Davis, explains the workings of the Australian Financial Complaints Authority. 

The legislation to put in place the Australian Financial Complaints Authority (AFCA) has been passed. It will commence to operate later this year.

Trustees of regulated superannuation funds are required to become members of the AFCA scheme.

From the date on which AFCA commences to operate, financial services complaints are able to be made to AFCA and superannuation complaints are no longer able to be made to the Superannuation Complaints Tribunal (SCT). The tribunal, however, continues to deal with complaints lodged with it prior to the date on which AFCA commences operations.

VIEW ALL

View all

The Commonwealth Government appoints an independent person as the chair of the Board of AFCA and a minority of the directors. AFCA’s constitution must provide that there must be an equal number of directors (including those appointed by the Government) with experience in representing consumers and directors who have experience in carrying on financial services businesses (including superannuation).

It is required to be a company limited by guarantee and to be financed by the contributions made by the financial services entities which are members of it.

Complainants must be exempt from payment of any fee or charge in relation to a complaint.

Complaints must be resolved by AFCA (including by making determinations) in a way that is fair, efficient, timely and independent. 

Determinations made by AFCA are binding on the financial services entities, subject to their rights of appeal, but are not binding on complainants.

The provisions of Part 7.10A of the Corporations Act discussed below govern the operation of AFCA in relation to superannuation complaints. Some of the provisions of the Part mirror provisions in the Superannuation (Resolution of Complaints) Act 1993 (the Complaints Act) which are summarised in chapter 58 of the LexisNexis publication, The Law of Superannuation in Australia. The decided cases on those sections of the Complaints Act are, therefore, relevant to the equivalent provisions governing AFCA.

Jurisdiction limits

For superannuation complaints, there are no limits on the value of claims that may be made to AFCA by complainants and there are no limits on the value of remedies that may be determined by AFCA. That replicates the effect of the Complaints Act under which remedies for unlimited amounts can be provided.

Making complaints to AFCA

The Act permits a person to make a complaint that the trustee of a superannuation fund has made a decision (including before the commencement of this legislation) relating to a particular member or former member that was unfair or unreasonable. 

That is very similar in its effect to the Complaints Act which permitted complaints that a decision was unfair or unreasonable.

A trustee or an insurer or another decision maker or a person acting for one of them is deemed to have made a decision if it makes or fails to make a decision.

Also, a trustee or an insurer or other decision maker or a person acting for one of them is deemed to have made a decision if it engages in conduct, or fails to engage in conduct, in relation to making a decision. A complaint to AFCA can, therefore, be made in relation to conduct.

Notices of death benefit decisions

The Act requires that if a death benefit decision maker makes a decision relating to the payment of a death benefit and is notified by AFCA of a complaint relating to the decision, the decision maker must, within 28 days, give notice to each person (other than the complainant) who the decision maker believes, after reasonable enquiry, may have an interest in the death benefit. 

The notice to each person must set out details of the complaint and state that the person may apply to be joined as a party to the complaint by giving notice to AFCA within 28 days or such longer period as AFCA allows.

Those procedures are different from those that currently apply for complaints to the tribunal.

Conciliations

The Act gives AFCA the power to compel the parties to a superannuation complaint to attend a conciliation conference. It can also compel attendance by any other person, who in AFCA’s opinion, is likely to be able to provide information relevant to the settlement of the complaint or whose presence would, in  AFCA’s opinion, be likely to be conducive to settling the complaint. Failure to attend, when required to do so, by a person other than the complainant is an offence.

If a complainant fails to attend a conciliation, AFCA can treat the complaint as withdrawn.

Conciliations are an important part of resolving superannuation disputes and it is often the case that disputes are settled in conciliations held by the Superannuation Complaints Tribunal.

Making determinations

An important function of AFCA is making determinations, as is the case with the SCT. The section dealing with making determinations, s1055, is very similar in its effect to s37 of the Complaints Act. The many decisions that have been made by the Federal Court on s37 in appeals from the SCT determinations are, therefore, relevant to AFCA in making its determinations. 

In making a determination, the Act requires that AFCA must affirm a decision or conduct if it is satisfied that the decision in its operation in relation to the complainant, or the conduct, was fair and reasonable in the circumstances. 

Therefore, as is the case with the SCT, AFCA’s first task, in making a determination, is to decide whether the decision or conduct in issue was fair and reasonable. If it decides that the decision or conduct was fair and reasonable, AFCA must affirm the decision or conduct and cannot make any other decision. 

If AFCA is satisfied that a decision in its operation in relation to the complainant, or conduct, is unfair or unreasonable, AFCA can take the actions referred to in the Act for the purpose of placing the complainant, as nearly as practicable, in such a position that the unfairness or unreasonableness no longer exists. 

In making a determination, AFCA, like the SCT, has all the powers, obligations and discretions that are conferred on the trustee, insurer or other decision maker or a person involved in conduct that is the subject of a complaint.

The types of determinations AFCA can make including varying the decision or setting aside the decision and substituting another or remitting it for reconsideration by the decision maker in accordance with AFCA’s directions or recommendations. If AFCA decides that a complainant was unfairly or unreasonably admitted into a life policy held by the trustee for the purposes of the fund, it can require a party to the complaint (e.g. an insurer) to repay all or part of the money paid into the life policy, vary the terms and conditions of the life policy or cancel the complainant’s membership of the life policy.

AFCA cannot make a determination that is contrary to law or the governing rules of a fund or, subject to what is said above, the terms and conditions of an insurance policy. AFCA can, therefore, vary the terms and conditions of an insurance policy which it decides are unfair or unreasonable. 

Appeals to the Federal Court

The Act provides for a party to a complaint to appeal to the Federal Court, on a question of law, from a determination of AFCA. What is a question of law, rather than a finding of fact, has been a frequent issue in appeals to the court against determinations of the SCT. 

An appeal is required to be instituted within 28 days of a copy of AFCA’s determination being given to the appellant, or within such further period as the court allows.

The court can affirm or set aside AFCA’s determination or can remit the matter to AFCA to be determined again by AFCA in accordance with the court’s direction.

The court cannot order costs against a complainant who does not defend an appeal instituted by another party.

Referring contraventions and breaches to the regulators

The Act requires that if AFCA becomes aware, in connection with a complaint, that a serious contravention of a law or a contravention of the governing rules of a fund or a breach of the terms and conditions of an insurance policy may have occurred or that a party to a complaint may have refused or failed to give effect to a determination made by AFCA, it must give particulars to the relevant regulator. AFCA must also take reasonable steps to ensure compliance by members of AFCA with its determinations.

That is similar to the Complaints Act which requires the tribunal to give notice to the regulators of a contravention of a law or of the governing rules of a fund or a breach of the terms and conditions of an insurance policy. The tribunal is also required to report to the regulators any failure it becomes aware of to give effect to a tribunal determination.

Differences between AFCA and the SCT

There are some differences between the legislation that governs AFCA and that which governs the SCT, which are significant in relation to the operation of AFCA. Some of these are set out below. It is likely that some of the differences will be dealt with in rules adopted by AFCA.

• The Complaints Act requires that the tribunal cannot deal with a complaint unless the complainant has first made a complaint to the trustee but that is not required for complaints to AFCA.

• The Complaints Act states that the tribunal cannot deal with a complaint that relates to the management of the fund as a whole. AFCA is not prevented from dealing with complaints that relate to the management of the fund as a whole.  

• Under the Complaints Act, there are time limits in which disability complaints must be made to the tribunal, after the decision is made. Those time limits do not apply to complaints to AFCA.

• The Complaints Act specifies what the tribunal must do in advising the complainant, trustees and other interested parties that a complaint has been received but that is not specified for AFCA.

• The Complaints Act permits the tribunal to withdraw a complaint if the tribunal thinks that the complaint is trivial, vexatious, misconceived or lacking in substance and in some other circumstances. AFCA is not so permitted by the legislation governing it.

• The Complaints Act requires that a trustee or an insurer must, within 28 days after being advised by the tribunal of receipt of a complaint, give the tribunal a copy of all documents that are relevant to the complaint. That does not apply to complaints to AFCA.

• The tribunal is required by the Complaints Act to invite the parties to make written submissions before conducting a review meeting. AFCA is not so required but will no doubt do so.

• Under the Complaints Act, the tribunal is not bound by technicalities, legal forms or rules of evidence. There is no such provision in AFCA’s legislation.