February 8, 2018
FOS WAS AND WILL BE NO MORE
Australian Financial Complaints Authority
Financial Ombudsman Service (FOS) and other financial service provider internal dispute resolution (IDR) schemes will be replaced with one central Australian Financial Complaints Authority (AFCA).
The Bill introducing AFCA had its third reading agreed to on 6 December 2017 and was introduced to the House of Representatives on 7 December 2017. AFCA is expected to come into effect in the last half of this year. Its terms of reference have not yet been proposed.
In keeping with FOS:
The operations of AFCA will need to be financed by contributions made by members of the scheme, with consumers required to be able to access this scheme cost free.
Determinations made by the operator of the scheme must be binding on members of the scheme but not binding on complainants.
The Minister is required to authorise the scheme pursuant to which the AFCA will operate. This scheme will include an enhanced regulatory oversight regime by giving the Australian Securities and Investment Commision (ASIC) the power to:
Issue regulatory requirements regarding the performance of the scheme function;
Approve any material changes to the scheme; and
Issue compulsory directions to the AFCA requiring it to:
(a) Increase monetary limits for the value of claims or remedies;
(b) Comply with the mandatory requirements;
(c) Comply with the conditions of authorisation; or
(d) Comply with an ASIC regulatory requirement.
It is generally agreed that jurisdictional limits and remedies are likely to be higher than FOS’ current limits.
The Bill also contained enhanced reporting obligations which require AFCA to refer certain matters to ASIC, Australian Prudential Regulatory Authority (APRA) or the Commissioner of Taxation.
Financial firms (including insurers and insurance brokers) currently required to be members of an IDR scheme (in the case of insurance, being FOS) must continue membership with their old scheme for a transitional period of 12 months starting on the day on which membership of AFCA becomes mandatory (unless this time is shortened by a Minister). This means that insurers and insurance brokers will be members of two IDR schemes for up to 12 months. This enables disputes lodged with FOS to be completed within FOS.
Enhanced IDR Scheme
The Bill provides that all financial businesses that are required to participate in the "enhanced IDR framework", including insurance brokers and insurers, will be required to have IDR procedures in place that comply with ASIC regulatory requirements.
The enhanced IDR framework will also require insurers and insurance brokers 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 these businesses. The idea is for the new reporting requirement to improve IDR data collected and the format of that data, to assist ASIC in monitoring trends, identifying emerging issues and determining regulatory priorities in the dispute resolution system. Furthermore, it is proposed that ASIC will be able to publish information (including company-specific data) that it receives under the new reporting requirements to "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".
Watch this space as to whether this new process is more efficient, fast and just.
If you have any questions or concerns about the change over to the FOS, AFCA or IDR requirements or any other Insurance matters please do not hesitate to contact Principal Keely Graham, of McInnes Wilson Lawyers Insurance Team.