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AFCA transition FAQs

1. What is AFCA?

The Australian Financial Complaints Authority or ‘AFCA’ is a new external dispute resolution (EDR) framework to deal with complaints from consumers in the financial system. It will be operated by a not-for-profit company limited by guarantee authorised by the Minister for Revenue and Financial Services (Minister).

Federal Parliament recently passed the Treasury Laws Amendment (Putting Consumers First – Establishment of Australian Financial Complaints Authority) Act 2018 (the Act) which sets out the requirements for AFCA as the new EDR framework, as well as outlining certain aspects of the transition process.

AFCA will replace the three existing EDR schemes of the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and Superannuation Complaints Tribunal (SCT) so that consumers have access to a single EDR framework.

Membership of the company will be open to each financial services provider required under law or a licence condition to be a member. AFCA operations will be financed by contributions made by its members. Complainants will not be subject to any fee.

2. Why establish AFCA?

The Government first announced that it wished to establish AFCA as a new one stop shop to deal with financial system complaints in May 2017 following the outcome of the Review of external dispute resolution and complaints arrangements in the financial system (the Ramsay Review).

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 the 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.

AFCA will address each of the above findings in the Ramsay Review by building on the three existing EDR schemes and have a number of important features. In particular, it will:

  • be the single point of contact for complainants for EDR services;
  • operate with higher monetary limits;
  • be more accountable to users, including by having an independent assessor to deal with complaints about its handling of disputes; and
  • have power to support its dispute resolution functions in its terms of reference and, in the case of superannuation disputes, in legislation.

Ultimately, the establishment of AFCA 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 firms which provide financial and credit services to consumers. 

3. When is AFCA expected to commence?

AFCA is anticipated to commence and begin receiving and handling complaints from 1 November 2018.

4. What is FOS’s role in this process?

FOS will have a key role in the establishment of AFCA.

Within the framework set out by the Act, it is not possible for FOS, which is a company limited by guarantee established for the purposes of resolving disputes for financial firms only, to be authorised by the Minister to act as AFCA. As a result a new entity must be established and authorised by the Minister for this purpose.

A new company called Australian Financial Complaints Limited (AFCL) has therefore been established. Like FOS, AFCL is a not-for-profit company limited by guarantee and will be funded by member contributions. AFCL is intended to be the new operating entity for AFCA in due course.

In order to facilitate the transition of FOS to AFCA, the membership base, employees and assets and liabilities of FOS are being transitioned to AFCL prior to 1 November 2018. The formal date of transfer is expected to be 1 May 2018 (Transition Date).

Following the Transition Date, AFCL will manage and operate the FOS scheme, and any existing disputes and matters with FOS will continue to be dealt with under the FOS Terms of Reference until they are resolved.

Subject to receiving authorisation from the Minister to operate AFCA, AFCL will then ultimately be renamed Australian Financial Complaints Authority (AFCA) and oversee the establishment and implementation of the new AFCA scheme to operate from 1 November 2018.

5. Why is the transition being handled in this way?

This process allows for FOS, as the largest EDR scheme, to transition to AFCL first so that its resources and membership base can form the foundation for the new AFCA scheme, with the other EDR schemes to be subsequently integrated into AFCL prior to 1 November 2018. This will ensure a smoother and more orderly transition of the existing EDR schemes to AFCA.

FOS has engaged in numerous discussions and consultation with the Treasury Transition Team and other relevant stakeholders including the Superannuation Complaints Tribunal, to consider the most appropriate approach to establish the AFCA scheme, in particular, with a view to ensuring a smooth and efficient transition process for all stakeholders as contemplated by the Act.

6. What is my role in the transition process?

As a member of FOS, you are currently a member of a company limited by guarantee called Financial Ombudsman Service Limited (FOSL) which operates the FOS scheme. As part of the transition, FOSL will cease to operate the FOS scheme and instead the FOS scheme will be operated by AFCL until the new AFCA scheme commences from 1 November 2018.

In order to give effect to the transition of FOS to AFCA, you will therefore be requested to complete your Annual Membership Assessment Form for the 2018/2019 period, including a declaration to become a member of AFCL and to cease to be a member of FOSL. The Member Assessment Form will be available through our secure services portal on our website.

Members must complete their annual assessment and the declaration in order to transition their membership to AFCL and secure their membership for the 2018/2019 period.

Members who complete the assessment form do not need to take any other action in order to transition their membership to AFCA.

Members who do not complete the annual assessment form by the required time may be removed as members of FOSL and will not be a member of AFCL (and in due course, AFCA) as the new EDR body.

The documentation to complete your annual assessment and the declaration to transition your membership to AFCA is expected to be emailed in mid-March 2018.

7. How will the transition process affect me?

Provided members complete the assessment form to be distributed in mid-March 2018, there will be no impact to your involvement in the FOS scheme.

You will continue to be a part of the FOS scheme, be bound by the FOS Terms of Reference and continue to be able to satisfy your legal and licensing requirements as a financial services provider to be a member of an EDR scheme. 

The only difference is that you will become a member of a different operating entity (AFCL rather than FOSL) with a slightly different constitution. The constitution of AFCL is largely the same as FOSL, except that it contains some adjustments so that AFCL can operate as AFCA in due course.

Upon formal commencement of the new AFCA scheme in November 2018, given that you have already agreed to be a member of AFCL, there is nothing further that you will need to do to be part of the new AFCA scheme from 1 November 2018.

Any existing unresolved matters under the FOS scheme at that time will continue to be handled under the FOS Terms of Reference by AFCL until they are resolved. 

8. When will the membership renewal invoices be issued and what period does this cover?

Invoices for AFCA membership are planned to be issued from mid June, covering membership from 1 July 2018 to 30 June 2019.

9. Will there be two lots of invoices to be paid as a FOS and AFCA member?

No. One invoice will be issued for 2018/19, covering membership under the AFCA transition.

10. What will happen to open disputes with FOS on 1 Nov 2018 when AFCA commences?

These disputes will remain under FOS's Terms of Reference (ToR), and will continue to be handled in accordance with those ToR.

11. What will the dispute fee be for disputes received prior to 1 Nov 2018 but not closed by 31 October 2018?

The current dispute fee structure will be in place to 31 October 2018 and will continue to apply to these disputes, subject to any annual CPI related increases that normally occur on 1 July each year.

12. As a Licence holder, do I have any other EDR scheme that I can join aside from AFCA?

In accordance with the legislative changes and government policy, AFCA once established, will be the single EDR scheme for the financial services industry.

13. What happens next?

The documentation to complete your annual assessment and the declaration to transition your membership to AFCL will be emailed to you in mid-March 2018. Instructions will also be provided on completing your assessment and the transition declaration.

We will keep you updated on any key developments and dates during the transition process.

If you require any further information or have any queries, please email [email protected] or call 1300 565 562.