Systemic issues

AFCA not only handles individual complaints. It also plays a critical role in the broader consumer protection framework through the identification, remediation and reporting of systemic issues and possible serious misconduct to three regulators – ASIC, APRA and the ATO.

This is a long-established design feature of Australian external dispute resolution (EDR) schemes. This requirement is set out in ASIC’s Regulatory Guide 267, and it forms part of AFCA’s authority to operate. AFCA has been meeting this requirement since its inception.

AFCA’s role in identifying and reporting systemic issues clearly benefits consumers who have not lodged a complaint with AFCA, but who may, nonetheless, have been impacted by a systemic breach of obligation identified through this process.

In addition, AFCA must report possible serious contraventions of the law to the regulators within 15 days of reasonably becoming aware of them. The Corporations Act also requires AFCA to give particulars of a contravention, breach, refusal or failure of a financial firm to APRA, ASIC or the ATO, as appropriate, where that is identified in connection with a complaint.

Our current systemic issues process was adopted from the predecessor schemes, and it has achieved some great results so far.

This year, AFCA assessed 1,086 possible systemic issues and possible serious contraventions of the law, conducted 147 detailed investigations into possible systemic issues and 36 possible serious contraventions of the law.

These systemic issues and serious contravention work have also led to a range of enforcement actions taken by regulators and provided more than $31 million in financial remediation to consumers and small businesses. Around 357,959 customers have been affected by these systemic issues.

In 2021, AFCA commissioned an independent review of this function to ensure it was fit for purpose, aligned to the regulatory priorities of the regulators to whom AFCA reports and to recommend ways that it could be enhanced. This included the development of a risk-based framework and digital and data transformation.

The objectives of the review were to:

• develop a transformational systemic issues model that places greater focus on data and trends analysis. This will more proactively and effectively inform real-time identification, investigation, remediation and reporting of systemic issue activity to regulators, and will ensure that AFCA’s systemic issues and remediation functions will be world-leading and aligned to the expectations of our stakeholder groups
• seek greater clarity about the role AFCA plays, compared to the role played by other agencies and regulators in the consumer protection framework, to avoid duplication of investigation and confusion about responsibilities.

AFCA will now undertake a transformation of its systemic issues function. Financial firms can expect a more interactive and proactive systemic issues investigation process while this project proceeds, instead of the more formal paper-based approach AFCA has adopted in the past.

AFCA will also work with stakeholders to transparently share information about the role and function of the systemic issues and remediation team, so that the process is clearly understood by all. This includes developing better guidance for financial firms about our team’s approach.

Between 1 July 2020 and 30 June 2021

Case study

AFCA wrote to an insurer in relation to concerns that it was incorrectly conducting retrospective valuations of insured properties when determining the ‘actual loss’ benefit under its policy.

In particular, AFCA was concerned that the insurer was using the property value at settlement date, rather than at the date of the claim, to calculate loss.

AFCA was also concerned that the retrospective assessment did not reflect the actual loss suffered by the consumer and was inconsistent with the rest of the insurer’s policy.

Following AFCA’s possible systemic issue enquiry, the insurer took steps to clarify its application of the ‘actual loss’ benefit under its policy. The insurer updated its policy to ensure it was clear to consumers that ‘actual loss’ would be calculated using the value of the property at settlement date, rather than the date of the claim.

AFCA remained concerned that previous versions of the policy may have misled consumers about the benefit they would receive under the policy for the loss in value of the property.

In resolution of the systemic issue, the insurer made further changes to its ‘key facts’ sheets to advise consumers how ‘actual loss’ is calculated under the policy and to show the calculation using examples.

The insurer identified 60 customers who had been affected by this issue and estimated that the final remediation value would be $161,607.30.

The insurer confirmed that payment had been made to 59 customers totalling $161,607.

Case studies are used to demonstrate AFCA’s approach to an issue and have been simplified for length and clarity.

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