Annual Review 2021–22
Contents
- About this Annual Review
- Year at a glance
- Acknowledgement of country
- Board Chair message
- Chief Executive Officer and Chief Ombudsman message
- Organisational overview
- AFCA Independent Review
- Complaints
- Who complained to AFCA?
- Overview of complaints
- Open cases
- Closed cases
- Banking and finance complaints
- Buy now pay later
- Financial difficulty complaints
- Scams
- Small business complaints
- General insurance complaints
- Significant events
- Life insurance complaints
- Superannuation complaints
- Investments and advice complaints
- Cryptocurrency
- Complaints lodged by consumer advocates and financial counsellors
- Legacy complaints
- Complaints outside AFCA’s Rules
- Systemic issues
- Code compliance and monitoring
- Previous schemes
- Engagement, awareness and accessibility
- Corporate information
- AFCA General Purpose Financial Report 2021–22
- Appendix 1
- Glossary
Systemic issues
In addition to AFCA’s remit to resolve individual complaints, AFCA plays a critical role in the broader consumer protection framework. We have an obligation to identify and report systemic issues, serious contraventions of the law and other reportable matters set out under section 1052E of the Corporations Act to regulators, including ASIC, APRA and the ATO.
This is a long-established design feature of Australian external dispute resolution schemes. The requirement is set out in ASIC’s Regulatory Guide (RG) 267, and it forms part of AFCA’s authority to operate. AFCA has been meeting this requirement since its inception.
Our role in identifying and reporting systemic issues benefits consumers who have not lodged a complaint with AFCA but who may, nonetheless, have been impacted by a systemic issue identified through our consideration of individual consumer complaints.
With the introduction of RG271 in October 2021, financial firms have enforceable obligations to manage systemic issues identified through consumer complaints. AFCA’s role sits alongside this and assists member firms to identify possible systemic issues, so they can quickly put in place a program to rectify the issue and remediate consumer harm; thereby, reducing consumer complaints flowing through to external dispute resolution.
Transformation
The transformation of AFCA’s systemic issues function is a strategic focus for AFCA and our Board.
There are two Independent Review recommendations relating to AFCA’s systemic issues function. The transformation project will respond to the following recommendations.
- Recommendation 12, which relates to AFCA clarifying its systemic issues role compared to that of regulators.
- Recommendation 13, which relates to AFCA increasing transparency of its systemic issues work through public reporting.
Key objectives of the transformation are:
- We are world-class leaders in the identification and investigation of systemic issues, leveraging data and analytics for early detection and efficient investigation.
- The role of the systemic issues function is recognised and clearly understood by key stakeholders. It is supported by consistent and transparent processes, allowing for effective, timely investigation and resolution of systemic issues.
- Our engagement with regulators, consumer advocates and members is proactive and collaborative, with sophisticated technology to seamlessly share data and valuable insights in real time.
- Our people have the right tools, resources and capability to apply judgment and critical thinking to resolve systemic issues supporting an enhanced experience for our members and stakeholders.
Impact of AFCA’s systemic issues work
Our systemic issues work has achieved great results this financial year.
In 2021–2022, AFCA conducted 153 detailed systemic issues investigations and resolved
46 systemic issues investigations with financial firms. This resulted in $18,275,607 in financial remediation to 167,033 consumers and small businesses. Other consumer outcomes included the reinstatement of incorrectly cancelled general and life insurance policies, and the rectification of credit and repayment history information on consumer credit reports.
In addition, AFCA reported 23 reportable matters to regulators over the year, 19 of which related to financial firms refusing or failing to give effect to AFCA determinations and one related to a serious contravention of the law.
Between 1 July 2021 and 30 June 2022, AFCA:
- identification and investigation of systemic issues resulting in the remediation to 167,033 consumers
- ensured $18,275,607 in refunds were made to consumers
- identified over 993 potential systemic issues
- referred 153 systemic issue investigations to financial firms
- reported 67 systemic issues to regulators
- resolved 46 systemic issues investigations with financial firms
- reported 23 serious contraventions of the law and other breaches under section 1052E(1)–(3) of the Corporations Act:
- total number of serious contraventions of the law reported to regulators – 1
- total number of other reportable matters reported to regulators – 22, including:
- 19 1 reports made about financial firms’ refusal or failure to give effect to AFCA determinations
- three reports made about settlements that may require investigation.
Systemic issues process
During a systemic issues investigation, AFCA engages with a financial firm to discuss the issue and gather information to make an informed decision about whether the matter is, in fact, a systemic issue. An issue will be considered systemic if the error or conduct:
- is an issue that is likely to have an effect on consumers beyond the individual complaint
- has had a detrimental effect on consumers or could pose a future risk of harm to consumers
- is a breach of a statutory or regulatory obligation or good industry practice.
1 One of the reports related to ACBF and multiple failures by them to meet their obligations to pay determinations.
Case study
- Consumers impacted – 714
- Financial remediation – $51,597
- Financial firm had 65 internal dispute resolution (IDR) complaints about this issue, but had not identified it as a systemic issue.
AFCA identified a concern that a financial firm was not offering travel insurance policy holders a premium refund or credit during a period when their travel insurance would not have provided cover due to COVID-19 travel cancellations.
The complaint on which AFCA identified the issue related to an overseas trip planned from 18 March 2020 to 10 April 2020, where the return airline tickets had been cancelled by the airline provider. The policy holder made a claim that was declined by the insurer under a ‘pandemic or other epidemic break-outs’ exclusion in the Product Disclosure Statement. AFCA identified seven other consumer complaints that raised the same issue.
AFCA engaged with the financial firm to clarify how it had been handling claims made relating to cancelled travel during COVID-19. It was AFCA’s published view at the time that a premium refund was a fair outcome if an insurer was entitled to deny a policy holder’s travel-related claim based on a blanket pandemic-related exclusion.
During the investigation process, the financial firm worked with AFCA and identified many consumers who had not been offered a premium refund following claim denials, due to the application of pandemic-related exclusions. It had also dealt with 65 internal dispute resolution complaints about this issue.
AFCA assessed a definite systemic issue. The financial firm implemented a small remediation program in April 2022 to address the issue and this program was completed in June 2022.
Case studies are used to demonstrate AFCA’s approach to an issue and have been simplified for length and clarity.
Case study
- Customers impacted – 17,285
- Financial remediation – $11,658,333
- Financial firm identified systemic issue following AFCA determination and breach reported to ASIC.
AFCA identified an issue with the way in which a financial firm was applying and factoring premium policy discounts, alongside premium re-pricing for its life insurance policies.
The complaint on which AFCA identified the issue related to a complainant who had taken out a level premium life insurance policy with the insurer. The complainant brought the complaint to AFCA due to concerns that the insurer appeared to have removed discounts and unreasonably increased the premium. AFCA identified eight other consumer complaints that raised the same issue.
AFCA engaged with the financial firm about the issue. We recognise that insurers are entitled to set the level of their premiums by exercising commercial judgment in a competitive and open market where similar products are available. It is open for the consumer to choose the policy that is most suitable for their individual needs and circumstances, taking into account the policy features including premium cost. However, in this instance, AFCA was concerned that the insurer appeared to have unfairly removed and/or reduced various premium discounts when it re-priced its policy.
Following the determination made by AFCA on the consumer complaint, the financial firm commenced an internal investigation, made a breach report to ASIC and initiated a large-scale remediation of 17,000 consumers, projected to provide more than $10 million in refunds to impacted consumers.
The financial firm engaged closely with AFCA through the investigation process and confirmed its report to ASIC. Once it was confirmed that the financial firm’s report to the regulator covered the issues identified by AFCA, we concluded our investigation.
Case studies are used to demonstrate AFCA’s approach to an issue and have been simplified for length and clarity.
Case study
- Customers impacted – 2,542
- Financial remediation – $130,000
- A systemic issue relating to a failure of process.
AFCA identified concern with the way a financial firm reported credit information to credit reporting bodies. The financial firm was reporting closed accounts as ‘open’ in certain circumstances and this resulted in incorrect default listings, including where a consumer’s debt had been waived on compassionate grounds. There was also an issue of delay in the financial firm correcting credit reports once a customer complained of incorrect information on their credit file.
The complaint that led AFCA to identify the issue related to the complainant’s request to the credit-reporting body to update incorrect information on their credit file. The credit-reporting body advised that it had not received a request from the financial firm. AFCA identified seven other consumer complaints that raised the same issue.
AFCA engaged with the financial firm about the issue. Through the investigation process, the financial firm identified the main cause of the issue. Its staff were skipping a step in the process and failing to input a ‘close date’ when closing a customer’s account. This failure meant that incorrect, or inaccurate, information passed onto the downstream automatic credit-reporting activity, which passed on information to credit-reporting bodies.
Through the investigation process, the financial firm confirmed that it had identified 2,542 impacted consumer credit files. AFCA assessed this as a definite systemic issue on that basis, and it reported the systemic issue to ASIC and the Office of the Australian Information Commissioner.
The financial firm undertook several actions to rectify the systemic issue, including:
- correcting 2,542 impacted customer credit files
- updating its system to classify certain fields, such as making the ‘close date’ a mandatory field
- introducing an additional check control prior to informing credit reporting bureaus
- providing additional coaching and feedback to relevant staff
- introducing new processes to reduce time rectifying incorrect information on credit files.
Case studies are used to demonstrate AFCA’s approach to an issue and have been simplified for length and clarity.
