Address by Chief Ombudsman and CEO David Locke

The year 2023 was a challenging one for many Australians and also challenging for many of our members. 

At AFCA we saw complaint volumes exceed 100,000 in a calendar year for the first time ever. This is nearly double the volume going to external dispute resolution, or EDR, five years ago. This is not where industry wants to be – nor AFCA. 

We are very concerned that so far in 2024 complaint volumes are already far ahead of the same period last year. We are seeing the same challenges and complaint issues that shaped 2023 continue: 

• sophisticated scams and financial crime 
• delays, service quality and communication disputes across insurance and superannuation
• natural disasters and their devastating impact 
• complaints across credit products, and
• increased levels of financial hardship 

Responsibility for complaints handling principally sits with members. They are your customers. You know your business, your products and services best. How you treat your clients, how you communicate with them and how you resolve their issues are all within your control.

AFCA is an alternative to the courts for consumers and the matters we should be handling are complex issues that otherwise could result in litigation, and intractable disputes which need independent mediation and decision making. 

We do not wish to be handling complaints generated by poor communication, by delay, or by poor complaint and dispute handling. But unless industry does a better job, consumers will continue to be so frustrated that they escalate matters to us because they feel they have no alternative. 

We would much rather see our members invest more in internal dispute resolution (IDR) and resolve these complaints fairly at source, rather than for AFCA to have to continue to grow and expand and then pass on those costs to members. 

Such unprecedented volumes have, of course, put pressure on AFCA’s service. At first, we monitored complaint volumes to understand if such growth was an aberration or if we were entering a ‘new normal’ for EDR. After more than 18 months of consistently high numbers, it’s evident this growth is sustained – and something we must all act on to address.

We have engaged heavily with members and industry representatives from the sectors that are contributing most to the escalating numbers of complaints. We are encouraged by the steps some members have taken to address this – particularly by some of the larger insurers, where we have seen some good progress. But it has not been consistent across the sector, or the rest of the financial services sector, so we need to see further improvements.

In 2024 I can assure you that we will continue our efforts to engage with and support firms in partnership in reducing the causes of complaints at the source. We will share our insights, our data and opportunities for improvement.

Our goal is to help you improve practices so members have fewer complaints to start with and then when they do arise see more resolved at IDR. We really want to see fewer complaints have to come to AFCA. 

Of course, not all members or sectors have seen complaints rise. Some have seen them decline. We are encouraged that 70 per cent of our members often do not have complaints lodged against them at all, and we want to acknowledge those firms that are taking steps to improve their complaints performance. 

Digital Transformation

At AFCA we are nearing the end of our current three-year strategic plan and some of the key transformation pieces we’ve been working on are being implemented.

This year, our IT transformation project will conclude. This, of course, includes our new member portal, which will introduce: 

• improved efficiency and automation
• new accounts and roles for your staff
• improved case management and reporting tools, and
• better ways for us to collect and share complaints data

And of course, we will see the Compensation Scheme of Last Resort (CSLR) open its doors. The CSLR’s full Board and CEO have now been appointed and consumers will be able to start making claims from 2 April this year. We really do see this as a step forward for consumer protection in Australia. 

We are currently working through the backlog of previously paused complaints from before the CSLR legislation was passed. We have reviewed many of these complaints to determine at a high level how many may be within scope of the CSLR. 

Now that the CSLR legislation has passed we have also restarted our investigation into the nearly 2,000 complaints we received against Dixon Advisory, which we paused after the firm was placed into voluntary administration in January 2022. 

We recently published a lead decision that considers core issues and principles and will help us progress this batch of complaints. This follows extensive industry consultation and finalising an AFCA Approach to determining compensation in complaints against financial advice firms. 

We are prioritising these complaints and have doubled the size of our Investments and Advice team to accelerate this important work. 

Closing out Independent Review response

We will also finalise our response to all the recommendations made to AFCA in Treasury’s Independent Review.

We began this response in early 2022 and I would like to acknowledge our Deputy Chief Ombudsman, Dr June Smith, and our people for the huge amount of work and achievements made. 

To date, we have responded fully to five recommendations, with two more to be closed when our Rules are updated on 1 July. We are on track to finalise the remaining seven recommendations before the end of the year. 

Many of you participated in our consultations on AFCA’s Approaches to Responsible Lending and to Appropriate Lending to Small Business.

The process was largely a positive one for everyone involved and will serve as a governance model for how we will conduct Approach consultations in the future. I encourage you to read about this in the most recent Independent Review quarterly update on our website. 

We are currently identifying the new and updated Approaches that we will be consulting on in the next financial year. We look forward to engaging with our members on these important documents. 

We also consulted on proposed changes to AFCA’s Rules and Operational Guidelines last year – which the Australian Securities and Investments Commission (ASIC) has since approved. This means the amended Rules and Operational Guidelines will come into effect on 1 July 2024.

You can find the consultation report and new Rules on our website. We will also be sharing how the new Rules and Operational Guidelines will impact our members and other stakeholders over the coming months. 

We are also finalising the model for our new Forward-Looking Review Mechanism, which is a way to request a formal review of AFCA’s approach to an issue that could have a significant impact across a range of consumers, businesses or transactions. The Forward-Looking Review Mechanism will also be implemented this year. 

We also appointed independent experts to review a random sample of AFCA cases to assess fairness and impartiality in our processes and how we were going about our decision making. They found that AFCA applies a sound process to its decision-making. We will share their key findings in the coming months. 

Lastly, I’d like to draw your attention to the latest edition of our Systemic Issues Insights Report, which covers the first two quarters of the 2023-24 financial year. The report shares data and findings from a range of recent systemic issues cases across industry, including 

• failures to respond to complaints within required timeframes
• failures to comply with obligations under the AFCA Rules
• breaches of policy terms
• examples of poor claims handling, and 
• incorrect cancellations of insurance cover 

These reports highlight the importance of AFCA’s systemic issues function. We will hear more later from Michelle Kumarich, AFCA’s Executive General Manager, Jurisdiction, who leads the Systemic Issues work. 

AFCA has taken a thorough approach in responding to our Independent Review. The work we have done in the past two years has really transformed the way in which we operate, and we continue to refine and develop our processes. 

Closing remarks

The year 2024 will not be a simple year by any means.

The Albanese Government has a significant policy agenda in financial services, with a number of key reforms in train.

While we welcome both industry and regulatory steps to disrupt scams – and the figures coming out of the National Anti-Scams Centre, which are encouraging – AFCA continues to see higher numbers of scam complaints than ever. The human misery that this causes is profound. Much more needs to be done to disrupt, to detect and to frustrate this evil business. 

Of course, the longer we have high interest rates the more consumers will be approaching firms for hardship assistance and the more people will be struggling with repayments and premiums. At AFCA were are looking closely at how the hardship provisions are being applied. We are particularly concerned at the numbers of consumers who say to us that they have approached their financial firm for hardship and received no response or they’ve received an inadequate standard, cookie-cutter, response that failed to consider their particular circumstances. 

AFCA strongly believes in the enduring importance of financial sector codes of practice.

We want to see industry take the lead in improving standards and practice, in mitigating harm and building trust. At the end of the day, a successful, profitable financial services sector that treats consumers fairly and therefore commands high levels of public trust is surely the goal that we all should have. 

That’s why now is the time for Code commitments to be strengthened and certainly not diminished. It’s for this reason we are  engaging actively with ASIC about the Banking Code of Practice, and with the team conducting the review of the General Insurance Code of Practice, and with all the code compliance committees on their important work.