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26.08.2021

News

How wide is AFCA's net?

The Australian Financial Complaints Authority (AFCA) has been in operation for almost three years. In that time, the scope of its jurisdiction has been increased several times, broadening the prospect of licensees and authorised representatives finding their activities the subject of a complaint to AFCA.

We have previously warned readers about treating AFCA complaints with caution. Now, partner Selina Nutley recaps the current limits of AFCA's jurisdiction and explains why it is so important a complaint is closely examined from the outset to ensure it can be considered by AFCA.


Which complaints must AFCA exclude?

It is common for people to focus on AFCA's monetary jurisdiction – now sitting at $1,085,000 for investment complaints – as the sole determinant of AFCA's jurisdiction. However, there are several other circumstances which fall outside AFCA's jurisdiction. Those circumstances include where the complaint concerns:

  • The level of a fee, charge, or interest rate, which AFCA accepts licensees set in a competitive and open market. AFCA can still consider a complaint where it relates to non-disclosure or incorrect application of the fee, charge, or rate.
  • Reviewing the exercise of the trustee's discretion. For instance, to make a particular investment, wind up a fund, or sell an asset.
  • The performance of a financial investment, other than a complaint about non-disclosure or misrepresentation.
  • The management of a fund or scheme, such as matters of commercial judgment or day-to-day decisions which affect all members in the same way.

Which complaints may AFCA exclude?

Additionally, AFCA has discretion to exclude a complaint in various circumstances, including where:

  • There is a more appropriate forum, such as a court or tribunal, which can require a person to give sworn evidence.
  • A complaint is frivolous, vexatious, or misconceived, such as when the complainant has not suffered any loss or there is no remedy AFCA can order.
  • A complainant is a wholesale investor. However, AFCA has made it clear it will not exclude a complaint solely on this basis; there needs to be other compelling reasons.

Doesn't AFCA examine a complaint to make sure it falls within its jurisdiction?

While the above circumstances act as a limit upon AFCA's ability to consider complaints, in our experience, AFCA does not always undertake a critical analysis of whether a complaint falls within its jurisdiction. Rather, it often waits for issues with jurisdiction to be raised by the licensee. We have seen instances where AFCA has continued to investigate a complaint even though it clearly exceeds AFCA's monetary jurisdiction, without seeking consent of both parties. We have also seen instances where licensees have unsuccessfully challenged AFCA's jurisdiction, yet when we have become involved, AFCA has reversed its decision.


Can I wait and see what happens, then challenge AFCA's decision if I think it's wrong?

Given parties cannot rely on AFCA to automatically exclude complaints which exceed its jurisdiction, it becomes even more important for licensees to actively and thoroughly turn their minds to this issue as soon as the complaint is received. Failing to do so may lead to AFCA proceeding to investigate the complaint, and making findings as to compensation, which could have been avoided. Licensees cannot adopt a 'wait and see approach' as the circumstances where AFCA's determinations can be set aside are extremely limited.


Increased fees and reporting obligations

You also need to be aware that:

  • AFCA's fee structure means licensees pay more the further through the assessment stage a complaint proceeds. There is no fee where a complaint is ruled outside AFCA's jurisdiction from the outset. However, fees for a complaint which progresses to determination can exceed $13,500.
  • AFCA compiles and publishes details of the number of complaints received against licensees, and the stage at which they were finalised. ASIC's new dispute resolution regime also requires licensees to compile and publicly report upon these same issues.
  • Failure to give effect to an AFCA determination within 30 days is a breach of the financial services law. ASIC has used this as a basis for cancelling an AFSL and prosecuting the directors of licensees.

Do you need help?

If you are not sure about how to best meet AFCA's expectations or you receive an AFCA complaint and are unsure about what to do next, our Funds Management and Litigation lawyers are here to help.

Our experience in developing compliance and risk solutions for fund managers ensures we are well-placed to help you address and mitigate any potential issues.


Authors

Selina Nutley

Selina Nutley

Partner

Contact McMahon Clarke

Brisbane
T +61 7 3239 2900
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Melbourne
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