Systemic issues
A systemic issue is an issue that is likely to have an effect on one or more consumers or small businesses, in addition to a complainant. Consumer complaints can be a key risk indicator for systemic issues within a financial firm.
AFCA’s 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.
Identifying and reporting systemic issues
AFCA is required 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 the Australian Securities & Investments Commission (ASIC), the Australian Prudential Regulation Authority (APRA) and the Australian Taxation Office (ATO).
Our systemic issues reporting stems from a long-established design feature of Australian external dispute resolution schemes, supporting the broader consumer protection framework. The requirement is set out in ASIC’s Regulatory Guide (RG) 267 Oversight of the Australian Financial Complaints Authority, and forms part of AFCA’s authority to operate. AFCA has been meeting this requirement since its inception. The AFCA Rules and Guidelines to the Rules explain how we comply with our systemic issues obligations.
Supporting financial firms to address systemic issues early
Financial firms have enforceable obligations to manage systemic issues identified through consumer complaints as outlined in ASIC's RG 271, which was introduced in October 2021.
AFCA’s role is to assist financial firms to identify possible systemic issues so they can quickly rectify issues and remediate consumer harm. This approach helps to ensure better outcomes for consumers, and also minimises consumer complaints flowing through to external dispute resolution.
Financial firms also have obligations to remediate consumers. Where they have engaged in misconduct or other failures causing consumer harm, they must initiate a remediation. The regulator has provided guidance to firms on this in RG 277 Consumer Remediation. AFCA’s work on systemic issues complements and supplements financial firms’ remediation obligations.
Insights
AFCA is committed to sharing information and insights with the financial services industry to help improve industry practice and reduce complaints. Below are key insights documents including:
- Systemic Issues Insights Reports. For recent data, insights and findings from a range of systemic issues cases, read our Systemic Issues Insights Reports.
- Systemic Issues Industry Case Studies. For more information about AFCA’s work in systemic issues and how we investigated a broad range of cases read these Systemic Issues Industry Case Studies.
- Systemic Issues Process Factsheet. For more information about how we investigate and consider possible systemic issues, and how we work with financial firms and make our assessments, read the Systemic Issues Process Factsheet.
Our process for addressing systemic issues
During a systemic issue investigation, AFCA engages with a financial firm to discuss the issue and gather information to make an informed decision about whether a matter is systemic. When we receive a financial firm’s response, we consider the information provided and make our assessment. An AFCA decision maker is generally involved in making this decision.
Where we determine an issue is systemic, we work with the financial firm to ensure all parties impacted are identified and appropriately compensated for any financial loss, and appropriate action is taken to prevent the problem from recurring. If a financial firm informs us that they are already engaged with a regulator about the same systemic issue and the regulator is also overseeing the remediation we will not continue with our investigation.
During the complaint resolution process, a complainant may suggest that an issue raised in their complaint is systemic. These complaints may be referred to AFCA's systemic issues team. While we continue to update complainants on their individual complaints, due to the confidential nature of AFCA's systemic issues process, we are unable to keep complainants informed about systemic issues investigations once underway.
AFCA's process for addressing systemic issues involves engaging with financial firms to assess and rectify issues promptly. Our cooperative effort aims to resolve issues, prevent recurrence, and ensure consumers' remediation when necessary, complementing the work of regulators like ASIC.
You can read more about how we investigate systemic issues in our Systemic Issues Process Factsheet.
Reporting obligations
We are obliged to report identified systemic issues to regulators and other bodies within 15 days of deeming a matter systemic, to enable swift consideration of potential regulatory (or other) action. However, if a regulator is already taking action on an issue, AFCA may discontinue its investigation to avoid duplication. This streamlined reporting process ensures timely action to address systemic issues and minimise harm to consumers.
Recent reviews have confirmed minimal overlap between AFCA and ASIC in addressing systemic issues. While both organisations may engage with financial firms on similar issues, they have distinct focus areas and reasons for involvement. AFCA’s emphasis on remediation and resolution complement ASIC’s regulatory and enforcement focus, ensuring comprehensive coverage of systemic issues within the financial services industry.
Financial firms are identified in AFCA’s reports to regulators. AFCA will contact the financial firm in almost all instances prior to notifying the appropriate regulator. AFCA also has periodical reporting requirements to regulators.
Other reportable matters
In addition to AFCA’s obligation to identify and report systemic issues, there are other things that we must report to regulators. These are set out under legislation and regulatory guidance.
Serious contraventions of the law
AFCA's process for dealing with serious contraventions of the law and other reportable breaches is similar to systemic issues. The difference is that serious contraventions and other reportable breaches have a lower threshold requirement for reporting to the appropriate regulator. We aim to engage with financial firms on serious contraventions and reportable breaches but are not required to do so.
RG 267 defines a serious contravention as:
“A serious contravention of any law (relevant to the circumstances of a complaint under the AFCA scheme) which may have occurred.
A contravention will be considered serious if:
- There are sufficient facts or information to found an objectively reasonable belief that it is serious; or
- AFCA in good faith forms the view that a serious contravention of the law may have occurred.”
Reportable breaches
RG 267 defines other reportable breaches as:
- A contravention of the governing rules of a regulated superannuation fund or an approved deposit fund may have occurred
- A breach of the terms and conditions relating to an annuity policy, a life policy or an RSA may have occurred
- A party to a complaint may have refused or failed to give effect to a determination made by AFCA
- If the parties to a complaint made under the AFCA scheme agree to settlement of the complaint and AFCA thinks the settlement may require investigation.
Improper settlements
Where a financial firm seeks to resolve an AFCA complaint with a settlement that is unfair, improper or otherwise may require investigation, we report this to regulators. AFCA has provided guidance to financial firms about Terms of Settlement.
Failure to give effect to AFCA determination
In instances where a firm refuses or fails to give effect to an AFCA determination, we report this conduct to regulators, including ASIC. This work supports regulatory enforcement and outcomes for consumers.
Important links
Want more information?
AFCA is available to help answer questions and discuss our approach to systemic issues. For more information about systemic issues or for any questions, you can contact us at systemicissues@afca.org.au
