Annual Review 2022–23

A systemic issue is an issue that is likely to have an effect on one or more consumers, 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. The early identification and resolution of systemic issues can reduce consumer complaints and help to minimise consumer harm.

AFCA’s role is set out in the ASIC Regulatory Guide 267 (RG 267) and the AFCA Rules. Our work also supports financial firms to address systemic issues early and sits alongside a financial firm’s own obligations to manage systemic issues identified through consumer complaints, as outlined in ASIC Regulatory Guide 271 (RG 271).

AFCA is not a regulator. We operate within the broader regulatory framework by providing information to regulators in accordance with our obligations. We are obligated to report under both section 1052E of the Corporations Act and ASIC's RG 267. We report systemic issues when required to ASIC, APRA, the Office of the Australian Information Commissioner and the Australian Taxation Office. Our reports to regulators ensure they are promptly informed of issues within the industry and can take action as they deem appropriate. 

Progressing our systemic issues transformation

The transformation of AFCA’s systemic issues function is a strategic focus for AFCA and our Board. The proactive use of data-driven analytics to identify systemic issues, and the sharing of key insights with regulators and the financial services industry, is a key focus of our transformation.

To date, we have made significant progress in our transformation, including: 

  • establishing a data analytics capability within the team 
  • enhancing our reporting to regulators, ensuring they are promptly informed of issues within the industry and can take action as they deem appropriate 
  • proactively sharing data, insights and case studies with financial firms, with the aim of improving industry practices 
  • delivering new training to continuously improve our people’s expertise and knowledge in systemic issues
  • improving internal efficiencies through new processes and tools 
  • ongoing and regular engagement with members
  • publishing three editions of the new AFCA Systemic Issues Insights Report, in response to Recommendation 13 of the Independent Review. 

Delivering transparency in our systemic issues function through public reporting

AFCA launched its inaugural Systemic Issues Insights Report in the second half of 2022. This report is one way AFCA has improved public reporting and transparency of its work, as required by Recommendation 13 of the 2021 Independent Review Report.

The Systemic Issues Insights Report shares recent data and findings from a range of systemic issue cases across the industry. The report, which is published bi-annually, shares insights and trends with the public and helps financial firms to improve industry practice. For more information and to read the reports, visit the Systemic Issues Insights Report page

Our systemic issues reporting has been enhanced and supported by work completed to mature our data and analytics capability. We are also creating tools and resources for external stakeholders to improve understanding and awareness of systemic issues.

Communicating AFCA’s role

Recommendation 12 relates to AFCA clarifying its systemic issues role compared to that of regulators. Since the 2021 Independent Review report was published, AFCA has engaged closely with all stakeholders on its distinct role, separate from and complementary to the work of regulators. AFCA will continue two-way information sharing with ASIC and other regulators, regarding the outcomes of referrals and ensuring a coordinated approach.

While we work with all stakeholders to progress this recommendation, we will continue to be transparent and share insights into our systemic issues work, to help address any perceived overlap between AFCA’s and ASIC’s roles and to improve accountability within the industry. AFCA is committed to improved and ongoing communications about its role in systemic issues, as well as clarifying how AFCA works with, and alongside, regulators.

Impact of AFCA’s systemic issues work 

Our systemic issues work has achieved great results this financial year. 

Between 1 July 2022 and 30 June 2023, AFCA: 

  • identified 1,042 potential systemic issues 
  • referred 194 systemic issue investigations to financial firms 
  • identified and investigated systemic issues resulting in remediation to 378,830 consumers and small businesses 
  • achieved $100,528,522 in remediation and refunds to consumers 
  • achieved the reinstatement of incorrectly cancelled life insurance policies, and the rectification of credit and repayment history information on consumer credit reports 
  • reported 105 systemic issues to regulators 
  • resolved 94 systemic issues investigations with financial firms 
  • reported 58 reportable matters under section 1052E(1)–(3) of the Corporations Act, being: 
    • 14 serious contraventions of the law
    • 40 reports made about financial firms’ refusal or failure to give effect to AFCA determinations 
    • four reports made about settlements that may require investigation.

Case study

Banking and finance – duplicated fees and charges 

A financial firm had a system outage that resulted in visa debit card transactions being duplicated and unwarranted charges and fees being incurred. There were two separate incidents. 

Incident one was caused by a program coding error that was introduced via a scheduled system release. The error resulted in pending visa debit transactions being incorrectly deleted in overnight batch runs, when one of the pending transactions became authorised. This meant customer account balances didn’t reflect correct information. The incident saw some customers granted access to funds they shouldn’t have had access to, resulting in overdrawn accounts. The firm detected the incident and rectified the issue. 

Incident two was generated by the system fix of incident one. An additional system parameter change was applied in error, resulting in 1.2 million visa debit card transactions becoming duplicated. These duplications were later reflected in accounts. The impact of incident two was that another customer cohort had duplicate visa debit payments posted on their account and balances reduced. Some customers were impacted by both incidents one and two. The firm had not identified these impacts during testing, before installing the system fix to rectify the first incident. 

These incidents and the overall systemic issue impacted 954,974 accounts. The financial firm paid a total of $1,859,676.67 to customers, which included remediation and goodwill payments.

Take note

We frequently see a lack of adequate testing before installing system fixes. This can lead to ongoing and compounding issues.

Business colleagues having a conversation

Case study

General insurance – policy interpretation

A financial firm failed to comply with its own policy definition of ‘market value’ when settling total loss motor vehicle claims for vehicles insured for market value. Staff were not including relevant stamp duty and transfer fees to purchase a replacement vehicle in their assessments of the settlement sum.

The financial firm said it had made a business decision some years ago to change the definition of ‘market value’ to include the reasonable costs associated with the replacement of the vehicle, and the Product Disclosure Statement (PDS) was updated to reflect this. Despite the PDS being updated, ineffective project governance and change management processes meant the change failed to be properly implemented into work practices. The financial firm did not become aware of this until AFCA’s systemic issues investigation raised the issue. The financial firm is working to identify the number of affected customers. Remediation is expected to cost over $6.6 million.

Take note 

When making changes to policies, as well as other key documents and procedures, firms must take appropriate steps to implement and embed changes holistically to ensure successful implementation and ongoing compliance.

Case Study

Investments and advice – incorrectly assessing client suitability to trade

A financial firm was failing to assess a client’s suitability to trade in contracts for difference (CFD) on its platform, which is a high-risk investment product. The financial firm didn’t have processes and practices in place to ensure only eligible clients with skill and knowledge of CFDs could open an account and trade. AFCA’s review identified several complaints where clients were unskilled at trading in CFDs and had suffered financial losses as a result. 

Throughout our investigation, the financial firm provided unclear and inaccurate information about its policies and practices. Given the firm’s poor engagement and cooperation with AFCA, along with our concern that the firm hadn’t met its regulatory obligations for an extended period, AFCA formed the view that we would not be able to reach a resolution with the firm. For these reasons, AFCA referred the matter to ASIC to take steps as appropriate.

Take note

Firms are required by law to properly classify customers as retail or wholesale. The law provides greater protections to retail clients and requires firms to prevent unsophisticated investors from being able to trade in high-risk products. When a firm has immature or inadequate processes in place to assess a client’s risk profile and suitability to trade, losses can occur for consumers.

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