AFCA's first 6-months report| Australian Financial Complaints Authority

AFCA’s Six Month Report is an analysis of the complaints received and resolved by the financial complaints body.

Key statistics include:

35,263 complaints received
60% of complaints resolved
74% of complaints were resolved by agreement or in favour of the complainant
88% of financial firms did not have a single complaint lodged against them
$83m obtained in settlements. Note: This includes matters previously received by AFCA’s predecessor, Financial Ombudsman Service, and resolved by AFCA since 1 November 2018.

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1 Strategic approach and goals

Purpose

To provide fair, independent and effective solutions for financial disputes.

Vision

To be a world class ombudsman service

raising standards and minimising disputes
meeting diverse, community needs, and
trusted by all

Strategy

Working with consumers, small business and industry, we will resolve and reduce financial disputes through innovative solutions, education and communication.

We will deliver to the Australian community services that are easy to use, free for complainants, efficient, timely and impartial.

Goal

Australian community and government

A fair, ethical and trusted service that influences reform in the financial services sector

Consumers and small business

An excellent customer experience that meets diverse needs and delivers fair outcomes

Members

A valued member experience that helps members to improve internal practices to avoid or resolve disputes

Our people

Highly skilled and engaged people with the tools they need to deliver high quality outcomes

Values

Fair and independent
Transparent and accountable
Honest and respectful
Proactive and customer focused

2 Chief Ombudsman's Message

In our first six months, we received over 35,000 complaints. This is over 35 per cent more than the combined average of the predecessor schemes. Based on the current volume of complaints, we now anticipate that we'll receive 80,000 complaints in our first year - a 25 per cent increase on our initial forecast. This doesn't include complaints arising from our new jurisdiction for legacy complaints going back to 2008.

The good news is we have already resolved 60 per cent of these complaints, in addition to more than 7-thousand Financial Ombudsman Service (FOS) and nearly two thousand Credit and Investment Ombudsman complaints. AFCA assisted consumers and small businesses to obtain $83 million in settlements.

The Royal Commission

On 4 February 2019, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry handed down its final report and shone a bright and forensic light over the financial services sector revealing systemic failings.

We welcomed the recommendations made by Commissioner Hayne in the final report, as well as the Government's response to the recommendations. AFCA stands firmly on the side of fairness and we believe these recommendations are critical to ensuring that customers and small businesses are treated fairly.

As part of the Government's response, AFCA will have an expanded jurisdiction from 1 July 2019 to accept complaints about conduct dating back to 1 January 2008.

You can read more about the Royal Commission here.

AFCA data and transparency

AFCA's work generates a rich set of data, which means we can identify what is causing disputes and how they are being handled by the financial firms. We recognise the importance of making this data open and accessible to the public.

We want to give consumers and small businesses the tools to make informed choices about the financial products and services they use, and for members to have a statistical understanding of how they compare with their counterparts and areas where they can improve.

Even though we are not a regulator, we want to be loud and clear at calling out bad practices and unfair treatment.

Our priority is to provide information to consumers, small businesses and financial firms in a way that is accessible and useful, so they can see how different financial firms resolve - or fail to resolve - complaints and what industry trends are appearing.

Working with our members

AFCA recognises that we have a significant role to play in rebuilding trust in the Australian financial services sector, and a key part of this role involves working directly with financial firms to improve their complaint handling processes.

Our long-term aim is to avoid customer complaints arising in the first place and where they do arise, we want to see these resolved fairly and quickly by the financial firms themselves. To achieve this, we are assisting our members by providing clarity and certainty around the complaint resolution processes and supporting them to develop and strengthen their own internal processes.

Under the leadership of our new Executive General Manager - Communications and Stakeholder Relations, Kathy Bowlen, we're currently creating a dedicated member services team to work closely with financial firms to improve industry practice.

A final note

I would like to thank the AFCA Board and its chair, the Hon. Helen Coonan, for their support and guidance both pre-launch and in our first six months of operations. I would also like to thank my colleagues, the entire AFCA staff, for embracing the many changes and challenges that come with a new organisation and for their unwavering dedication to providing a fair and efficient dispute resolution service to all Australians.

David Locke
Chief Ombudsman and Chief Executive Officer

3 Six months at a glance

35,263 complaints received

60% complaints were resolved

77% resolved within 60 days

74% complaints were resolved by agreement or in favour of complainants

Complaints received by top five products*

Product	Total
Credit cards	5,191
Home loans	2,921
Personal loans	2,704
Motor vehicle - comprehensive	1,789
Personal transaction accounts	1,236

Complaints received by top five issues*

Issue	Total
Credit reporting	2,286
Unauthorised transactions	2,127
Delay in claim handling	1,982
Incorrect fees/costs	1,816
Denial of claim	1,792

Complaints received by product line

Complaints received by top five financial firm type

87.7% of members had no complaints lodged against them in the first six months

Of the members who had complaints:

64 per cent were resolved by the financial firm
10 per cent were resolved after negotiations or conciliation
3 per cent were resolved after a preliminary view or determination
Of those that were resolved after a preliminary view, 70 per cent were in favour of the financial firm
Over 72 per cent of the determinations issued were in favour of the financial firm.

Who lodged complaints

AFCA operates a national dispute resolution scheme for financial services.

Overall, the numbers of consumers and small businesses who made complaints in each state or territory was relatively consistent with that state or territory's population proportionate to Australia's total population.

Complaints received by location

Complaints received by gender

Complaints received by age

2% of our complainants identified as being of Aboriginal or Torres Strait Islander origin.

Interpreter services representing 68 languages were used for 510 complaints. Mandarin was the most requested language for interpretation.

6% of our complainants required additional assistance, most commonly for mental health issues, physical impairment and family violence.

4 Banking and finance

21,370 banking and finance complaints received. 61% of all complaints received

63% banking and finance complaints were resolved

79% banking and finance complaints resolved within 60 days

77% complaints were resolved by agreement or in favour of complainants

Top five banking and finance products

Product	Total
Credit cards	5,191
Home loans	2,921
Personal loans	2,704
Personal transaction accounts	1,236
Hire purchase/lease	579

Top five banking and finance issues

Issue	Total
Credit reporting	2,282
Unauthorised transactions	2,071
Responsible lending	1,474
Misleading product/service information	1,241
Incorrect fees/ costs	1,127

Banking and finance complaints made up 61 per cent of the total number of complaints received. The majority of complaints were about credit at 45 per cent.

In the first six months, the top issue under AFCA for banking and finance was credit reporting, that is complaining about their consumer credit profile, with 2,282 complaints received.

The high number of unauthorised transaction complaints shows that financial firms need to do more to ensure that they have appropriate systems in place to detect fraudulent transactions, including in relation to financial elder abuse.

We continue to see large numbers of irresponsible lending complaints in relation to credit cards, personal loans and home loans, with 1,474 complaints lodged from 1 November 2018 to 30 April 2019. This large number of complaints correlates with the Royal Commission's focus on responsible lending.

67 per cent of complaints received related to the four largest banks.

AFCA has seen a dramatic increase in the number of banking and finance complainants that are in financial difficulty. In 2018 under FOS, there were 2,074; under AFCA in 6 months, there have been 3,819 complainants in financial difficulty. This continues the trend upwards and the high level of mortgage stress is being seen by AFCA.

5 Investments and advice

1,684 investments and advice complaints received. 5% of all complaints received

43% investments and advice complaints were resolved

66% investments and advice complaints resolved within 60 days

57% complaints were resolved by agreement or in favour of complainants

Top 5 investments and advice products

Product	Total
Foreign exchange	402
Self-managed superannuation fund	160
Shares	138
Mixed asset fund/s	136
Timeshare schemes	68

Top 5 investments and advice issues

Issue	Total
Failure to follow instructions/agreement	350
Inappropriate advice	229
Failure to act in client's best interests	141
Incorrect fees/costs	133
Service quality	93

AFCA received 1,684 investments and advice complaints in our first six-months, which made up five per cent of total of complaints received. This is a 69 per cent increase on investment and advice complaints received by FOS (998) over the same period.

We have seen a sharp increase in complaints about foreign exchange trading accounts, which is an area that has also been receiving recent media attention. Complaints about these accounts cover a range of issues, including difficulty withdrawing funds, misleading conduct, pricing errors and discretionary trading.

We received 402 foreign exchange complaints, which accounted for 24 per cent of all investment complaints. Almost 55 per cent of these foreign exchange complaints were against one financial firm who had their Australian Financial Services Licence suspended by Australian Securities and Investments Commission (ASIC) but remains a member of AFCA, which enables AFCA to deal with complaints.

We also received a high number of complaints about financial advice, including 350 complaints about failure to follow instructions/agreement, 229 complaints about inappropriate advice and 141 complaints that the advisor failed to act in their client's best interest. One of the issues highlighted by the Royal Commission was fees charged by financial advisors where no service was provided. We received 133 complaints about incorrect fees.

6 Superannuation

3,066 superannuation complaints received. 9% of all complaints received

47% superannuation complaints were resolved

62% superannuation complaints resolved within 60 days

66% complaints were resolved by agreement or in favour of complainants

Top five superannuation products

Product	Total
Superannuation account	1,060
Total and permanent disability	508
Death benefit	246
Total and temporary disability	152
Pension	55

Top five superannuation issues

Issue	Total
Incorrect fees/costs	416
Delay in claim handling	332
Account administration error	229
Death benefit distribution	200
Denial of claim	198

In the first six months, superannuation complaints accounted for 9 per cent of total complaints. This is more than double the number of superannuation complaints that we had initially expected.

The top superannuation issue related to incorrect fees and costs, with 416 complaints received. In comparison, the number of incorrect fees and costs complaints received by the Superannuation Complaints Tribunal (SCT) was quite small.

The second highest issue for superannuation was delays in claims handling with 332 complaints received.

Given the media focus on responsiveness to consumers and dealing with their matters as quickly as possible, financial firms need to ensure that their internal dispute resolution and external dispute resolution teams are adequately resourced to deal with the complaints coming through the doors.

7 Life insurance

879 life insurance complaints received. 2% of all complaints received

48% life insurance complaints were resolved

55% life insurance complaints resolved within 60 days

59% complaints were resolved by agreement or in favour of complainants

Top five life insurance products

Product	Total
Income protection	276
Term life	105
Funeral plans	71
Total and permanent disability	66
Trauma	63

Top five life insurance issues

Issue	Total
Denial of claim	113
Incorrect premiums	101
Delay in claim handling	73
Claim amount	68
Cancellation of policy	54

In the first six months, AFCA received 879 complaints about life insurance, which makes up 2 per cent of total complaints received.

In comparison with the same period last year, life insurance complaints have increased 28 per cent, from 685 under FOS. The increase may partially be driven by an increase in complaints about level premium increase for income protections policies, which are up 52 per cent from 182 under FOS to 276 under AFCA. Some of this increase appears to be driven by a general misunderstanding among consumers about how level premiums work. In our view, the life insurance industry could be doing more in terms of the information provided at the time of taking out the policy to help consumers understand this better.

8 General insurance

7,969 general insurance complaints received. 23% of all complaints received

62% general insurance complaints were resolved

77% general insurance complaints resolved within 60 days

78% complaints were resolved by agreement or in favour of complainants

Top five general insurance products

Product	Total
Motor vehicle - comprehensive	1,789
Home building	1,176
Travel	793
Motor vehicle - uninsured third party	529
Home contents	300

Top five general insurance issues

Issue	Total
Delay in claim handling	1,476
Claim amount	1,327
Denial of claim - exclusion/ condition	1,227
Denial of claim	1,011
Service quality	422

In general insurance we received 7,969 complaints in our first six months, which accounts for 23 per cent of all complaints and a 20 per cent increase on the number of complaints FOS received over the same period last year (6,617).

The transition to AFCA for the general insurance industry has been relatively seamless. While we have seen an increase in the complaints received this has been more than matched by the resolution of those matters at our registration and referral stage, with the industry now resolving more than 45 per cent of matters early. This is a better outcome for consumers, small businesses and the industry.

There has been no substantial change in the type of complaints received, with motor vehicle and home insurance matters being the most complained about products.

The high number of complaints we see relating to delays in claims handling (1,476) and service quality (422) indicate that the industry is still not meeting customers' expectations.

In our view, complaints relating to delays or service quality should be able to be resolved by financial firms internally and should not be one of the top issues in complaints we receive. General insurers need to make sure their teams are adequately resourced and have the right skill sets to deal with these sorts of complaints at the internal dispute resolution stage.

9 Financial difficulty

Financial difficulty complaints occur when consumers unexpectedly cannot meet their repayment obligations. This may be because of an accident, separation, sickness, natural disaster, death of a family member, unemployment or other factors.

AFCA accepts financial difficulty complaints from both individuals and small businesses relating to a range of credit products and services, such as credit cards, home loans, personal loans and business loans.

In the first six months of operations, we received 3,831 complaints that involved financial difficulty compared with 2,086 complaints for the same period at the predecessor schemes.

We anticipate even higher levels of financial difficulty complaints as the awareness of AFCA increases.

We find that the best solutions occur when the parties work together to develop a plan for overcoming financial difficulty. For this reason, we encourage the parties to be willing to communicate and exchange information with each other.

10 Small business

AFCA is able to consider complaints from a wider range of small businesses than the predecessor schemes.

Under the AFCA Rules, a small business is defined as an organisation with less than 100 employees (an increase from 20 employees under predecessor schemes). The monetary and compensation limits for small business complaints have also seen a substantial increase from $323,500 to $1 million, and primary producers have a compensation cap of $2 million.

We received 2,133 complaints from small businesses in our first six months. This is more than double the small business complaints (1,020) received by FOS over the same period, however 700 of the 2,133 complaints related to a single marketing business going into liquidation. In our first six months we awarded $5 million in compensation to small businesses.

In February 2019, we appointed an inaugural Lead Ombudsman - Small Business, Mr Geoff Browne GAICD. The appointment of a dedicated Lead Ombudsman for small business is an important step in ensuring that AFCA understands small business needs relating to financial services and works collaboratively with small businesses and financial firms to resolve issues.

11 Systemic issues

AFCA has obligations to identify, refer and report systemic issues and contraventions of the law, which we take very seriously. During our first six months of operation, we identified 16 potential serious contraventions and other breaches. At the end of April we also had 85 definite systemic issue investigations open.

A systemic issue is one that has implications beyond an individual complaint. The issue may have been raised in one or more complaints or we may have identified it through other information we have received.

Common issues we are currently investigating include:

Misleading conduct
Conduct of employee/authorised representatives
Adequacy of claims handling process
Processing errors

Resolved systemic issues

Some of the outcomes from systemic issues that have been resolved include:

A financial firm was found to be incorrectly assessing whether a consumer had been taking 'reasonable precautions', resulting in a disproportionate amount of insurance claim denials. The financial firm agreed to reopen and pay 197 previously denied claims.
A financial firm made amendments to its financial hardship policies allowing for individual borrowers to enter into an arrangement without also requiring the consent of a co-borrower. AFCA's concern arose from a number of matters where family violence related issues were a direct barrier to the borrower accessing financial hardship assistance from the financial firm.
A financial firm implemented significant changes to its online insurance application process, providing greater clarity to consumers regarding their duty of disclosure.
A financial firm made significant improvements to its client qualification suitability questionnaire for people applying for Contracts for Difference trading accounts.
A financial firm identified errors in the application of multi-policy discounts for a number of policy holders. Refunds totaling $90,153, plus interest, were paid to impacted consumers.

Positive outcomes from rejected systemic issues

Sometimes we investigate issues that are ultimately determined not to be systemic. The issue may involve substantial investigation and result in a change to a financial firm's process or comment from a Lead Ombudsman about relevant industry practice.

A financial firm made improvements to its processes in providing suitability assessment, where it is required in response to a complaint.
A financial firm implemented a series of internal training sessions relating to the importance of its responsible lending obligations.
A financial firm implemented a series of processes and safeguards to ensure compliance with its obligation to cease debt collection activity while an AFCA complaint is open.
A financial firm is implementing additional training across its branch network regarding the logging and improved management of complaints. In addition, its policies have been amended to include a calculation of interest in circumstances where it pays financial compensation to a consumer.
A financial firm will be making improvements to its online banking portal to improve consumer understanding regarding loan repayments required.

12 Fairness project

We're undertaking a 'fairness project' to map community expectations and produce a set of criteria for fairness which can be plainly understood and will explain how we assess fairness in any given complaint.

This approach will ensure we deliver clear, consistent and quality decision making and will set the bar for financial firms when applying fairness to their own internal dispute resolution processes. The project consists of two elements:

Decision maker review

We have engaged independent consultants to conduct a review of a sample of our decisions and test them against our current decision-making criteria, as set out in the AFCA Rules. The sample will be representative of the wide range of complaints that we receive.

Approach to fairness

The second element is to develop a roadmap of our approach to fair outcomes. This is an investigation into how we assess fairness in the relationship between a financial firm and a complainant.

13 Member services

Proposed member services offering

Our purpose is to provide fair, independent and effective solutions for financial complaints. We understand that resolving complaints in a fair and timely manner is by far the most important service we can offer.

We also want to provide a valued member experience that helps members improve internal practices to avoid and resolve disputes. To achieve this goal we are developing a plan to deliver member services such as:

internal dispute resolution training workshops
case study workshops
best practice seminars
improved online written resources including approach documents and case studies
increased access to benchmarking reports.

Research insights

We recently concluded member research in partnership with a research company, Kantar Public, who facilitated member workshops and conducted an online survey of our members. The final report indicates that members want to see:

improvements to our online member portal, Secure Services
current and relevant case studies
clarity around the AFCA approach to common complaint issues
feedback on performance.

14 Service complaints

AFCA is committed to providing an accountable and transparent service to consumers, small business and financial firms.

One of the ways that we ensure accountability is by having a complaints and feedback process available for all users of our service who wish to complain about our standard of service. We take all complaints and feedback received seriously. If a user of our service is not satisfied with our response to their service complaint, an Independent Assessor appointed by the AFCA Board reviews and assesses, on a case by case basis, our standard of service.

Since 1 November we have received 315 complaints about our service; 185 relate to complaints about predecessor schemes, while 130 relate to complaints about AFCA. The 130 complaints that relate directly to AFCA raised 215 issues. Issues raised include delays, incorrect or insufficient information provided, an inability to understand the information provided and disagreement with AFCA's decision to discontinue a complaint. To address the issues complainants brought to us, we provided clarifications of process/decision (68), explained our process in detail (58) and where we didn't provide a good level of service to the complainant (50).

15 Business improvement highlights

We are committed to understanding the needs of consumers and small businesses and ways we can improve our service. We have implemented a number of improvements to ensure we deliver outstanding service to complainants.

We are running a series of workshops to educate our staff about embedding 'helpfulness' into everything we do at AFCA. Consumers and small businesses often don't have the time, resources or documentation that large financial organisations have and so it is essential that we are helpful to them by providing flexibility in our processes and recognising potential barriers they may face in meeting our timeframes or requirements.

Over 200 staff so far have attended the workshops, with more to attend in the future. The workshops are also now part of our standard induction process for new staff.

We have hired a call quality coach for the contact centre to ensure we maintain a high-quality service and we are proactive resolving any issues with our service.

We are trialling progressive surveys of complainants to understand their experience throughout the process rather than just at the end.

16 Stakeholder engagement and events

Events

In the first six months, we have held or attended 177 events and meetings, giving us the opportunity to talk to stakeholders across the country, including: government, regulatory bodies, member financial firms, industry associations, consumer groups, media and other ombudsman schemes.

Outreach

Community outreach is at the core of our work. We aim to raise awareness of AFCA as an avenue for financial disputes.

We will continue to make it a priority to connect with the community to understand and reduce any barriers to accessing our service.

National Roadshow

Chief Ombudsman and Chief Executive Officer David Locke, along with Directors, members of the Senior Leadership Group and staff are planning to be on the road in late 2019.

We will stop in over 70 towns and cities around Australia and is part of our commitment to providing an accessible service to all Australians.

This nation-wide roadshow will allow us to hear from regional and remote communities about their financial issues first-hand and understand any barriers they may have in accessing our service.

AFCA Consumer Advisory Panel

Our new AFCA Consumer Advisory Panel (ACAP) met for the first time in March. This panel allows us to consult with leading consumer representatives on all major initiatives and provides us with unique perspectives that can help inform our work.

Panel members are advocates for the diverse communities we serve, including older Australians, Indigenous and Torres Strait Islander peoples, culturally and linguistically diverse communities and people experiencing financial difficulty.

Direct feedback from advocates helps us to meet community expectations and understand the varying circumstances that impact accessibility. The panel meets quarterly in different locations across Australia.

AFCA Consumer Advisory Panel inaugural meeting, March 2019

17 Royal Commission

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry handed down its final report to the Governor-General on 1 February 2019. This substantial report marks an important milestone for financial services in Australia, containing 76 recommendations. In February, the Government announced it is taking action on all 76 recommendations.

There were two recommendations that directly related to AFCA, which the Government has responded to:

Compensation scheme of last resort

We were very pleased that the Government announced a compensation scheme of last resort. This is a scheme that AFCA and the predecessor schemes have been long-standing advocates of for over 10 years.

A compensation scheme of last resort is an important backstop that ensures that people who have been the victims of misconduct, and lost out through no fault of their own, can finally be properly compensated. Consumers who have fairly been awarded compensation will finally receive the redress they deserve. The compensation scheme of last resort will provide compensation in the future for consumers who have received a decision from AFCA or a court or tribunal in their favour, but who have not received their compensation due to the financial firm ceasing business.

The Government will also be funding $30 million to cover the payment of legacy unpaid determinations from the FOS and CIO.

Financial firms required by law to cooperate with AFCA

On 6 April 2019, the Government’s announced that financial firms will be required by law to cooperate with AFCA to resolve financial complaints.

This was an important step in ensuring consumers and small businesses have their financial complaints solved effectively and efficiently. AFCA expects all financial firms to cooperate fully and respond promptly and comprehensively to all requests.

Redress for legacy disputes

In the Government’s response to the Royal Commission it, announced that AFCA’s jurisdiction would be increased.

Australian consumers and small businesses who have suffered from misconduct by financial firms but have not yet been heard, will be able to take their cases to AFCA and have them considered. The Government has announced that AFCA’s remit will be expanded for a period of 12 months to accept financial complaints about conduct going back to 1 January 2008.

We will consider eligible complaints between 1 July 2019 and 30 June 2020, after the AFCA Rules have been revised. This is a positive step which means that many more people will be able to get access to justice and have their matters properly considered.

18 Code Compliance

The Code Compliance and Monitoring Team (Code Team) is a separately operated and funded business unit of AFCA. The Code Team supports independent committees to monitor compliance with codes of practice in the Australian financial services industry to achieve service standards people can trust. The Code Team administers five different codes of practice and from 1 November 2018 to 30 April 2019 it has worked with the relevant committees on numerous projects and reports. A few of the highlights from this period are mentioned below:

Code of Banking Practice

Administered by the Banking Code Compliance and Monitoring Committee (CCMC)

The CCMC has also launched an inquiry into banks' conduct when accepting and enforcing guarantees: ccmc.org.au/2019/05/29/media-release-ccmc-announces-inquiry-into-banks-conduct-when-accepting-and-enforcing-guarantees

General Insurance Code of Practice

Administered by the General Insurance Code Governance Committee (GICGC).

Report: General Insurance in Australia: 2017-18 and current insights
Report: How insurers handle consumer complaints

The GICGC has also launched an inquiry into the adequacy of 45 subscribers' compliance monitoring and reporting frameworks.

Life Insurance Code of Practice

Administered by the Life Code Compliance Committee (Life CCC).

Inaugural Annual Industry Data and Compliance Report

Insurance Brokers Code of Practice

Administered by the Insurance Brokers Code Compliance Committee (IBCCC).

Own Motion Inquiry report: Improving how insurance brokers handle complaints

Customer Owned Banking Code of Practice

Administered by the Customer Owned Banking Code Compliance Committee.

Own Motion Inquiry report: Compliance with direct debit cancellation obligations disappointing

Disclaimer: All statistics in this report are from 1 November 2018 to 30 April 2019, unless otherwise specified.

AFCA's first 6-months report

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