AFCA: the first foothill between Australia’s Twin Peaks

Abstract

This paper traces the establishment of the new Australian Financial Complaints Authority (AFCA). It places this development within the wider context of what we argue is an important new adjunct to the Australian financial regulatory architecture, and by implication therefore, the international significance of these reforms to countries that have adopted the Australian “Twin Peaks” model. By reference to the Ramsay Review and other sources, we include analysis of AFCA’s forerunners, and their failures; and we include comparative analysis from other jurisdictions. We provide analysis of AFCA’s strengths and potential weaknesses, and some initial data on AFCA outcomes. Finally, we provide concluding remarks on these reforms.

Notes

1 Commonwealth Treasury, Parliament of Australia, Final Report: Review of the financial system external dispute resolution and complaints framework (2017).

2 The term is a misnomer. It is based broadly upon Michael Taylor’s original proposal called “Twin Peaks” (MW Taylor, ““Twin Peaks”: A Regulatory Structure for the New Century” (December 1995) (20) Centre for the Study of Financial Innovation 1–18.), which in turn was a riff off the eponymously titled television series, popular at the time. (Conversation between the first author and Michael Taylor, August 2014). In contradistinction, the original proposal put forth in Australia’s 1998 Financial System Inquiry (S Wallis, B Beerworth, J Carmichael, I Harper and L Nicholls, “Financial System Inquiry” 31 March 1997, 1–771, 26) clearly articulates Australia as a three-peak system (“three agencies” as described in the report), in which the Reserve Bank of Australia (RBA) would assume a macro-prudential role. Nonetheless, the most salient feature of the model adopted in Australia was not the role of the central bank – a role played by most if not all central banks. Rather its most salient feature was the creation of two additional peaks, one for prudential oversight, the other for conduct oversight. As a result, the term Twin Peaks is used to describe the prudential and conduct structures in countries like Australia, and elsewhere, irrespective of the activities of the central bank.

3 Financial Markets Authority Act, No. 5 of 2011, (enacted: 18 April 2011), s 6. New Zealand Council of Financial Regulators, “Regulatory Charter: Financial markets regulatory system”, in Financial Markets Conduct Regulatory System, Financial Markets Authority, 28 July, 2016, 7 ff.

4 Act amending the Act of 2 August 2002 on the supervision of the financial sector and financial services and the Act of 22 February 1998 establishing the organic status of the National Bank of Belgium, and containing various provisions, Belgian State Gazette N. 289, page 59135, 2010, (enacted: 2 July) Chapter III, s 2.

5 Financial Supervision Act, 2007, (enacted: 28 September 2006).

6 Financial Services Act, No. 21 of 2012.

7 Financial Sector Regulation Act, No. 9 of 2017, (enacted: Published in GG 41060 of 22 August 2017). AD Schmulow, “Financial Regulatory Reform in South Africa: The Move Towards Twin Peaks” (2017) 25(3) African Journal of International and Comparative Law: Revue Africaine de Droit International et Comparé; AJ Godwin and AD Schmulow, “The Financial Sector Regulation Bill In South Africa: Lessons From Australia” (2015) 132(4) South African Law Journal.

8 Office of the Superintendent of Financial Institutions Act, 1985, (enacted: 2 July1987), s 4(1) and Financial Consumer Agency of Canada Act, 2001, s 3.

9 Law No. 2010-1249 of 22 October 2010 on Banking and Financial Regulation (1), JORF n ° 0247 of October 23, 2010 page 18984, 2010, (enacted: 23 October 2010); Ordinance No. 2010-76 of 21 January 2010 amalgamating the licensing and supervisory authorities of the bank and insurance, JORF n ° 0018 of 22 January 2010 page 1392, 2010, (enacted: 21 January 2010). Cf D Calvo, JC Crisanto, S Hohl and OP Gutiérrez, “Financial Supervisory Architecture: What Has Changed After the Crisis?”, series edited by Financial Stability Institute, in FSI Insights on policy implementation, no. 8, Financial Stability Institute, Bank for International Settlements, April, 2018, p 36, where the authors argue that Guatemala and El Salvador are also Twin Peaks jurisdictions. This is, however, incorrect.

10 These include China, Hong Kong, Japan, Korea, Kenya, Nigeria, the Federal level of the EU, and others.

11 Financial Markets Authority (FMA), “Presentation by Sean Hughes to the New Zealand Capital Markets Forum”, “News, Speeches”, 2011; J Manley, “Dutch Regulator Says “Twin Peaks” Supervision Best”, “Financial Regulatory Forum”, Reuters, United States ed., 2009; E Botha and D Makina, “Financial Regulation and Supervision: Theory and Practice in South Africa” (November 2011) 10(11) International Business & Economics Research Journal 35.

12 JJ Norton, “Global Financial Sector Reform: The Single Financial Regulator Model Based on the United Kingdom FSA Experience – A Critical Reevaluation” (Spring 2005) 39(1) International Lawyer 45; Treasury Committee House of Commons, “Financial Regulation: A Preliminary Consideration of the Government’s Proposals”, series edited by Commons Select Committees, in Seventh Report of Session 2010–11, in Volume I: Report, together with formal minutes, no. HC 430–I, Vol. 1, House of Commons, Parliament of the United Kingdom, 27 January, 2011, 32 § 83.

13 The Financial Crisis Inquiry Commission, (January 2011). The Financial Crisis Inquiry Report, Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States, xviii; 113; 125–26; 160; 227–30, https://www.govinfo.gov/content/pkg/GPO-FCIC/pdf/GPO-FCIC.pdf.

14 Ibid, 159; 171; 307–8. A Turner, (March 2009). The Turner Review. A Regulatory Response to the Global Banking Crisis, 92, http://www.actuaries.org/CTTEES_TFRISKCRISIS/Documents/turner_review.pdf. FSA, (December 2011). The failure of the Royal Bank of Scotland. Financial Services Authority Board Report, § 28 at 27, https://www.fca.org.uk/publication/corporate/fsa-rbs.pdf.

15 M Taylor (September 2009). “‘Twin Peaks’ Revisited … A Second Chance for Regulatory Reform”, The Centre for the Study of Financial Innovation (CSFI), No. 89, 5, http://static1.squarespace.com/static/54d620fce4b049bf4cd5be9b/t/55241044e4b03769e017208a/1428426820095/Twin±Peaks±Revisited.pdf.

16 Recommendation 1: “Financial System Inquiry”, 31 March 1997, 31, and Recommendation 31, at 42.

17 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, “Home”, 2018, accessed: 11 January 2018, https://financialservices.royalcommission.gov.au/Pages/default.aspx.

18 D Ziffer, “Millions of Bank Customers Have Got Money Back But for Others, the Wait Continues”, ABC News, 2 December 2019, https://www.abc.net.au/news/2019-12-02/millions-remediated-by-banks-but-for-others-wait-continues/11756426.

19 J Eyers, “Bank Compensation Costs Could Hit $10b”, Australian Financial Review, March 14, 2019, https://www.afr.com/companies/financial-services/bank-compensation-costs-could-hit-10b-20190513-p51mt6.

20 C Breidbach, C Culnane, A Godwin, C Murawski and C Sear, FinFuture: The Future of Personal Finance in Australia (The University of Melbourne 2019) 18, https://www.unimelb.edu.au/__data/assets/pdf_file/0004/3145612/FinFuture_White_Paper.pdf.

21 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Final Report, Vol 1, 1 February 2019, 3–5; 424.

22 T D’Aloisio, “Responding to the Global Financial Crisis: The ASIC Story”, A speech by T D’Aloisio, Chairman, Australian Securities and Investments Commission, to the Trans-Tasman Business Circle, 30 November 2010, https://download.asic.gov.au/media/1347350/speech-responding-global-crisis-nov-2011.pdf, 6; T D’Aloisio. “Regulatory Issues Arising from the Financial Crisis for ASIC and for Investors and Financial Consumers”, A speech by ASIC Chairman T D’Aloisio to the Australian Financial Counselling & Credit Reform Association, 28 July 2009, https://asic.gov.au/about-asic/news-centre/speeches/regulatory-issues-arising-from-the-financial-crisis-for-asic-and-for-investors-and-financial-consumers/, 6. Australian Securities and Investments Commission, to the Trans-Tasman Business Circle, 30 November 2010.

23 ASIC, (25 February, 2020). “The ASIC – APRA Relationship. The Role of ASIC”, About ASIC, (accessed electronically 3 March, 2020), https://asic.gov.au/about-asic/what-we-do/our-role/other-regulators-and-organisations/the-asic-apra-relationship/.

24 See n 1 above.

25 Ibid, 9.

26 Ibid.

27 AFCA will amalgamate the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal.

28 Financial Ombudsman Service, FOS Terms of Reference, Victoria, 2015, cl 8.2; Australian Financial Complaints Authority, Australian Financial Complaints Authority Complaint Resolution Scheme Rules, Victoria, 2018, s A.2.1(d).

29 Australian Financial Complaints Authority, Australian Financial Complaints Authority Complaint Resolution Scheme Rules, Victoria, 2018, ss C.1.2, A.7.2, A.2.1.

30 This is particularly so in relation to FOS.

31 See generally, Commonwealth, Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Interim Report (2018) vol 1, 302–04.

32 Namely, on a contractual basis instead of legislative or statutory basis. See eg, Mickovski v Financial Ombudsman Service Ltd (2012) 36 VR 456 and the text accompanying n 160, below.

33 The Senate, Economics References Committee, Performance of the Australian Securities and Investments Commission (June 2014) xxiv, 12.28.

34 For a succinct overview of the controversies that have arisen, and the build-up to the Banking Royal Commission, see D Chau and E Clark, “Banking Royal Commission: How Did We Get Here?” ABC News (online), 12 February 2018, https://www.abc.net.au/news/2017-11-30/banking-royal-commission-how-did-we-get-here/9210248.

35 D Crow, “Malcolm Turnbull Admits ‘Political Mistake’ on Bank Royal Commission”, Sydney Morning Herald (online), 23 April 2018, https://www.smh.com.au/politics/federal/malcolm-turnbull-admits-political-mistake-on-bank-royal-commission-20180423-p4zb2x.html.

36 See Australian Government (online), https://financialservices.royalcommission.gov.au/Pages/default.aspx.

37 See for example: S Danckert, C Yeates and J Collett, “Revealed: Bank Royal Commission Rap Sheets Made Public”, “Business/Banking and Finance/Banking Royal Commission”, The Sydney Morning Herald, Business Day ed., 2018; S Danckert, C Yeates and R Williams, “CommInsure, AMP Could Face Criminal Charges”, “Business/Banking and Finance/Banking Royal Commission”, The Sydney Morning Herald, Business Day ed., 2018; S Danckert, C Yeates and J Collett, op cit.

38 The Commission, Interim Report, above n 31, vol 1, 267.

39 S Chalmers, “There’s a New Place to Lodge Complaints About the Banks – and It’s Already Been Flooded”, ABC News (online), 5 December 2018, https://www.abc.net.au/news/2018-12-05/new-financial-complaints-authority-more-than-6500-complaints/10585690.

40 The Commission, Interim Report, above n 31, vol 1, 267–300.

41 A Ferguson, “Bank Compensation Schemes Need Scrutiny Too”, The Australian Financial Review (online), 7 October 2018, https://www.afr.com/business/banking-and-finance/bank-compo-schemes-need-scrutiny-too-20181006-h16ba3.

42 G Wilkins, “Compensation Scheme for Financial Victims Will Restore Trust: Ian Ramsay”, Sydney Morning Herald (online), 8 June 2017, https://www.smh.com.au/business/banking-and-finance/compensation-scheme-for-financial-victims-will-restore-trust-ian-ramsay-20170608-gwn04p.html.

43 Commonwealth Treasury, the Review, Final Report, above n 1, 3–4.

44 Ibid, 1.

45 Ibid, 3.

46 Ibid.

47 Ibid, 5.

48 Ibid, 1.

49 On 2 February 2017 the Terms of Reference were amended to allow for the preparation of a Supplementary Final Report of the Review of external dispute resolution and complaints arrangements in the financial system; Commonwealth Treasury, Parliament of Australia, Supplementary Final Report: Review of the Financial System External Dispute Resolution and Complaints Framework, (2017) v.

50 Commonwealth Treasury, the Review, Final Report, above n 1, 104 [5.70].

51 Ibid, 104 [5.71].

52 Ibid, 105.

53 Ibid.

54 Ibid, 104, the mere fact as to whether an insurance policy was attached to a superannuation policy determined whether FOS or the SCT would adjudicate the dispute. The Review noted that this “ … results in very different experiences for the consumer, given the lengthy delays currently experiences by the SCT.”

55 Ibid, 105.

56 Ibid, 104.

57 Ibid, 105.

58 Ibid, 107 [5.85].

59 Ibid, 108 [5.86].

60 Ibid, 108 [5.88].

61 Ibid.

62 Ibid, 108 [5.89].

63 Ibid.

64 Ibid, 8–9.

65 Ibid, 108 [5.90].

66 Ibid.

67 Ibid, 108 [5.89].

68 Ibid, 106 [5.82].

69 Mortgage and Finance Association of Australia, “Final Ramsay Report Undermines the Fabric of EDR”, Media Release, 23 May 2017, https://www.mfaa.com.au/node/546.

70 Ibid.

71 The new Australian Banking Association (ABA) Banking Code of Practice came into effect on 1 March 2020. For a copy of the 2013 Code of Banking Practice, see Australian Bankers’ Association Inc., Code of Banking Practice and Code Compliance Monitoring Committee Mandate, (“The Code”) (2013), https://www.ausbanking.org.au/wp-content/uploads/2019/04/2013_ABA_CODE.pdf.

72 Ibid, 32.

73 Ibid.

74 Ibid, 33–34.

75 Ibid, 35, cl 39.1.

76 Banking Code Compliance Monitoring Committee, Own Motion Inquiry: Breach Reporting (June 2018) Financial Ombudsman Service, 7, https://www.fos.org.au/custom/files/docs/bccmc-report-own-motion-inquiry-breach-reporting.pdf.

77 Ibid; Code Compliance Monitoring Committee, Banking Practice in Australia 2016–2017 Annual Report, 21–22. http://www.ccmc.org.au/cms/wp-content/uploads/2017/12/CCMC-Annual-Report-2016-17-web-version.pdf.

78 Code Compliance Monitoring Committee, Monitoring Compliance with the Code of Banking Practice: 2017–2018 Year in Review, 2.

79 Code Compliance Monitoring Committee, Code of Banking Practice: 2014–2015 Annual Report, 2.

80 Code Compliance Monitoring Committee, Code of Banking Practice: 2015–2016 Annual Report, 4.

81 Code Compliance Monitoring Committee, Banking Practice in Australia 2016–2017 Annual Report, 6, http://www.ccmc.org.au/cms/wp-content/uploads/2017/12/CCMC-Annual-Report-2016-17-web-version.pdf.

82 Banking Code Compliance Monitoring Committee, above n 76, 4. All figures in AUD unless otherwise specified.

83 Ibid, 35.

84 Ibid.

85 Ibid.

86 Ibid, 34.

87 Australian Securities and Investment Commission, Licensing: Internal and External Dispute Resolution, Regulation Guide 165, (“RG 165”), May 2018.

88 Ibid, 20.

89 The Code, above n 71, cl. 37.2, 35.

90 Banking Code Compliance Monitoring Committee, above n 76, 11.

91 Ibid.

92 Ibid, 6.

93 Code Compliance Monitoring Committee, 2017–2018 Year in Review, above n 78, 2.

94 Commonwealth Treasury, the Review, Final Report, above n 1, 191 [10.25].

95 Ibid, 191 [10.27].

96 Ibid, 191 [10.28].

97 Ibid.

98 Code Compliance Monitoring Committee, 2017–2018 Year in Review, above n 78, 5.

99 Page 6 of the Own Motion Enquiry at [1.6] (see above n 76) refers to call monitoring and quality assurance programs. It states that the inquiry identified many “good monitoring practices” but stated a primary concern regarding the lack of information about how banks monitor, for example, IDR case management systems. Page 9–10 deals with code breaches and states at [3.3] that 64 per cent of Code breaches are identified through call monitoring. Para [3.6] states that comprehensive call monitoring and quality assurance programmes are used to assess compliance. Whilst the mechanics of “call monitoring” are not specified within the own motion enquiry, experience by the second author is that a “quality and assurance” team within the FSP listens to recorded calls, in order to identify issues in terms of customer service, company policy, accuracy of information et cetera. These are usually done by reference to a list of criteria that sets out categories like: customer service, call duration, accuracy and clarity of information, objection handling et cetera.

100 Banking Code Compliance Monitoring Committee, above n 76, 35–36.

101 Ibid, 5.

102 Ibid, 10.

103 Ibid, 34.

104 Ibid.

105 Commonwealth Treasury, the Review, Final Report, above n 1, 105 [5.76].

106 Ibid, 114–15 [5.114].

107 Mortgage and Finance Association of Australia, Media Release, above n 69.

108 Ibid.

109 Commonwealth Treasury, the Review, Final Report, above n 1, 111 [5.103].

110 Ibid, 112–13 [5.107].

111 Ibid, 112 [5.105].

112 Financial Services Complaints Ltd, Foundation for Effective Markets and Governance, Independent Review (2015) 13.

113 Ibid, 14.

114 Commonwealth Treasury, the Review, Final Report, above n 1, 115.

115 Ibid, 112 [5.106].

116 Commonwealth, Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Interim Report (2018) vol 2, 298. Under FOS applicants could choose whether or not to accept the findings of a FOS determination. If the determination was accepted, the determination became binding on the applicant and the FSP see below n 170.

117 Ibid, 300. Suncorp did not want the disputed loan to be paid off in accordance with the original instalment plan, as it would effectively amount to a seventeen-year interest free loan. It also believed that the FOS required loans subject to maladministration be given priority over those responsibly lent.

118 Ibid, 302.

119 Ibid.

120 Transcript of Proceedings, Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission, Commissioner Hayne, 28 May 2018), 2550. Mr Field gave evidence that where there are multiple loans and a lump sum payment is made, priority should be given to the interest bearing loans over the interest free loans, as they represent the greatest burden to the borrower.

121 Ibid, 2551. While that is the position taken by FOS, they do not require responsible loans to be paid out first, as assumed by Suncorp. The ombudsman, Mr Field, agreed that this expectation should be made clearer in their guidance. The issue relates to the fact that by applying a lump sum payment to interest bearing funds the mortgagor does not get the benefit of applying the funds to the non-interest bearing (irresponsibly lent) funds first. This has the effect of accelerating the mortgagor’s loan repayments.

122 Ibid, (25 May 2018) 2510.

123 Ibid, 2511.

124 Ibid, 2511–12. Special Counsel assisting the Commission put to Suncorp that such a practice does not accord with an applicant’s entitlements to continue under the loan contract that currently remains on foot. The FOS determination itself shows that the applicant remains liable for the debt and this suggests that the loan contract is still on foot.

125 The Commission, above n 116, Interim Report, vol 2, 303. Commissioner Hayne noted that the distinction between these terms comes from the notion that the loan contract is brought to an end by the FOS determination.

126 The Commission, Transcript of Proceedings (28 May 2018), above n 120, 2547.

127 Ibid, 2543.

128 Ibid, 2548. Ombudsmen Philip Field was unaware of any such industry practice.

129 Ibid, 2548–49. FOS viewed its role as one that only established liability between the FSP and its customers. Therefore, the onus was on the customer to negotiate with their bank to determine how loans, the subject of a determination, should be paid.

130 The Commission, above n 31, Interim Report, vol 1, 304.

131 The Commission, Transcript of Proceedings (28 May 2018), above n 120, 2547. Mr Field did note that this is an unusual case, and is still unresolved, suggesting that Suncorp may yet be unable to accelerate Mrs Low’s repayments.

132 The Commission, Interim Report, above n 31, vol 1, 183.

133 Ibid, 335.

134 Commonwealth of Australia, Productivity Commission, Access to Justice Arrangements Inquiry Report, Final Report (2014) vol 1, 320.

135 Ibid.

136 L Klapper, A Lusardi and P van Oudheusden, “Financial Literacy Around the World: Insights from the Standard & Poor’s Ratings Services Global Financial Literacy Survey” (2015) 7 Global Financial Literacy Excellence Centre 23–5.

137 T Griffiths and J Mitchell, “Financial Ombudsman Service: Dr Jekyll or Mr Hyde?” (2012) 27 Australian Insurance Law Bulletin 130, 131.

138 Ibid.

139 Australian Securities and Investments Commission Regulatory Guide 139, Approval and oversight of external dispute resolution schemes (2013).

140 Commonwealth Treasury, the Review, Final Report, above n 1, 38.

141 See, eg, S Long, “The Questions the Financial Ombudsman Needs to Answer”, Australian Broadcasting Corporation News (online), 1 April 2016, https://www.abc.net.au/news/2016-04-01/long-the-questions-the-financial-ombudsman-needs-to-answer/7292044.

142 [2015] VSC 292 (19 June 2015).

143 See The 7:30 Report (S O’Neill, Australian Broadcasting Corporation, 2016) 4:08.

144 Ibid, 4:36. See the phone call between applicant’s advocate Bruce Chapman and Dr Justi Tonti-Filippini.

145 Goldie Marketing Pty Ltd v Financial Ombudsman Service [2015] VSC 292 (19 June 2015) [13].

146 Ibid, [73]. FOS noted that the lending facilities in question were not retail consumer lending products, meaning that the applicant’s financial arrangements were much more complicated and time intensive. FOS also noted that the plaintiffs had representation, and had shown themselves to be litigious. As such, FOS used its discretion to exclude the matter, believing that the court was the appropriate place for a determination.

147 The 7:30 Report, above n 143, 5:38.

148 Ibid.

149 Goldie Marketing Pty Ltd v Financial Ombudsman Service [2015] VSC 292 (19 June 2015) [109]. While the reasons given were compelling, Cameron J notes that a staffing shortage would have been sufficient to place the matter outside the TOR.

150 The 7:30 Report, above n 143, 5:40.

151 Ibid, 6:31.

152 Ibid, 7:48. Senator Xenophon, as he then was, said that the discrepancy in the evidence went directly to the creditability of the FOS, and that unless it could formulate a thorough explanation as to why it exists, it could no longer be regarded as a credible body.

153 Commonwealth Treasury, the Review, Final Report, above n 1, 8.

154 Ibid, 8.

155 Ibid.

156 A Ferguson, “Financial Dispute Referee Has Become a Political Football”, The Sydney Morning Herald (online), 3 November 2017, https://www.smh.com.au/business/financial-dispute-referee-has-become-a-political-football-20171103-gzeebg.html. Circular, Unpaid determinations update (October 2016) Financial Ombudsman Service, https://www.fos.org.au/fos-circular-27-home/fos-news/unpaid-determinations-update/. As of 30 June 2016, $14,146,064 had not been returned to successful FOS applicants. See, Commonwealth Treasury, the Review, Supplementary Report, above n 49, 6.

157 Circular, Unpaid determinations update (August 2018) Financial Ombudsman Service, https://www.fos.org.au/fos-circular-34-home/fos-news/unpaid-determinations-update/. In 2017–2018 17.3% of determinations favourable to the applicant had not been paid.

158 Ibid; Financial Ombudsman Service, FOS Terms of Reference, Victoria 2015, cl 9.2.

159 Commonwealth Treasury, the Review, Final Report, above n 1, 59. FOS explained that the conservative use of this power was due to members who may have otherwise been expelled becoming insolvent or have had open disputes brought by their customers.

160 See Mickovski v Financial Ombudsman Service Ltd (2012) 36 VR 456, 467 [34]–[35]. The VSCA noted that the consideration that moved from the complainant was their submission to FOS’s processes, while the consideration that moved from the FSP and FOS was the promise to be bound by the FOS’s decision, and to arbitrate in accordance with the TOR, respectively.

161 Ibid.

162 Corporations Act 2001 (Cth) s 912A(1)(g)(i); (2)(c).

163 Financial Ombudsman Service, Constitution of the Financial Ombudsman Service Limited, Victoria, 2012, cls 3.7, 3.10(a).

164 See, eg, Financial Ombudsman Service Ltd v Utopia Financial Services Pty Ltd [2016] WASC 55 (24 February 2016) [31]. Le Miere J commented that a FOS decision must not be so unreasonable that a rational person having regard to the TOR could not have arrived at the same or similar conclusion.

165 Financial Ombudsman Service, FOS Terms of Reference, Victoria, 2015, cl 8.2.

166 Ibid, cl 8.2(a).

167 Ibid, cl 8.2(b).

168 Ibid, cl 8.2(c).

169 Ibid, cl 8.2(d).

170 Ibid, cl 8.5(b)–(c).

171 Ibid, cls 8.5, 8.7(b).

172 [2016] WASC 55.

173 See also Patersons Securities Ltd v Financial Ombudsman Service Ltd (2015) 108 ACSR 483.

174 See generally FOS v Utopia Financial Services [2016] WASC 55 (24 February 2016).

175 Ibid, [56].

176 Ibid, [57]–[59]. This is because the expulsion of a member FSP is not an alternative common law or equitable remedy. As such, the appropriate order was to require Utopia to implement the FOS determination through specific performance.

177 Australian Lawyers Alliance, Submission No 17 to Senate Standing Committees on Economics, Treasury Laws Amendment (Putting Consumers First – Establishment of the Australian Financial Complaints Authority) Bill 2017, 29 September 2017, 5.

178 Ibid.

179 Ibid. ALA noted that, under FOS, between January 2010 and 2016, thirty-four FSPs were either unwilling or unable to comply with FOS determinations that were favourable to approximately 192 consumers. The real value of these determinations was estimated by FOS in January 2016 to be AUD$16,622,514.

180 Ibid, 6.

181 Ibid.

182 Australian Securities and Investments Commission Regulatory Guide 126, Compensation and insurance arrangements for AFS Licensees (2017) 5; see generally, Australian Securities and Investments Commission Regulatory Guide 210, Compensation and insurance arrangements for credit licensees (2010).

183 Australian Securities and Investments Commission Regulatory Guide 126, Compensation and insurance arrangements for AFS Licensees (2017) 5, 126.8.

184 For more on this see: AD Schmulow, M Greenwood-Nimmo, T Jackson and J Huang, “Submission to the Reserve Bank Act Review – Phase 2, for a Differentiated, Co-Provision Premium System Model for Deposit Insurance”, New Zealand Treasury Reserve Bank Act Review – Phase 2, 15 August, (2019), https://treasury.govt.nz/sites/default/files/2019-10/rbnz-p2-4159597.pdf.

185 Commonwealth Treasury, the Review, Supplementary Report, above n 49, 51.

186 Ibid, 4.

187 Ibid.

188 For an in-depth discussion of key features see Ibid, 3–6.

189 K O’Dwyer MP, “Release of the External Dispute Resolution Framework: Supplementary Final Report”, Media Release, 21 December 2017, http://kmo.ministers.treasury.gov.au/media-release/124-2017/.

190 Patersons Securities Ltd v Financial Ombudsman Service Ltd (2015) 108 ACSR 483; Financial Ombudsman Service Ltd v Utopia Financial Services Pty Ltd [2016] WASC 55 (24 February 2016); Cromwell Property Securities Ltd v Financial Ombudsman Service & Ors [2014] VSCA 179 (28 August 2014); Mickovski v Financial Ombudsman Service Ltd (2012) 36 VR 456; Goldie Marketing Pty Ltd v Financial Ombudsman Service [2015] VSC 292 (19 June 2015).

191 As the relationship is contractual, a plaintiff needed to show a breach of the TOR, because these comprise the terms of the agreement.

192 (2015) 108 ACSR 483, 17.

193 Ibid, 17. FOS was incorporated as a limited public company and so did not exercise statutory power.

194 See, eg, Dickason v Edwards (1910) 10 CLR 243, 257–58 (Isaacs J). See also Associated Provincial Picture Houses Ltd v Wednesbury Corp (1947) 45 LGR 635.

195 B Shaw, “Australian Financial Complaints Authority: Is Bigger Really Better?” (2017) 33 Australian Insurance Law Bulletin 89, 89.

196 Many applicants are of limited means and will not, in all likelihood, be able to avail themselves of the courts.

197 T Griffiths and J Mitchell, Financial Ombudsman Service, above n 137, 130. Under FOS there was no system of precedent, because it was not bound by its own decisions.

198 [2017] EWHC 352.

199 Ibid.

200 Ibid.

201 R (on the application of Aviva Life and Pensions (UK) Ltd) v Financial Ombudsman Service [2017] EWHC 352.

202 Ibid.

203 Ibid.

204 Ibid.

205 R (Heather Moor & Edgecomb Ltd) v Financial Ombudsman Service [2008] EWCA 642.

206 Ibid.

207 Partly referring to Justice Jay’s judgements in the Aviva case. See: A Taylor (24 March, 2017). “High Court Reaffirms FOS Discretion to Depart from the Law When “Fair and Reasonable””, UK Finance Disputes and Regulatory Investigations Blog, Published by Squire Patton Boggs, https://www.finance-disputes.co.uk/2017/03/high-court-reaffirms-fos-discretion-to-depart-from-the-law-when-fair-and-reasonable/.

208 Commonwealth Treasury, the Review, Final Report, above n 1, 113, quoted in S Brooker, Lessons in Ombudsmania, National Consumer Council (2017) 11–3.

209 Financial Industry Disputes Resolution Centre Ltd, “Background”, (online), 19 November 2018, https://www.fidrec.com.sg/website/background.html.

210 Monetary Authority of Singapore, “Financial Industry Disputes Resolution Centre”, Policy Consultation on the Financial Industry Disputes Resolution Centre, (October 2004), P016, 1, (online), 13 November 2018 http://www.mas.gov.sg/~/media/resource/publications/consult_papers/2004/Public_Consultation_Paper_FIDReC.pdf. For a comprehensive analysis of EDR schemes in Indonesia, Malaysia, Singapore, Thailand, and the Philippines, as well as a comparison between Australia and New Zealand see: V Chen, A Godwin and I Ramsay, “Consumer Financial Dispute Resolution in a Time of Increasing Regulatory Scrutiny” in DW Arner, WY Wan, A Godwin, W Shen and E Gibson (eds), Research Handbook on Asian Financial Law (Edward Elgar, 2020), Chapter 12, 209–32.

211 Ibid, 10.

212 Financial Ombudsman Service Australia, “FOS Response to Request for Information by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Service Industry” (2018) 27, (online), 15 November 2018, § 124, http://www.fos.org.au/custom/files/docs/fos-response-to-royal-commission-2022018.pdf.

213 L Haverkamp, “Is FIDReC Fair?”, 21 January 2011, (online), Singapore Business Review, https://sbr.com.sg/financial-services/commentary/fidrec-fair.

214 Ibid.

215 SF Ali and A D Roza, “Alternative Dispute Resolution Design in Financial Markets – Some More Equal Than Others: Hong Kong’s Proposed Financial Dispute Resolution Center in The Context of the Experience in the United Kingdom, United States, Australia and Singapore” (2010) 21 Pacific Rim Law & Policy Journal 499.

216 G Weixia, “Civil Justice Reform in Hong Kong: Challenges and Opportunities for Development of Alternative Dispute Resolution” (2010) Hong Kong Law Journal 40.

217 Ibid, 502.

218 C Lo and D Eng, “Bank Staff Arrested Over Minibonds”, South China Morning Post, (online) 27 March 2010, https://www.scmp.com/article/709771/bank-staff-arrested-over-minibonds.

219 SF Ali and A D Roza, Alternative Dispute Resolution Design in Financial Markets, above n 215, 495.

220 Ibid, 498.

221 Financial Dispute Resolution Centre, Terms of Reference, Hong Kong 2018, cl 20.3.1.

222 Financial Ombudsman Service Australia, Annual Review 2017–2018, Annual Review (2018) 10.

223 See: https://www.afca.org.au/about-afca/corporate-information/funding/.

224 A Ferguson, “Devil in the Detail for New Australian Financial Complaints Authority”, The Australian Financial Review (online), 17 September 2017, https://www.afr.com/business/banking-and-finance/financial-services/devil-in-the-detail-for-new-dispute-resolution-body-20170917-gyj5vk.

225 Due to the extent of AFCA’s jurisdiction, consumers need only contact one body.

226 While AFCA essentially assumed the same jurisdiction of other previous EDR bodies, its creation does show a commitment to provide a better EDR model. See Commonwealth, Parliamentary Debates, Senate, 14 September 2017, 7318 (Senator James McGrath).

227 Treasury Laws Amendment (Putting Consumers First – Establishment of the Australian Financial Complaints Authority) Act 2018 (Cth) s 1051(3)(d).

228 Australia Financial Complaints Authority, Scheme Rules, above n 29, ss A.6.1, A.6.2. While FOS could join parties under its TOR, no provisions existed for complaints which involved other schemes. That represented a challenge for consumers.

229 Ibid, A.2.1(d); Commonwealth Treasury, the Review, Final Report, above n 1, 126. The Review favours this test as it is consistent with a high degree of flexibility, allowing AFCA to choose an appropriate approach for each matter.

230 Commonwealth Treasury, the Review, Final Report, above n 1, 14. In complex issues expert panels allow for clear, nuanced and transparent guidance.

231 See generally M Celli, “Determinants of Economies of Scale in Large Businesses – A Survey on EU listed Firms” (2013) 3 American Journal of Industrial and Business Management 255. Microeconomic analysis suggests that due to AFCA’s wide jurisdiction, the cost per dispute should decrease with its increased scale.

232 B Shaw, Australian Financial Complaints Authority, above n 195, 90. The streamlining of the process will mean that FSPs will deal with less EDR bodies, which will favour increased efficiency.

233 Treasury Laws Amendment (Putting Consumers First—Establishment of the Australian Financial Complaints Authority) Act 2018 (Cth).

234 Financial Services and Markets Act 2000 (UK).

235 Ibid, s 228(2).

236 Ibid.

237 Australia Financial Complaints Authority, Scheme Rules, above n 29.

238 Commonwealth Treasury, the Review, Final Report, above n 1, 12.

239 Ibid, 154.

240 L Tan, “Fidrec Raises Limit for Non-Insurance Claims”, The Straits Times (online), 23 December 2016, https://www.straitstimes.com/business/fidrec-raises-limit-for-non-insurance-claims.

241 Ibid.

242 Financial Dispute Resolution Centre, Role of FDRC, (website) https://www.fdrc.org.hk/en/html/aboutus/aboutus_role.php.

243 The Government of the Hong Kong Special Administrative Region, “Government Welcomes Enhancements to Financial Dispute Resolution Scheme”, Press Release, 29 August 2017, 1, https://www.info.gov.hk/gia/general/201708/29/P2017082400623.htm.

244 Commonwealth Treasury, the Review, Final Report, above n 1, 111.

245 Ibid, 149.

246 Ibid, 151 [8.4].

247 Ibid, 155 [8.19].

248 Ibid.

249 Ibid.

250 A Ferguson, Bank compensation schemes need scrutiny too, above n 41.

251 Commonwealth Treasury, the Review, Final Report, above n 1, 12.

252 Australian Financial Complaints Authority, “AFCA to Accept Legacy Financial Complaints from 1 July 2019”, Latest News, 20 February 2019, https://www.afca.org.au/news/latest-news/afca-to-accept-legacy-financial-complaints-from-1-july-2019/.

253 Ibid.

254 Ibid.

255 S Chalmers and B Worthington, “Banking Royal Commission Calls for Compensation, Crackdowns and an Overhaul of Financial Regulators”, ABC News, 4 February 2019, https://www.abc.net.au/news/2019-02-04/banking-royal-commission-report-at-a-glance/10777188.

256 P Coorey, “Labor Wants New Bank Levy to Boost Compensation Scheme”, Australian Financial Review, 21 February 2019, https://www.afr.com/news/labor-pledges-new-bank-levy-for-compo-scheme-boost-20190221-h1bitj.

257 Financial Ombudsman Service Australia, Annual Review 2017–2018, above n 222, 9.

258 Australia Financial Complaints Authority, Scheme Rules, above n 29, s A.2.1(d).

259 Ibid.

260 Ibid, s A.2.1(f). A guiding principle is one of transparency whilst providing appropriate discretion.

261 Ibid, s A.14.2. Like FOS, AFCA should have regard to legal principles, industry codes and good industry practice.

262 In the case of Suncorp and Rien Low, discussed above.

263 Commonwealth Treasury, the Review, Final Report, above n 1, 192 [10.29].

264 Ibid, 188 [10.15].

265 Ibid, 189; citing ANZ, submission to the EDR Review Interim Report, page 5; Joint Consumer Group, submission to the EDR Review Interim Report, 35.

266 Australia Financial Complaints Authority, Scheme Rules, above n 29, A.17.3–5.

267 ANZ, Consultation on Proposed Australian Financial Complaints Authority (AFCA) Rules Submission to AFCA (July 2018) Australian Financial Complaints Authority (AFCA), https://www.afca.org.au/custom/files/docs/afca-rules-submission-anz-group.pdf.

268 Ibid.

269 Commonwealth Treasury, the Review, Final Report, above n 1, 49 [4.13], which states that in 2015–2016, 94% of all disputes lodged with FOS were by individuals, of which 81% were unrepresented.

270 Australian Banking Association, AFCA Consultation Paper – Consultation on Proposed AFCA Rules (6 July 2018) Australian Financial Complaints Authority (AFCA) 5.

271 Australia Financial Complaints Authority, Scheme Rules, above n 29, A.17.

272 Ibid.

273 The Commission, Interim Report, above n 31, vol 1, 271.

274 Australia Financial Complaints Authority, Scheme Rules, above n 29, A.9.1.

275 Legal Aid NSW, Legal Aid NSW Submission to Australian Financial Complaints Authority (June 2018) Australian Financial Complaints Authority (AFCA) 6, (online) 15 November 2018, https://www.legalaid.nsw.gov.au/__data/assets/pdf_file/0004/28984/Consultation-on-Proposed-AFCA-Rules.pdf.

276 Ibid.

277 Australia Financial Complaints Authority, Scheme Rules, above n 29, C.2.2.

278 Ibid.

279 Interview conducted with David Locke, CEO, AFCA, 28 February 2019, at AFCA Offices, Level 10, 66 Goulburn Street, Sydney.

280 Mortgage and Finance Association of Australia, Media Release, above n 69; Commonwealth Treasury, the Review, Final Report, above n 1, 114 [5.111].

281 The shift to a single EDR body will increase consistency in processes and outcomes, make it easier to pursue disputes involving multiple financial firms, and decrease customer confusion. The fact that the single EDR body will be subject to stronger oversight will also lead to pressure on the body to improve its effectiveness over time. Commonwealth Treasury, the Review, Final Report, above n 1, 119–20.

282 Australian Financial Complaints Authority, AFCA Funding Model: Fact Sheet, https://www.afca.org.au/custom/files/docs/afca-funding-model-fact-sheet.pdf.

283 Ibid.

284 Ibid.

285 Mortgage and Finance Association of Australia, Media Release, above n 69.

286 Ibid.

287 Administrative Decisions (Judicial Review) Act 1977 (Cth) sch 1 s 3. Appeal rights have been retained for superannuation complaints on questions of law: Treasury Laws Amendment (Putting Consumers First – Establishment of the Australian Financial Complaints Authority) Act 2018 (Cth) s 1054C.

288 FOS was found not to be exercising a public function: see Mickovski v Financial Ombudsman Service Ltd (2012) 36 VR 456.

289 In Mickovski v FOS the VSCA noted that, because the parties agreed under contract to be bound by a FOS decision, FOS could not be said to be exercising a public function. Accordingly, there was no right of judicial review. In Patersons Securities v FOS the SCWA noted that the respective cases of both parties were based in contract. While the Corporations Act required Patersons to enter into an EDR scheme, the rights of the parties were governed by the terms of the contract on which they had agreed. Therefore, issues concerning FOS decisions related to the proper construction of the terms of the agreement which the parties had reached. These issues should not be confused with issues that arise on an application for judicial review of the exercise of statutory power. See also: Cromwell Property Securities Limited v FOS, above n 190.

290 [1987] 1 All. ER 564.

291 Ibid, 564.

292 Ibid.

293 Ibid.

294 Ibid, 583.

295 Ibid.

296 Ibid, 571.

297 Ibid, 579.

298 Ibid.

299 R v Insurance Ombudsman; Ex parte Ageon Life Insurance Ltd (1994) COD 249, 254.

300 Agricultural Societies Council of New South Wales v Christie [2016] NSWCA 331 (23 May 2016) [89] (Leeming J). This is a controversial area of the law and is by no means settled, as the status of Datafin is uncertain.

301 While some courts have signalled approval of Datafin, the principle has only been successfully applied once: see Typing Centre of New South Wales v Toose (1994) NSWSC (15 December 1988).

302 See generally, Patersons Securities Ltd v Financial Ombudsman Service Ltd (2015) 108 ACSR 483; Financial Ombudsman Service Ltd v Utopia Financial Services Pty Ltd [2016] WASC 55 (24 February 2016); Cromwell Property Securities Ltd v Financial Ombudsman Service & Ors [2014] VSCA 179 28 August 2014.

303 (2012) 36 VR 456.

304 Ibid, [22].

305 FSPs must be a member of AFCA by law: Corporations Act 2001 (Cth) s 912A(2)(c).

306 For superannuation complaints, rights of review exist for questions of law: Treasury Laws Amendment (Putting Consumers First – Establishment of the Australian Financial Complaints Authority) Act 2018 (Cth) s 1054C(1).

307 Commonwealth Treasury, the Review, Final Report, above n 1, 176 [9.10].

308 Ibid, 176 [9.13].

309 Ibid, [9.14].

310 Ibid, 179 [9.26].

311 Ibid, [9.27].

312 Ibid.

313 Australia Financial Complaints Authority, Scheme Rules, above n 29, A.18.2; Australian Securities and Investments Commission Regulatory Guide 139, Approval and oversight of external dispute resolution schemes (2013). This is concerning, given the level of unpaid FOS determinations and ASIC’s ineffectual performance as a regulator. See also P Durkin, “Banking Royal Commission Interim Report: ASIC’s Role ‘Unacceptable’”, 28 September 2018, https://www.afr.com/business/banking-and-finance/banking-royal-commission-interim-report-asics-role-unacceptable-20180928-h15zzl.

314 Circular, Unpaid determinations update (April 2014) Financial Ombudsman Service (online), 15 November 2018, https://www.fos.org.au/the-circular-special-issue-april-2014/fos-forum/unpaid-determinations/.

315 Commonwealth Treasury, the Review, Final Report, above n 1, 93. As noted above, there is considerable traction behind the implementation of a CSLR. As of October 2018, AFCA, in response to the Commission’s Interim Report, acknowledged the need for the establishment of a CSLR. In its view, an EDR mechanism on its own is not satisfactory for a consumer or small business where there has been a determination in its favour, and the FSP does not comply. Australian Financial Complaints Authority, AFCA Response to Royal Commission’s Interim Report (26 October 2018) 9.

316 Treasury Laws Amendment (Putting Consumers First – Establishment of the Australian Financial Complaints Authority) Act 2017 (Cth) ss 1054A, 1054B. These offences relate to requests by AFCA for information, and the ability to coerce attendance during a conciliation process. These are strict liability offenses.

317 Commonwealth Treasury, the Review, Final Report, above n 1, 13.

318 A Ferguson, Bank compensation schemes need scrutiny too, above n 41.

319 The Commission, Interim Report, above n 31, vol 1, 19.

320 Ibid, 267.

321 Ibid, 269.

322 Ibid, 271.

323 Ibid.

324 Ibid.

325 Ibid, 278.

326 Ibid, 280.

327 Ibid, 285.

328 Ibid, 289.

329 Treasury Laws Amendment (Putting Consumers First – Establishment of the Australian Financial Complaints Authority) Act 2018 (Cth) ss 1051(3), (3)(a).

330 Commonwealth Treasury, the Review, Final Report, above n 1, 177.

331 Treasury Laws Amendment (Putting Consumers First – Establishment of the Australian Financial Complaints Authority) Act 2018 (Cth) ss 1051(2)(c), 1052C(1). ASIC can direct AFCA to ensure compliance with the independent assessor scheme.

332 Australian Financial Complaints Authority Ltd, Independent Assessor Terms of Reference Victoria, 2018, cl 1.

333 Ibid, cl 1.

334 Treasury Laws Amendment (Putting Consumers First – Establishment of the Australian Financial Complaints Authority) Act 2018 (Cth) s 1051(3) s 1051(3)(d).

335 Australian Financial Complaints Authority Ltd, Independent Assessor Terms of Reference, above n 332, cl 14. The independent assessor may ask for any additional information from AFCA, and AFCA must comply with such requests.

336 Ibid, cl 17–18. Where the chief ombudsman rejects an outcome, the matter may be referred to the chair of the board, or the board may make the final decision.

337 Freedom of Information Act 1982 (Cth) s 3.

Additional information

Notes on contributors

Andrew Schmulow

Andrew Schmulow BA Honours LLB (Witwatersrand) GDLP (cum laude) (ANU) PhD (Melbourne). Admitted by the Supreme Court of Victoria as an Australian Legal Practitioner. Advocate of the High Court of South Africa. Visiting Senior Researcher, Oliver Schreiner School of Law, University of the Witwatersrand, Johannesburg. Visiting Researcher, Centre for International Trade, Sungkyunkwan University, Seoul. Senior Lecturer, School of Law, Faculty of Business & Law, University of Wollongong. Email for correspondence [email protected].

Dore Virginia

Virginia Dore LLB Honours (University of Wollongong). This research was undertaken while the author was in her final year, LLB.

Reardon Jacob

Jacob Reardon BEcon&Fin (Economics) LLB (University of Wollongong). This research was undertaken while the author was in his final year, LLB.

Hanna William

William Hanna BComm (Finance) LLB (University of Wollongong). This research was undertaken while the author was in his final year, LLB.