Effective complaints handling in financial services

What you need to know

• The key date is 5 October 2021.
• In July 2020, ASIC issued Regulatory Guide 271 Internal dispute resolution (RG 271) which prescribed new standards and requirements with respect to ASIC regulated entities' internal dispute resolution arrangements.These new standards and requirements will apply to a broad range of financial firms, including (for example) AFSL and ACL holders, unlicensed product issuers and superannuation trustees.
• The standards and requirements will apply to all complaints received by the regulated entity on or after 5 October 2021. ASIC's Regulatory Guide 165 (RG 165) will continue to apply to complaints received before that date.
• A financial firm is to have an IDR process that adopts the definition of ‘complaint’ set out in AS/NZS 10002:2014 which is:

  
  [An expression] of dissatisfaction made to or about an organization, related to its products, services, staff or the handling of a complaint, where a response or resolution is explicitly or implicitly expected or legally required.

• Key differences between RG 165 and RG 271 are:
  • RG 271 adopts a wider definition of complaints and also amends the previous definition of small business, extending its application to businesses which might otherwise be considered wholesale clients;
  • RG 271 shortens the maximum timeframes for responding to IDR complaints and stipulates specific requirements for the content of responses to complaints; and
  • RG 271 gives guidance on the identification and management of systemic issues, including the role which the boards and the front line staff have to play in the process.
• ASIC's stated policy intent with RG 271 is to drive fair and timely complaint outcomes for consumers and sharpen industry’s focus on systemic issues.
• There are significant consequences for a failure to comply, given section 912A(1)(g) of the Corporations Act - the requirement to have an IDR procedure that complies with standards and requirements made by ASIC (ie RG 271) - is a civil penalty provision. In addition, under the new breach reporting regime, any breach of section 912A(1)(g) will be deemed significant and therefore reportable as of 1 October 2021.

What you need to do to be prepared by 5 October 2021

• Review and implement
  

  Many financial firms will already have reviewed and updated their complaints and dispute resolution systems, including their internal dispute resolution (IDR) procedure with a view to meeting the new standards and requirements.

  However, with the commencement of RG 271 now imminent (with effect from 5 October 2021) it is timely for financial firms to ensure these are in place, and tested for their effectiveness in identifying, and dealing with, customer complaints. It would be timely to conduct a health check on the arrangements.

• Consider your other obligations

  Consideration also needs to be given as to how these new requirements and standards interact with a number of other regulatory obligations. These include:

  • Breach reporting: Any complaints handling framework needs to interact effectively with the new breach reporting obligations; for example, where a complaint or series of complaints may suggest a potential systemic matter (and noting AFCA's practice of escalating complaints which suggest a systemic issue).  Depending on the nature of complaint this may also trigger a breach reporting obligation.  The new breach reporting obligations commence in October 2021, see our update here. 
  • Distribution and Design Obligations: The DDO regime also commences in October 2021 and is intended to ensure that financial products are distributed and issued only to customers within a defined target market determination. One of the keys to an effective DDO framework is an effective complaints handling framework, as complaints may evidence that products are being issued and distributed to customers outside the TMD, or that the TMD requires review.
  • BEAR to FAR: One of the proposed changes to be implemented by FAR is to make the executive responsible for the dispute resolution function (both IDR and EDR) an accountable person. Both the financial firm, and the accountable person, will want to ensure that reasonable steps have been taken to ensure that the IDR arrangements are robust. Even for financial firms not covered by FAR, ASIC states in RG 271 that boards and owners should set clear accountabilities for complaints handling functions, and these should include a process for the management of systemic issues identified through consumer complaints including robust systems in place to ensure that possible systemic issues are investigated, followed up and reported on.
  • Other licence obligations: There is an increased focus on broader licensing obligations such as the obligation under section 912A(1)(a) of the Corporations Act to do all things necessary to ensure financial services are provided efficiently, honestly and fairly, a breach of which now attracts very significant civil penalties. A failure to ensure that there is an effective IDR framework in place could also give rise to a potential breach of this broad licence obligation.
  • Impact on remediation programs: Financial firms should also consider the implications of complaints and complaints resolution on broader remediation programs, having regard to ASIC's Regulatory Guide 256 (RG 256). For example, ASIC's policy in RG 256 is that the IDR requirements and standards apply to complaints (including timeframes for response) received from clients who are being dealt with through a remediation program. Also, how individual complaints are resolved may impact what is an appropriate remediation program in respect of other clients impacted by a systemic matter (having regard to the efficient, honest and fair obligation).
• Understand the IDR standards (and comply with them)

  In RG 271, ASIC prescribes certain IDR standards which are intended to reflect the requirements for effective complaints management in AS/NZS 10002:2014. These include the following:

  • Develop and maintain a positive complaint management culture that welcomes and values complaints.
  • Boards (if applicable), chief executives and senior management should be actively interested in and support effective complaint management.
  • Culture should be open to receiving complaints and demonstrate a commitment to resolving complaints through action.
  • Encourage complaints and make it easy for people to voice their concerns by developing an IDR system that is readily accessible and easy to use.
  • Widely publicise information about how and where complaints may be made. This can be done via publishing complaints policies online, including IDR information in product welcome packs and providing training to staff.
  • Ensure that IDR processes are accessible to everyone, including those who are blind or have visual impairments and those that don’t speak English. Offering translation services and using Australian Sign Language video presentations would both be ways to achieve this.
  • The IDR process must be free to complainants and it must be resourced so that it operates fairly, effectively and efficiently.
  • Consider a broad range of possible remedies when attempting to resolve complaints and when closing a complaint, firms should record the complaint outcome.
  • Have a documented internal complaint management procedure to support the public complaint management policy.
  • Regularly review the adequacy of their complaint management documentation, including the complaints policy and internal procedure. This should include monitoring of complaint metrics, ongoing quality assurance and regular reviews.

• Demonstrating compliance
  It will be important for a financial firm to be able to not only demonstrate that it has a well-documented complaints handling framework in place, but also that it is working effectively in practice. This will inevitably require that regular reviews and health checks are undertaken. It will also require financial firms to consider the data they capture, and how that data is used, to support an effective framework.

For more information on RG 271 please read the guide here. 

Authors: Jonathan Gordon, Corey McHattan, Silvana Wood, Lucinda Hill, Morgan Spain, Matthew Worsfold and Haseeb Chishti. 

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