A total of 86 financial companies will need to check regulations more carefully now that the Australian Financial Complaints Authority (AFCA) has chided them for breaching their legal responsibilities.
AFCA formed from a merger of previous credit and financial ombudsmen and aims to deliver a much more accessible service for consumers who have disputes. In theory, this should make it easier for people to know who to complain to when they receive poor service and for companies to know which rules that they are meant to follow.
However, the latter still seems to be an issue for many companies, which may not yet know that they are falling foul of current regulations.
One of the new rules is that all financial companies must sign up to AFCA, and this mandatory regulation means that all consumer complaints can receive the same consideration when addressed. This helps create consumer confidence in the wake of the trust lost from the financial scandals unearthed by the Royal Commission inquiry.
After the new body officially became open for business at the start of November, some companies did not pay their membership fees and are no longer part of AFCA by default.
The companies received a warning in early November and another just two weeks later. As a result, AFCA’s chances of taking punitive action are only likely to increase.
The regulatory body will not want to be seen as toothless at this early stage of its implementation and, as the Royal Commission inquiry showed, if regulators do not use their powers to their full potential, then they will also fall under the spotlight for allowing poor behavior to go unpunished.
One issue for the financial companies in question is that AFCA has now told the public that these businesses hold no membership with the organization, therefore, their services will not be under the protection of standardized frameworks if something goes wrong. This may well start to turn people away from using these companies, and AFCA hopes that the potential business threat will encourage those in question to quickly sort out their arrangements and rejoin.
The Australian Securities and Investments Commission (ASIC) is also aware that these financial companies are not following AFCA’s rules. If these businesses make an error that ASIC discovers, then it may also take the misdemeanor into account.
ASIC is also likely to step in because it mandated that all companies were to notify it that they held membership to AFCA before the end of November. However, it has since emerged that around half of AFCA’s 37,000 members failed to comply with this request. In doing so, they have breached their license operation conditions and will end up paying fees for notifying the regulator later than the deadline.
As Australian financial companies now have a new set of rules to follow, it is likely that some degree of leniency will occur, but AFCA’s need to seem powerful from the start may also be a factor in the regulator’s actions.