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AFCA amends complaints rules following court case

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Annie Kane 6 minute read

The financial services ombudsman has changed its rules after the NSW Supreme Court found that it had acted against its obligations and did not have jurisdiction to consider certain types of disputes against licensees.

The Australian Financial Complaints Authority (AFCA) has confirmed that it has amended its Complaint Resolution Scheme Rules after a direction from ASIC to do so.

The rule change seeks to “provide clarity for consumers and financial firms regarding AFCA’s jurisdiction to receive complaints about the conduct of an authorised representative of an AFCA member”.

It updates the defined terms for what constitutes a “financial firm” and “representative” of a financial firm.


Background to the change

The move comes after the NSW Supreme Court last year found that the drafting of the external dispute resolution rules meant that the ombudsman did not have jurisdiction to consider complaints relating to poor advice that had been provided outside of the authority of the licensee.

In the case of DH Flinders v Australian Financial Complaints Authority, Justice Stevenson found that while an advice practice (licensed under corporate advisory group DH Flinders) had been a corporate authorised representative of the company, it was only in relation to one wholesale product that was never operational.

During the period in question, representations were allegedly made by to a number of people about financial products under the wholesale product, with which DH Flinders had no connection, knowledge or dealings.

Once DH Flinders became aware of this, it suspended and then cancelled the authorisation of its representative. The advice practice later went into liquidation.


Approximately 127 complaints had been lodged with AFCA against the advice practice at the time of liquidation, namely relating to failure to repay investments when due.

In the case brought to court, AFCA alleged that DH Flinders was liable for the advice practice’s conduct, regardless or whether it was acting with knowledge or authority of the action being taken.

It is this that the judge disputed, finding that while licensees were responsible for all conduct of their representatives under the Corporations Act, whether the conduct was inside or outside their authority was not the same under the AFCA rules.

He said: “Indeed, in my opinion, those words emphasise that, in order to be deemed to be the financial firm in question, the entities named in [the rules] must be acting within authority.”

Further, Justice Stevenson found that the conduct of AFCA – which had reportedly encouraged the complainant to bring the case against DH Flinders after informing the complainant that the advice practice was a representative of it – was troublesome, as it breached its impartiality.

“This was hardly behaving in a manner procedurally fair to DH Flinders, nor in a manner that was impartial,” the judge found.

However, he added that as his judgement was that AFCA did not have contractual authority, jurisdiction or power to determine the complaints anyway, the point was moot.

How the changes apply

AFCA has now updated its rules to ensure that they reflect the same obligations and liabilities for licensees as set out in the Corporations Act.

The updated rules apply for all complaints received after 13 January 2021.

Complaints received before 13 January 2021 will be handled by AFCA under the previous rules.

AFCA said it was currently reviewing a “very small number of complaints” received before 13 January 2021, which are potentially impacted by the judgment and is in contact with those complainants and financial firms to discuss the specifics of their complaint.  

The body said it would be encouraging the financial firms involved to consent to AFCA considering the complaint to achieve an early resolution and avoid the prospect of potential court or other action by the complainant.

[Related: AFCA raises SME finance monetary limits]

AFCA amends complaints rules following court case
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Annie Kane

Annie Kane

Annie Kane is the editor of The Adviser and Mortgage Business.

As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts. 

Email Annie at: This email address is being protected from spambots. You need JavaScript enabled to view it.



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