afca david locke

Staff stream from a meeting room at the new Australian Financial Complaints Authority (AFCA) Sydney office. On the heels of the stragglers comes CEO David Locke, fresh from delivering a “town hall-style” update on IT and training. He leads the way to another meeting room, drops into a seat and launches into a multi-layered narrative about progress since the external dispute resolution body’s November 2018 launch. There are no pauses for breath when you’re dealing with 43,000 complaints and rising.

“Some financial firms are changing in terms of their approach, but we’re seeing some where the response is way too slow,” says Locke. “Some are not even responding appropriately to AFCA when we go to them with complaints. We’re seeing some real outliers in terms of behaviour.”

This is the problem the federal government sought to address in May 2018 when, with the banking Royal Commission in full swing, it announced that the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal would be rolled into one organisation. Helen Coonan, a former federal cabinet minister and chair of the Minerals Council of Australia, was appointed chair, and Locke came aboard as Chief Ombudsman and CEO in June.

New regime

The general public and businesses employing up to 100 staff have wasted no time in complaining about AFCA’s 37,000 members. Locke’s calm demeanour in the face of the onslaught — the 12-month estimate has been revised from 50,000 complaints to 80,000 — is balanced by a disdain for members yet to twig to the significance of the new cop in town.

Locke estimates 45 per cent of matters so far relate to credit, followed by general insurance (23 per cent). Complaints about superannuation have doubled, possibly because poor publicity has prompted people to re-examine their arrangements. “About a third of matters relate to banks and 67 per cent of those relate to the big four,” he says.

So far, 60 per cent have been settled, with consumers benefiting to the tune of more than $83m. A similar sum has been written off — or not pursued by lenders or providers — as a direct result of AFCA interventions.

Coonan is also unequivocal. In May, she had warned a Committee for Economic Development of Australia lunch: “Relying on black letter law as a justification for treating consumers poorly will no longer cut it if it leads to an unfair outcome.”

AFCA has more powers of redress than its predecessors, being able to make awards of up to $500,000 to individuals, while superannuation claims are uncapped. “In respect of a small business, if the credit facility is up to $5m, we can make an award of up to $1m,” says Locke. “That’s $2m in case of a farmer or primary producer.”

Now Coonan says: “We think it will become apparent to institutions that if they are not cooperating with the kind of requests we’re making, we now have a power from the Australian Securities and Investments Commission (ASIC) to require firms to cooperate.”

“Some financial firms are not even responding appropriately to AFCA when we go to them with complaints. We’re seeing some real outliers in terms of behaviour.” David Locke, CEO AFCA

Playing a straight bat

Locke is an English lawyer, formerly executive director of Charity Services for the Charity Commission of England and Wales. He came to Australia to help set up the Australian Charities and Not-for-profits Commission (ACNC) in 2012 and was assistant commissioner there when recruited by AFCA.

Locke believes his appeal was a mix of factors. He had almost two decades in regulation, recent experience in setting up a new agency, and extensive history with consumers. “I understood the importance of working closely with industry, but being independent of it, and regulating fundamentally for the benefit of the public,” says Locke. “The big risk for regulators is either they become captive of the sector they’re regulating and then are seen as toothless, weak and not to be trusted; or they become almost antagonistic to the sector. You’ve got to play a straight bat… and call out in strongest terms… poor practice, abuse and misconduct, and take action robustly.”

Locke was also experienced in stakeholder engagement and in making and defending senior administrative decisions. “Given the Royal Commission, not coming from the financial services sector, coming in with a fresh pair of eyes was seen as a strength,” he adds. Coonan confirms Locke’s “good combination of both business experience and acumen and the ability to have empathy with people who feel badly let down by the financial system” — recalling “quite intense engagement” with him as they set out to integrate the predecessor schemes. “You would say [it was] almost a stream of consciousness; we very much [understood] how each other was approaching it,” she says.

Coonan was also marshalling a new board. “The governance model is quite different because half of members represent industry and half represent consumers,” she says. “It is my role to make sure this organisation has two wings to fly — a strong consumer representative base and a strong financial industry base. I thought at the beginning that it was a large board and there might, for example, be a good argument to reduce the size. But it’s not unwieldy and the contribution of each of the directors is very valuable.”

Scale of the task

AFCA’s staff in Sydney and Melbourne numbers 700, but Locke expects it to top 900 by year’s end as the workload escalates due to what Coonan calls “our creeping jurisdiction”. “We’ve got a retrospective scheme of last resort to cover unpaid determinations of predecessor schemes,” she says. “Then we’ve got a forward-looking compensation scheme of last resort — when one of our members either can’t pay for some reason or there’s some other issue.”

Coonan adds, “We have a legacy scheme where we will be required to consider complaints dating back to January 2008. That will quite possibly enliven claims coming out of the global financial crisis or unrequited claims.” Details are being negotiated with Treasury; a 12-month window in which to make complaints closes on 1 July 2020.

Asked about egregious examples in complaints so far, Locke is discreet, but reiterates, “I’m surprised some large financial firms have not sufficiently upscaled their internal dispute resolution processes and have not adapted their approaches. We definitely have issues with some of the big banks.”

Managing expectations

At the micro end of things — single, small-value, individual complaints — there have been some heartening results. “We’ve recently decided a case where a woman had been refused travel insurance because she’d had a minor psychiatric episode in her youth,” says Locke. “She’d had anorexia for a short period. We said, ‘That’s discriminatory — you cannot impose a blanket refusal to insure.’ We found against the financial firm and she was awarded compensation.”

Not everyone is a winner. “What you hope is that even if a person isn’t successful, or doesn’t get the outcome they desired, at least they know they took it as far as they could; that it was independently looked at, they were treated fairly and the service they received was good and helpful,” he says. “You hope that would at least give people closure so they can move on.”

Coonan — fiercely defensive of the vulnerable and inclined to use phrases such as “appalling treatment” and “despair and hopelessness” — is also a realist. “We have to make our determinations without fear or favour. Fairness is at the heart of everything we do. Some of the language I’ve used is justified. Not for every client, not in every claim, but it is fair to say that in some cases people’s lives have been broken by dealing with a financial institution that’s been indifferent.”

“If I were a member of a board of directors of a large financial institution, I’d want a regular report on how complaints handling is travelling, how it’s resourced and how effective it is. That is the frontline opportunity to see the red flags, difficulties and trends — and possibly to identify systemic issues.” Helen Coonan, chair AFCA

The bottom line

Indifference is no longer an option, given AFCA’s ultimate intention to publish the numbers of complaints, as well as the firms against which they have been made and the manner they have been managed.

“We will put analysis around it so consumers can understand this and can compare,” says Locke. “Providing greater transparency will not only inform the public, but help drive up standards in the financial services industry and minimise some of the conduct and issues that give rise to disputes in the first place.”

Coonan has more cautionary words for members’ boards. “If I were a member of a board of directors of a large financial institution, I’d want a regular report on how complaints handling is travelling, how it’s resourced and how effective it is,” she says. “That is the frontline opportunity to see the red flags, difficulties and trends — and possibly to identify systemic issues.”

She acknowledges it is not always easy to gauge the state of dispute resolution. However, “given there’s been so much publicity and there’s now this mega ombudsman scheme that is very proactive if dispute handling is not more effective at the institutional level, you’d think they’d be looking more carefully at how to handle it,” she says.

Locke is determined there should be a tapering point to complaints. “Success would look like a financial services sector that commands broad trust and respect,” he says. “And where disputes arise, they’re resolved by financial firms quickly and expeditiously. Success would be to shrink AFCA. I don’t see 80,000 complaints coming to us as a success. I see that as a failure of the industry to properly resolve issues or to address some of the causes of these issues. I would hope that, over time, the workload decreases.”