Post: Doing the right thing by your customers: ASIC consults on lifting standards and transparency of complaints handling

Today ASIC initiated public consultation on new standards about how financial firms handle consumer and small business complaints. The proposed standards, which include new mandatory data reporting, will improve the way that consumer complaints are dealt with across the financial system and make firms’ complaints handling performance transparent.

Financial firms will be required by ASIC to meet the new standards when they deal with consumer complaints through their Internal Dispute Resolution (IDR) arrangements.

IDR is the first step in the complaints handling process – an opportunity for the financial firm to investigate, resolve or redress a problem before a consumer or small business can escalate their complaint to the Australian Financial Complaints Authority (AFCA). All financial firms (including banks, insurers, credit providers, advisors and most superannuation funds) are required by legislation to have an IDR system that meets ASIC’s standards.

Announcing the consultation, ASIC Deputy Chair Karen Chester said, ‘It is widely acknowledged there is room for much improvement when it comes to handling consumer complaints in our financial system. The Ramsay Panel Review, recent ASIC research, case studies before the Financial Services Royal Commission (FSRC) and our own supervisory work have all identified shortcomings in consumer complaints handling.’

‘Consumers expect and need a fair, timely and effective way to have their complaints dealt with, and to be provided redress where appropriate. The absence of such effective redress, and the failure of firms to identify and look into systemic complaints, were key findings of the FSRC and the Prudential Inquiry into the CBA.’

‘With the benefit of broad consultation, ASIC’s new standards will lift complaints handling performance of firms and ultimately consumer outcomes and fairness of the financial system. And transparently so. These standards will also apply in their entirety to all APRA regulated superannuation funds’, Ms Chester said.

The proposed new standards have been informed by recent consumer research by ASIC and findings from aspects of ASIC’s new onsite supervisory program – Close and Continuous Monitoring – which is currently reviewing IDR policies, practices and procedures in Australia’s five largest and most complex financial services institutions.

ASIC’s consumer research – The consumer journey through the IDR process of financial service providers – published in December 2018, found evidence of ‘consumer fatigue’ and IDR shortcomings, including:

while 17% of Australians surveyed considered making a complaint to a financial firm in the preceding 12 months, only 8% went on to lodge a complaint,
18% of surveyed complainants dropped out or withdrew their complaint before it was concluded;
the length of time taken by a financial firm to conclude a complaint significantly affected consumer satisfaction;
one in seven complainants found it difficult to find the financial firm’s details to make a complaint; and
almost a quarter of complainants did not have the IDR process explained well at first contact and 27% were unsure how long they would have to wait for a decision; and
critically, only 45% of complainants who received an unfavourable outcome reported receiving an explanation from the financial firm of the decision made against them.
The consultation covers:

proposed updates to ASIC’s IDR standards (currently set out in Regulatory Guide 165 Licensing: Internal and external dispute resolution); and
the proposed framework for mandatory IDR data reporting by financial firms to ASIC.
Importantly, the proposed new standards and data reporting requirements will continue to forge the effective relationship between IDR and the work of AFCA, the independent external complaints scheme.

Ms Chester said, ‘Firm performance in how they handle customer complaints, and their interaction with AFCA, will increasingly be in plain sight. This greater transparency will inform consumer and broader public understanding of how well firms treat their customers. For a regulator, it also provides an invaluable insight into how non-financial risks are being managed by the firm and ultimately the Board. ASIC expects greater investment and attention by Boards to their own internal customer complaints data and complaints handling performance.’

Some key elements of the new standards that ASIC is seeking feedback on include:

reducing maximum time frames for IDR responses;
what constitutes a complaint, including if received by way of a firm’s social media
setting clear standards about what should be in written reasons for decisions;
strengthening the requirement that firms take a systemic focus to complaints handling; and
the details of the new framework for recurrent complaints data reporting to ASIC

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