The Australian Financial Complaints Authority (AFCA) plays a pivotal role in identifying and addressing systemic issues within the financial services sector, which can significantly impact a large number of customers and small businesses. These systemic problems may stem from process failures, system errors, or inaccurate information presented in product disclosure statements. When necessary, AFCA escalates these matters to relevant regulatory bodies, including the Australian Securities and Investments Commission (ASIC), the Australian Prudential Regulation Authority (APRA), the Office of the Australian Information Commissioner (OAIC), and the Australian Taxation Office (ATO).
Under ASIC Regulatory Guide 267, AFCA is required to identify and report systemic issues that emerge from complaints. These issues often extend beyond individual complainants, affecting a broader group of customers who may not have lodged complaints, but are nonetheless impacted.
This report is designed to:
- Share key insights and illustrative case studies
- Encourage firms to enhance their practices
- Showcase examples of excellence in culture, system design, and leadership
From the Q3 & Q4 FY 2024-25 report, key outcomes were identified including:
- 342,194 customers and small businesses affected
- 86 systemic investigations conducted
- 50 systemic issues reported to regulators
- $3.4 million in financial remediation secured
- 276 additional matters reported under section 1052E of the Corporations Act, including:
- 2 serious contraventions of law
- 271 failures to give effect to AFCA determinations
- 3 settlement conduct issues
Across the report, many cross-sector themes were presented. These included:
Complaint Handling as a Warning Sign
- Complaints often siloed or minimised
- Ignoring complaints can lead to compounded harm and erode public trust.
- Leading practices include board-level thematic reviews and structured analysis of AFCA decisions
- Clear escalation channels and feedback mechanisms between internal dispute resolution (IDR), compliance, and operations are essential
Vulnerability in Response
- Inadequate trauma-informed approaches and hardship support increase the risk of preventable harm
- Supporting individuals with vulnerabilities requires more than compliance – it involves empathetic, tailored responses
- Failures in escalation and communication were noted
- Strong performance was observed in firms with integrated support frameworks and trained personnel
Add-On Insurance Legacy Issues
- Historical sales practices continue to cause harm and generate complaints
- Many legacy products offer poor value and are subject to reactive remediation
- Firms should proactively assess legacy portfolios and collaborate with regulators to reduce ongoing scrutiny
- Customer-centric product design and fair sales practices are critical
Legacy Systems: Policy vs Practice Gaps and Data Integrity
- Outdated systems and manual processes contribute to delays, errors, and noncompliance
- Weak data governance results in credit reporting inaccuracies and disclosure failures
- Despite sound policy frameworks, execution often falls short due to system limitations
- Firms tend to rely on complaint-driven fixes rather than addressing root causes
- Legal concerns from systems that aren’t modernised, processes that are not tested against policy, and gaps in data governance left unaddressed
Policy vs Practice Gaps
- While policies may meet regulatory standards, their implementation is often flawed
- Manual workarounds and outdated templates lead to poor customer outcomes
- Best practice involves embedding policy logic into systems and conducting regular assurance testing
Product specific themes also appeared across the report, specific to:
Banking and Finance
- Hardship Compliance and Decision Making
- Automation errors led to incorrect rejection of hardship notices
- Human oversight is essential, and automation should not replace judgement
- Firms should proactively contact affected customers and provide remediation
- Clear escalation pathways for hardship cases are necessary
- Credit Reporting and Correction Obligations
- Common issues include inaccurate listings, duplicate enquiries, and unactioned error logs
- Strong monitoring and governance are needed to prevent harm
- AFCA identified over 2,300 unactioned error logs in one case, leading to compensation and process reforms
- Failures in Responsible Lending Practices
- Inadequate credit assessments and inconsistent application of internal policies were observed
- Customers were left with unaffordable loans due to weak lending practices
- Ignoring credit score thresholds contributed to systemic risk
- Firms must apply their own lending policies consistently
- Complaint Handling and IDR Failures
- Expressions of dissatisfaction were not always recognised as complaints
- Resourcing issues and manual processes led to missed timeframes under RG 271
- Debt collection continued during unresolved disputes, increasing stress and compliance risk
- Effective IDR and EDR require timely responses and clear escalation procedures
General Insurance
- Misleading or Ambiguous Policy and Sales Document
- AFCA observed Product Disclosure Statements (PDSs), proposal forms, and certificates often contained unclear or misleading language
- Documents should be designed with customer comprehension in mind
- AFCA investigated a misleading PDS structure, resulting in remediation and reforms
- Sustainability and Product Design Failures
- Customers paid for cover with little value or faced uncertainty due to vague policy wording
- Firms should test products against real-world scenarios and ensure clarity in disclosures
- Fair remediation should include interest and compensation for affected claim
- Claims Handling Failures and Poor Practices
- Delays, unclear exclusions, and inconsistent decisions caused significant harm
- Claims must be assessed fairly, with transparent exclusions and empathetic communication
- AFCA investigated a travel insurer’s exclusion wording, leading to revisions and remediation for affected customers
- Legacy Add-On Insurance
- Firms failed to adequately address historical conduct issues and complaint volumes
- Legacy remediation does not remove the obligation to assess current complaints fairly
- Transparent resolution models and fair redress are essential.
Life Insurance
- Record Keeping and Disclosure
- Inadequate record-keeping and disclosure practices can undermine customer trust and hinder effective policy management
- Manual processes and reliance on paper records increase the risk of errors
- Firms should ensure transparent communication with customers when discrepancies or mistakes are identified
- Policy Terms and Definitions
- Outdated or inconsistently applied policy definitions can lead to unfair claim outcomes
- Regular review and alignment of policy terms with current medical standards is essential
- Clear communication regarding coverage scope and policy continuation helps manage customer expectations
- Claims Handling
- Prompt and accurate claims decisions are fundamental to delivering on the insurance promise
- Delays, reversals of initial decisions, and unclear messaging contribute to financial stress for customers
- Firms should invest in staff training, technology upgrades, and customer education
- Early warning systems can help identify and escalate potential claim handling issues before they escalate
Superannuation
- Delays in Processing Rollovers and Withdrawals
- Prompt and accurate claims decisions are fundamental to delivering on the insurance promise
- Timely processing of rollovers and withdrawals is critical to maintaining member confidence and avoid causing financial stress
- Recommendations include binding service level agreements (SLAs), enhanced staff training, and clear escalation protocols
- Early warning systems can help identify and escalate potential claim handling issues before they escalate
- Fraud and Cyber Risk
- Even minor control gaps can be exploited at scale, posing significant risks to members
- Preventative measures and proactive communication are key to maintaining trust
- Weaknesses in account management, identity verification, and data change procedures can lead to unauthorised access or fraudulent activity
- Dual-channel notifications (to both old and new contact details) should be standard for any account changes
- Data Integrity
- Legacy systems present ongoing risks to data accuracy and reliability
- Without regular audits and system upgrades, data transfer and record-keeping failures will persist
- These failures often affect large member groups and are typically uncovered through complaints or internal reviews, resulting in costly remediation
- Insurance Cover Errors and Disclosure Failures
- Managing the insurance lifecycle (activation, reinstatement, and cessation) requires precise coordination between trustees, administrators, and policy terms
- Small errors can have large-scale impacts if controls are weak
- Strong trustee oversight and clear accountability for remediation are essential
Investments and Advice
- In the advice sector, systemic risk often stems not from individual transactions, but from the overarching frameworks that shape advice quality, disclosure practices, and distribution mechanisms
- While no systemic issues were formally confirmed, AFCA identified several areas of ongoing concern that warrant continued monitoring:
- Advice Quality and Suitability: Ensuring advice aligns with client needs and circumstances
- Disclosure and Transparency: Clear and complete information must be provided to clients
- Distribution Practices: Oversight of how financial products are marketed and sold
- Unregulated Channels: Risks associated with advice or product distribution outside regulated frameworks
- Complaint trends suggest these areas may become focal points for future systemic investigations
Small business
- Although no systemic issues were confirmed, recurring concerns were noted in the following areas:
- Support During Financial Difficulty: Small businesses often face barriers to accessing hardship assistance
- Complex Loan Terms and Guarantees: Lack of clarity and transparency in loan arrangements can lead to disputes
- Access to Fair Dispute Resolution: Small business borrowers may encounter more challenges than retail customers in resolving complaints
AFCA’s systemic issue investigations serve as a vital mechanism for improving the financial services landscape. By identifying and addressing problems early, AFCA helps protect customers, promote fair practices, and support industry-wide improvements.
Firms are urged to engage with these insights, adopt best practices, and contribute to a more resilient and customer-focused financial ecosystem.
References
https://www.afca.org.au/about-afca/systemic-issues
https://bulawyers.com.au/articles/20250428-afca-systemic-issues-report-reveals-significant-problems/