Australian Financial Complaints Authority (AFCA)
The Australian Financial Complaints Authority (AFCA) was created from the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal. Operations started on the 1st of November 2018 with the aim to assist customers and small businesses to resolve their issues with financial firms. While ASIC approved its rules and terms of reference, it is an independent agency comprising representatives of the industry and consumers.
Reflection of Community Distrust
In the first five months of operation, consumers lodged almost 30’000 complaints with the AFCA. On average, the agency receives over 600 calls a day. So far, AUD$ 67m on compensation was secured for claimants. In addition, the AFCA is currently investigating over 80 systemic issues.
Looking at the statistic, numbers indicate that customers raised most complaints about banks (>10’000 complaints) followed by general insurers (>5’000 complaints) and credit providers (>4’500 complaints). On the top of the list are issues concerning credit, deposit taking and insurance products & services. Major themes include
· Dissatisfactory Reporting
· Irresponsible Lending
· Misleading Product/ Service Information
· Claim Handling Delays
· Claim Handling Amounts
· Claim Denials
· Unauthorised Transactions
· Service Quality
These figures reflect the current level of community dissatisfaction. In addition, the Australian government announced that, starting from the 6th of April, financial institutions are required by law to cooperate with the AFCA.
As the Royal Commission into Misconduct in the Financial Service Industry confirmed, organisations need to focus more on customer outcomes. However, this is easier said than done considering the complexities of operating a financial institution.
Complexities of Meeting Community Expectations
The above-mentioned statistic illustrates that expectations of the community should play an important role in any business decision. However, a financial organisation needs to decide on an ongoing basis whether catering to all expectations has beneficial or detrimental effects on the outcomes for customers as well as the organisation.
As listed above, Irresponsible Lending is one area which customers raised complaints about. It appears that at least some customers found themselves in a financially difficult situation because they did not fully understand the involved risks when applying for a loan. With relevant financial information accessible online, the question arises why these customers signed the contract in the first place. One reason may have been that they didn’t fully understand their overall financial exposure and their commitments to the financial institution. In such a case, they shouldn’t have signed the contract until they understood and accepted involved risks. Another reason may have been that they signed the contract willingly with the ulterior motive to take advantage of consumer protection legislation if conditions turned against them. For an organisation, the following questions arise:
- To what extent should consumer expectations be fulfilled?
- To what extent is it the duty of the organisation to educate consumers to perform their own due diligence before signing a binding contract?
In addition, financial institutions are large, complex organisations with structures and processes in place which grew “organically” over many years. This leads to an inherent siloed approach to business. Responsibilities are defined along line management structures and remuneration practices, i.e. work is performed along the chain of benefits. While this approach may have worked in the past, it leads to unclear responsibilities across business functions resulting in a negative experience for clients who take advantage of more than one product or service.
Moreover, the siloed approach results in incomplete and inconsistent data collection, i.e. different business functions collect different datasets about the same customer. Datasets may not be linked correctly or not at all. Again, this has detrimental effects on the client experience.
In summary, over-expectations of clients and intrinsic organisational complexities represent only some of the challenges an organisation faces when catering to customer expectations and executing remediation programs when these expectations were not met.
Criteria for Successful Remediations
Drawing parallels to international financial institutions which had to address these challenges already, following approach is suggested:
- Accept and Address Public Perceptions: Since it will be very costly and time-intensive to argue against public opinion, these perceptions should be accepted and addressed. In case, expectations cannot be fulfilled, reasons focussing on long-term customer outcomes should be communicated clearly and consistently across all available communication channels. Reasons such as the organisation needs to make a profit should be avoided.
- Apply the Worst-Case Scenario: Whenever a certain trend or issues is identified, the worst-case scenario should be assumed, e.g. due to cross-selling of products the largest possible number of customers is impacted. Appropriate remediation measures should be prepared for this scenario.
- Standardise the In-Depth Analysis: As indicated by the AFCA statistic, systemic issues are one of the underlying causes of the complaints. In order to distinguish between “small” and systemic issues, a standardised analysis approach and agreed thresholds should be employed. Both need to be applied across the entire organisation consistently. The analysis should prescribe the required level of detail and expected deliverables. The thresholds could comprise the total number of impacted customers or the number of customer complaints concerning the same issue.
- Centralise Remediation Efforts: In order to cross-link analysis results and to be able to communicate with affected clients consistently, remediation efforts must be centralised. In addition, such centralisation makes it possible to create a holistic view on remediation activities being executed across the organisation. Customer complaints, IT change logs and initiatives portfolios of different business functions represent some of the data sources to be used for such as consolidated view.
- Adopt a “Do Good” Attitude: The AFCA statistic, recommendations of the Royal Commission and increased supervision by the regulators illustrate how important it is to rebuild the trust of the community in the Australian financial service industry. Assuming a “Do Good” attitude contributes to this process since customers will be re-compensated in a timely manner and will receive some additional benefits as reimbursement for any inconvenience. This sends a clear message:
“Operating a business carries some risks and we know that we made a mistake. Please accept our sincerest apologies. We will reimburse you fully in a timely manner and would like to offer you … as an additional redress.”
First published on Enforcd.
 Source AFCA statistic: https://www.afca.org.au/public/download.jsp?id=9899