House of Representatives

Explanatory Memorandum

(Circulated by authority of the Assistant Treasurer and Minister for Financial Services, the Hon Stephen Jones MP)

Chapter 8 AFCA scheme

Outline of chapter

8.1 Schedule 8 to the Bill amends the Corporations Act to reinstate AFCA's jurisdiction to hear complaints relating to superannuation, whether or not they meet the definition of superannuation complaint in the Corporations Act. This reinstates the original policy intent, following the MetLife decision.

8.2 All legislative references in this Chapter are to the Corporations Act unless otherwise stated.

Context of amendments

8.3 Part 7.10A of the Corporations Act established the AFCA scheme to resolve disputes about products and services provided by financial firms. The AFCA scheme replaced several other dispute resolution bodies, including the Superannuation Complaints Tribunal.

8.4 The AFCA scheme is an external dispute resolution scheme for consumers unable to resolve complaints with member financial services organisations. All Australian financial services licensees, Australian credit licensees, authorised credit representatives and superannuation trustees (other than trustees of SMSFs) are required to be members of AFCA. AFCA determinations are binding on members of the scheme.

8.5 The AFCA scheme is largely governed by the AFCA Rules, which form part of a contract between AFCA and participating financial firms. However, Division 3 of Part 7.10A of the Corporations Act provides AFCA with certain statutory powers to allow it to manage superannuation complaints effectively. These mirror the former powers of the Superannuation Complaints Tribunal. The statutory powers are required because some superannuation complaints cannot be resolved by relying on contractual obligations – for example, they may involve third parties.

8.6 On 27 October 2022, the Full Federal Court found in MetLife that, due to the operation of section 1053 of the Corporations Act, a complaint relating to superannuation could only be brought under the AFCA scheme if it fell within one of the categories identified in subsection 1053(1). That is, a complaint relating to superannuation could only be brought to AFCA if it met the definition of superannuation complaint.

8.7 This is contrary to the original policy intent. The policy intent of Division 3 of Part 7.10A of the Corporations Act is to provide AFCA with additional statutory powers to manage superannuation-related complaints effectively. It was not intended to limit the complaints that may be brought under the AFCA scheme.

8.8 The MetLife decision has led to AFCA being unable to consider certain complaints about insurance policies held inside superannuation, which it would otherwise be able to determine.

8.9 Schedule 8 to the Bill reinstates the original intent of Division 3 of Part 7.10A of the Corporations Act, allowing consumers to bring superannuation-related complaints to AFCA.

Comparison of key features of new law and current law

Table 8.1 Comparison of new law and current law

Detailed explanation of new law

8.10 Section 1053 of the Corporations Act defines superannuation complaint as a complaint made under the AFCA scheme that:

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the trustee of a regulated superannuation fund or ADF has made a decision relating to a particular member or beneficiary (or particular former member or beneficiary) that was unfair or unreasonable;

•

a decision by a trustee maintaining a life policy to admit a member to the life policy fund was unfair or unreasonable;

•

the conduct of an insurer, or of a representative of an insurer, in relation to the sale of an annuity policy was unfair or unreasonable;

•

a decision of an insurer under an annuity policy is or was unfair or unreasonable;

•

a decision of a superannuation provider in relation to certain information provided to the Commissioner was unfair or unreasonable;

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the conduct or decision of a retirement savings account provider, or of a representative of a retirement savings account provider, relating to the opening of a retirement savings account was unfair or unreasonable;

•

a decision of a retirement savings account provider relating to a particular retirement savings account holder or former retirement savings account holder is or was unfair or unreasonable;

•

the conduct of an insurer, or of a representative of an insurer, relating to the sale of insurance benefits in relation to a contract of insurance where the premiums are paid from a retirement savings account, was unfair or unreasonable;

•

a decision of an insurer relating to a contract of insurance where the premiums are paid from a retirement savings account is or was unfair or unreasonable; or

•

a decision by a death benefit decision-maker relating to the payment of a death benefit is or was unfair or unreasonable.

8.11 Schedule 8 to the Bill preserves this definition of superannuation complaint. However, this Schedule clarifies the policy intent that other types of superannuation-related complaints may also be made under the AFCA scheme. That is, a person may make a superannuation-related complaint under the AFCA scheme even if it does not meet the definition of superannuation complaint in section 1053. [Schedule 8, items 1, 2, 6, 9 and 10, section 9 (definition of superannuation complaint), section 761A (definition of superannuation complaint), subsections 1053(1) and 1053(3) and section 1053B of the Corporations Act]

'Superannuation complaints' and 'superannuation-related complaints'

8.12 AFCA has a general remit to deal with complaints about financial firms in relation to the provision of financial products and services, credit, and similar matters. The Corporations Act imposes mandatory requirements on AFCA for dealing with complaints in general (under sections 1051 and 1052).

8.13 The Corporations Act imposes additional legislative requirements on AFCA, and provides AFCA with additional powers, for dealing with specified superannuation complaints as listed in section 1053.

8.14 AFCA sets its own rules for dealing with complaints, in accordance with its constitution and any legislative requirements. Any material changes to the AFCA Rules must be approved by ASIC (under section 1052D of the Corporations Act).

8.15 If a complaint meets the legislative definition of superannuation complaint, it must be dealt with by AFCA in accordance with the legislative requirements set out in Division 3 of Part 7.10A.

8.16 Any other complaint about a financial firm – including a superannuation-related complaint which does not meet the definition of superannuation complaint in s1053 – is not subject to the requirements in Division 3. It is open to AFCA to otherwise deal with these complaints as appropriate under its general remit.

Example 8.1 Superannuation complaint

Jennifer is a member of JPZ Super, which is a regulated superannuation fund (not an SMSF). As a member of JPZ Super, Jennifer is entitled to default total and permanent disability insurance cover. The insurance policy is held by the trustee of JPZ Super under a group policy with the Purple Insurance Company. Following a serious accident, Jennifer contacts JPZ Super to lodge a claim for a benefit under the superannuation group policy.

Purple Insurance Company denies the claim and refuses to pay the total and permanent disability benefit in respect of Jennifer. Jennifer complains about this decision to the trustee of JPZ Super and is disappointed when the trustee decides not to seek a review of Purple Insurance Company's decision not to pay the claim. Still dissatisfied with JPZ Super's decision after going through their internal dispute resolution process, Jennifer decides to lodge a complaint with AFCA.

Jennifer makes a complaint against the trustee of JPZ Super, on the basis that the trustee's decision was unfair or unreasonable. This complaint satisfies the definition of a superannuation complaint (see paragraph 1053(1)(a) of the Corporations Act) and therefore must be considered by AFCA as a superannuation complaint.

If Jennifer's complaint meets the AFCA Rules for dealing with superannuation complaints, AFCA could then (under section 1054 of the Corporations Act) join the Purple Insurance Company to Jennifer's complaint against the trustee of JPZ Super. This would enable AFCA to deal with the complaint as it relates to both the decision of the Purple Insurance Company, and the decision of the trustee of JPZ Super.

Example 8.2 Superannuation-related complaint

If Jennifer's complaint against the trustee of JPZ Super cannot be heard by AFCA as a superannuation complaint, for example in the event it does not meet the AFCA Rules for dealing with superannuation complaints, then AFCA cannot consider Jennifer's complaint against the trustee.

However, Jennifer could consider lodging a complaint with AFCA about the decision of the Purple Insurance Company to deny her claim. Such a complaint would relate to superannuation but would not satisfy the definition of superannuation complaint in s1053 of the Corporations Act.

Therefore, this complaint could be considered by AFCA as a complaint other than a superannuation complaint, provided the AFCA Rules permit such a complaint to be considered.

8.17 Schedule 8 amends the headings for section 1053 and Subdivision A of Division 3 of Part 7.10A of the Corporations Act. This reflects that the purpose of section 1053 is to define superannuation complaint, rather than restricting the types of superannuation complaints that may be made under the AFCA scheme. [Schedule 8, items 4 and 5, headings to Subdivision A of Division 3 of Part 7.10A and section 1053 of the Corporations Act]

Contingent amendments

8.18 While the substantive definition of superannuation complaint is at section 1053 of the Corporations Act, a signpost to that definition currently appears in a list of definitions at section 761A of the Act. Schedule 8 amends the definition of superannuation complaint in section 761A to reflect the amendments to the substantive definition in section 1053. [Schedule 8, item 2, section 761A (definition of superannuation complaint) of the Corporations Act]

8.19 Schedule 2 to the Treasury Laws Amendment (2023 Law Improvement Package No. 1) Act 2023 (if enacted) relocates a number of definitions in the Corporations Act from section 761A to section 9. Schedule 8 to the Bill includes a contingent amendment, in the event that the definition of superannuation complaint has been relocated to section 9 before Schedule 8 to the Bill commences. [Schedule 8, item 1, section 9 (definition of superannuation complaint) of the Corporations Act]

Consequential amendments

8.20 Schedule 8 to the Bill amends a note about the AFCA scheme's operational requirements to avoid confusion about the types of complaints that can be made to AFCA. [Schedule 8, item 3, subsection 1051(4) (Note) of the Corporations Act]

8.21 Schedule 8 to the Bill also removes an unnecessary note to the definition of superannuation complaint. [Schedule 8, items 7 and 8, subsection 1053(1) (Note 1) and (Note 2) of the Corporations Act]

8.22 Item 555 of Schedule 2 to the Treasury Laws Amendment (2023 Law Improvement Package No. 1) Act 2023 (if enacted) amends the note to subsection 1053(1). Schedule 8 to the Bill includes a contingent amendment, amending the heading for item 555 to reflect there is now only one note to subsection 1053(1). [Schedule 8, item 12, item 555 of the Treasury Laws Amendment (2023 Law Improvement Package No. 1) Act 2023]

Commencement, application, and transitional provisions

8.23 Other than the contingent amendments (amendments to the definition of superannuation complaint (items 1 and 2 in Schedule 8 to the Bill) and the amendment to the Treasury Laws Amendment (2023 Law Improvement Package No. 1) Act 2023 (item 12 in Schedule 8 to the Bill), the amendments in Schedule 8 to the Bill commence on the day after Royal Assent.

8.24 The amendments apply to complaints made, or purported to have been made, to AFCA before, on or after the date of commencement. This means that if a superannuation-related complaint had purportedly been made to AFCA prior to commencement of these amendments, and that complaint had been outside AFCA's jurisdiction as a result of the MetLife decision, that complaint is now taken to be a valid complaint within AFCA's general remit. This allows AFCA to deal with any superannuation-related complaints in accordance with its rules, irrespective of when those complaints were made to AFCA (subject to any necessary changes to the AFCA Rules). [Schedule 8, item 11, section 1703 of the Corporations Act]

8.25 This retrospective application is necessary to ensure that if a person has already made a complaint to AFCA (and for example their complaint was put on hold by AFCA due to the MetLife proceedings), the complainant will now be able to have their complaint considered by AFCA. This is important to ensure that individuals are not disadvantaged by the MetLife decision based on the timing of their complaint to AFCA, so that they can continue to have access to free and independent dispute resolution for those complaints.

8.26 While the amendments apply to a complaint purportedly made to AFCA prior to commencement, they do not validate a determination purportedly made by AFCA in relation to that complaint. Instead, if a determination purportedly made by AFCA was invalid due to MetLife, AFCA may redetermine the complaint on or after commencement (subject to any necessary changes to the AFCA Rules). [Schedule 8, item 11, subsection 1703(3) of the Corporations Act]

Contingent amendments

8.27 If Schedule 8 to the Bill commences before Schedule 2 to the Treasury Laws Amendment (2023 Law Improvement Package No. 1) Act 2023, the contingent amendments at items 1 and 2 in Schedule 8 commence as follows:

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the amendment to the definition of superannuation complaint in section 761A of the Corporations Act (item 2) commences on the day after Royal Assent; and

•

the amendment to the definition of superannuation complaint in section 9 of the Corporations Act (item 1) never commences.

8.28 However, if Schedule 2 to the Treasury Laws Amendment (2023 Law Improvement Package No. 1) Act 2023 commences before Schedule 8 to the Bill:

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the amendment to the definition of superannuation complaint in section 9 of the Corporations Act (item 1) commences on the day after Royal Assent; and

•

the amendment to the definition of superannuation complaint in section 761A of the Corporations Act (item 2) never commences.

8.29 The contingent amendment at item 12 in Schedule 8 to the Bill commences immediately before commencement of Schedule 2 to the Treasury Laws Amendment (2023 Law Improvement Package No. 1) Act 2023. However, this amendment never commences if Schedule 2 to the Treasury Laws Amendment (2023 Law Improvement Package No. 1) Act 2023 does not commence or if it commences on or before the day the Bill receives the Royal Assent.