AFCA gap gives banks ability to avoid liability



Banks are effectively immune from liability for past misconduct occurring from matters arising after 1 January 2008 in relation to facilities exceeding $5 million, and the federal government needs to fix this gap, according to a law firm.
Creevey Russell Lawyers principal, Dan Creevey, said there needed to be urgent gaps fixed in the reforms made to the Australian Financial Complaints Authority (AFCA), given the continuing revelations of serious misconduct by Australian banks.
As part of the post-Hayne Royal Commission reforms, changes were made to the jurisdiction of AFCA to extend the normal six-year limitation period to commence litigation by permitting AFCA to deal with matters arising after 1 January 2008. However, the jurisdiction was limited to credit facilities not exceeding $5 million, which meant that businesses and farmers with facilities greater than $5 million were now worse off.
While the Department of Treasury told Creevey a review of the AFCA scheme was scheduled for after May, 2020, Creevey said this was a matter that needed to be addressed immediately.
“Given the continuing revelations of serious misconduct by Australian banks, our firm and a prominent client from the rural sector are concerned Australian banks may have misled the government into agreeing to a monetary cap of $5 million and to the waiver of time limits being limited to matters arising after 1 June 2008 in relation to AFCA’s jurisdiction,” he said.
“These limitations are very attractive and convenient to banks. They mean banks are effectively immune from liability in relation to past misconduct occurring before the normal limitation period of six years in relation to facilities exceeding $5 million.”
Creevey noted that there were many other parties, particularly in the rural sector, who had suffered considerable losses as a result of bank misconduct and were unable to pursue their rights as a result of this gap.
“Common sense suggests there are likely to be many potential claims in this category and there is no good reason why banks should avoid liability for their misconduct in relation to these claims,” he said.
“Given the serious nature of bank misconduct there does not appear to be any logical or moral reason for not waving the usual limitation periods where serious misconduct by the bank can be demonstrated.”
Recommended for you
The new financial year has got off to a strong start in adviser gains, helped by new entrants, after heavy losses sustained in June.
Michael McCorry, chief investment officer at BlackRock Australia, has detailed how investors are reconsidering their 60/40 portfolios as macro uncertainty highlight the benefits of liquid alternatives.
Having reset its market focus to high-net-worth advisers, Praemium’s administration solution has been selected by Bell Potter in a deal that increases the platform's funds under administration by $6 billion.
High transition rates from financial advisers have helped Netwealth’s funds under administration rise by $3.7 billion in the fourth quarter of FY25.