AFCA refers systemic issue to ASIC over firm’s lack of engagement

The Australian Financial Complaints Authority (AFCA) has identified a systemic issue in the investments and advice space, part of a biannual report into systemic issues across the industry. 

In its latest biannual Systemic Issues Insights report for the second half of 2023, the organisation said it has identified and investigated 111 systemic issues, resulting in more than $40 million in remediation being returned to over 139,000 consumers. 

The most common area to see a systemic issue was banking and finance, followed by superannuation. 
In the investments and advice space, the organisation highlighted processing errors are occurring, specifically regarding charges being applied that are not in line with the user agreement. These affected consumers who had not lodged a complaint with AFCA, it said.

“A financial firm had incorrectly calculated its overnight swap rates on Contracts for Difference (CFD) trading accounts and undercharged clients who held certain open positions. The firm then attempted to make a retrospective charge to the accounts of impacted clients. 

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“When AFCA raised the issue with the firm, the firm said its user agreement allowed it to make such adjustments when there has been a ‘material error’ in pricing. AFCA disagreed with the firm’s position and found that the user agreement entitled the firm to adjust the client’s account if there has been a material error in the pricing of a contract. 

“The incorrect swap rates were not incorrect pricing, but an incorrectly calculated charge. Once the firm displayed the swap rates it would charge overnight, and then charged in accordance with the displayed rates, it had no entitlement to retrospectively apply different rates.”

However, the organisation was reluctant to accept AFCA’s view that this constituted a systemic issue, having affected three clients – the matter has been escalated to ASIC.

“While AFCA formed the view that the issue was systemic, the firm did not accept AFCA’s view and did not agree to remediate the impacted clients. AFCA reported the issue to ASIC as an unresolved systemic issue, for the regulator to take action as it deems appropriate.”

Instead of the way this firm handled the matter, AFCA said best practice is for a firm to meet with AFCA to discuss the problem, identify the problems in its system, and process and develop a comprehensive action plan to rectify the failure, such as processes and controls, training and resources. 

“Financial firms that are proactive and take accountability for systemic issues and make changes to their culture and ways of working (alongside implementing fixes for immediate issues) can protect against future issues and reduce customer complaints in the long term.”