Australian Financial Complaints Authority open for business: impact on practitioners

David Huggins, principal of Huggins Legal, discusses what effect the AFCA might have on legal practitioners. The most likely source of increasing disputes in the short-term will be disputes about lending to make residential property investments, he writes. David previously wrote for Legalwise News about the establishment of the AFCA. 

David Huggins

The Australian Financial Complaints Authority started operating on 1 November 2018. In an earlier article I provided some background about how AFCA would operate and how it might interact with the Court system. The purpose of this article is to look at the implications that AFCA may have for lawyers in the near future.

AFCA operates under what are known as Scheme Rules. Other than with respect to the extent of its jurisdiction, these Rules are very similar to the Terms of Reference upon which the Financial Ombudsman Service operated. My understanding is that AFCA is largely staffed with persons who worked at the FOS. Lawyers who are familiar with the FOS’ processes and mindset will notice, in the near term, very little difference in dealing with AFCA as opposed to dealing with the FOS.

There is common perception that the Hayne Royal Commission will lead to there being a flood of claims being made to AFCA. In terms of the sort of matters that lawyers might be involved in I doubt that this will be the case. The reason being that consumers who have significant losses are usually well aware of that fact and would have made a claim if they were going to irrespective of whatever is disclosed by the Royal Commission. It is however, true that that Royal Commission has heightened awareness amongst consumers of their rights to make claims and remediation programs which have been put in place in response to the Royal Commission might also lead to more claims being made.

The volume and the types of cases that lawyers will be involved will depend upon two inter-related factors.

The first is whether claims that were uneconomic or were otherwise impractical to be litigated in a Court will be litigated at AFCA. I expect that many claims that were formerly outside of the FOS’s jurisdiction but which were impractical to litigate in a Court will be litigated at AFCA. This will particularly be the case with respect to disputes about guarantees.

The second is economic trends and failures within specific sectors of the market. Major matters before AFCA will derive from one or both of these factors. Economic trends such as a major market corrections highlight deficiencies in products that were sold to clients. When the GFC occurred the dangers associated with investing in highly geared structured products became apparent to consumers. Similarly, major market movements show deficiencies in advice such as encouraging clients to enter into margin loans or exposing clients to inappropriate levels of market risk. Specific failures occur where problems emerge in a particular industry. The most obvious example being the failure of multiple agribusiness schemes in recent years.

In my view, the most likely source of increasing disputes in the near term will be disputes about lending to make residential property investments. Downturns in property markets across Australia have highlighted poor practices at both banks and mortgage brokers in terms of mortgage brokers manipulating information concerning a client’s financial circumstances and banks failing to properly assess the information that has been provided to them. There are also some advisers, often masquerading as financial planners who, aided by these poor practices, have deceived clients into making very bad property investments.

The conduct of banks and mortgage brokers in respectively making loans and assisting clients to enter into these loans is regulated by the National Consumer Credit Protection Act. Where a client has entered into a loan that was unsuitable for them the Act creates causes of action against both the bank that made the loan and the mortgage broker who facilitated the client entering into the loan.

These types of disputes always concern an allegation that the borrower has made a capital loss. AFCA’s approach is that the lender is not responsible for the capital loss. However, the position might well be otherwise for mortgage brokers who have caused their clients to enter into unsuitable loans the result of which being that the client made a capital loss. Disputes about recovering capital losses from mortgage brokers is a developing area of the law. Given the scale of residential investment lending and the recent downturn in property markets across Australia, the conduct of banks and mortgage brokers in this area may be the subject of a substantial volume of litigation before AFCA, for many years.

David Huggins is the principal of Huggins Legal. David has more than two decades of experience in all aspects of financial services-related disputes, including regulatory disputes. David has worked at ASIC, ASX and a national law firm and has operated Huggins Legal since 2005. David has a deep commitment to legal practice and to obtaining compensation for his clients. Where possible David looks to achieve settled outcomes but if necessary he will take matters to trial. David has written extensively for the West Australian Newspaper and other publications and has appeared on television as an expert commentator. In addition, David has been a Director of the Australian Compliance Institute and the Independent Market Operator. David is an Adjunct Lecturer for the College of Law and is a member of the Compliance Committee for two managed investment schemes. Contact David at

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