Lawyers have weighed in on a recent court case where it emerged the Australian Financial Complaints Authority (AFCA) apparently breached rules which state disputes must be handled fairly and impartially.

Evidence and submissions provided to the NSW Supreme Court showed an AFCA staff member “actively encouraged the expansion” of complaints against DH Flinders, a specialist funds management advisory business. The staff member also took other actions that contravened the rules.

The complainants had initially filed their complaints against Equitable Financial Solutions for alleged misrepresentation about an investment product that had no relation to DH Flinders. While Equitable Financial Solutions was an authorised representative of DH Flinders, it was for another product that never became operational.

The complainants knew nothing about DH Flinders, but the AFCA staff member informed them of the connection and that AFCA could “open a complaint” against DH Flinders, telling them it “may be responsible” for Equitable Financial Solutions’ conduct as a corporate authorised representative.

Justice James Stevenson, who presided over the case, says he “would have been inclined to conclude that AFCA did act in breach” of its obligations.

Dean Pinto, a Partner and Financial Lines Specialist with law firm Wotton + Kearney, says Justice Stevenson’s “obiter comments are a reminder that it is not AFCA’s role to effectively make that complaint for the customer”.

“If the customer does not know of the [AFS licence holder], then they cannot make a complaint against it,” he told insuranceNEWS.com.au.

He says customers who want to seek redress from the responsible AFS licence holder “must know of its relationship with the authorised representative”.

In the legal action it took against AFCA, DH Flinders questioned AFCA’s authority to handle complaints relating to an authorised representative as set out in the AFCA Rules and contends that even if it did, the dispute-handling body has breached the fairness guidelines for handling cases.

Justice Stevenson ruled AFCA has no authority to oversee the complaints. As a result there was no need for him to decide if AFCA had acted unfairly.

Finlaysons Lawyers Special Counsel Ralph Bönig says the court’s position “reinforces the proposition that statutory/regulatory bodies need to understand what their boundaries are”.

“Going beyond these boundaries can cause an injustice to another party and possibly lead to an unfair outcome,” he told insuranceNEWS.com.au. “The starting point is usually what Parliament has set them up to do and entrusted them to do.”

Click here for the court ruling.