Australia’s new financial dispute resolution body invites comments on funding model proposals

Maria Nikolova

There are several days left to submit feedback to proposals about the funding model of the Australian Financial Complaints Authority.

Sydney Australia

The start of operations of the Australian Financial Complaints Authority (AFCA) – a new external dispute resolution body, approaches, and there are some rules to be finalized about the activities of the new body, including its funding.

There are several days left to submit feedback to the consultation about AFCA’s funding model.

Let’s note that on November 1, 2018, the Australian Financial Complaints Authority (AFCA) will replace the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal (SCT). AFCA will be a consolidated external dispute resolution (EDR) scheme aiming to resolve complaints about products and services provided by financial firms.

AFCA is proposing an interim funding model that is broadly based on the existing EDR scheme funding arrangements. This is a three-phase funding model, consisting of initial transition funding for establishing AFCA, an interim funding stage, and a long-term funding stage.

  • Phase I – Transition funding

This funding will be dedicated to meeting the costs of AFCA’s establishment so that it is adequately prepared to receive and handle complaints from commencement of its operations in November 2018. Te transition funding covers governance-related costs (including legal, financial, audit and other compliance costs) and the costs of establishing AFCA (project management, complaint reporting applications, website development, technology, training, communications and engagement, and other similar costs) so that the new body is ready to receive up to 1,000 complaints in the first week of commencement.

In its May 2018 Federal Budget, the Government allocated $1.7 million as contribution to AFCA’s 2018-19 establishment costs.

  • Phase II – Interim funding model

This funding model will apply for the first three years of AFCA operations (FY2018/2019 – FY2020/2021). During this period a hybrid funding model is proposed to be applied – based on aspects of the existing scheme funding arrangements for Firms that are FOS and CIO scheme members, and the APRA levy model for superannuation trustees who become AFCA members.

The interim funding arrangements will apply while AFCA establishes an evidence base of complaint volumes and complexity in an expanded jurisdiction, and settles complaint handling approaches and required skills/resources to manage the full range of complaints.

  • Phase III – A long-term funding model

This model is set to be adopted following a full funding review based on complaint forecasts, operational efficiency savings across the consolidated scheme, and resource requirements for the long-term future of AFCA. The long-term funding model is proposed to be implemented from July 2021.

The three components of the proposed funding model are:

  • Membership levy based on the size and type of business
  • User charge based on the number of complaints (for firms with more than one complaint closed past the initial Registration and Referral stage)
  • Complaint fees based on complaint complexity and their solution stage reached.

Existing members of the Financial Ombudsman Service (FOS) will be largely unaffected by the AFCA interim funding model, as it is broadly based on the FOS funding model. Approximately 70% of all revenue will be derived from complaints fees and a user charge, with the remainder derived from membership fees, reflecting a user-pays approach.

Let’s recall that in May this year, the FOS said the vast majority of its members are ready for the shift to AFCA. The body estimates that 98% of its members have already completed the annual assessment and member declaration to ensure a smooth transition to AFCA.

Those who would like to provide feedback, should email it to funding(at)afca.org.au by July 27, 2018. Following the consultation, the AFCA Board will consider all feedback and make any appropriate changes to the proposed funding model. Confirmation of the final AFCA funding model is expected by early September 2018.

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