November 3, 2017
Financial advice groups will be required to contribute to costs related to disputes brought against them under a single dispute resolution scheme, but have yet to be told the extent of those costs.
A recently released consultation paper from Treasury regarding the formation of the Australian Financial Complaints Authority (AFCA) has stated that firm numbers on the costs of the scheme are not yet available. The paper also claimed the number could not be accurately derived from current costs of existing dispute resolution schemes.
AFCA will replace the Financial Ombudsman Service (FOS), the Credit Industry Ombudsman (CIO) and Superannuation Complaints Tribunal (SCT) (see: Government to Create Single Dispute Resolution Body) but the paper stated their costs were not totally reflective of future costs.
“…it is likely that there would be insufficient time…to have a fully developed and sustainable funding model accepted…”
“While initial data to support estimates of costs for different types of disputes drawn from different industries could be sourced from FOS, SCT and CIO, it should be acknowledged that those costs would be based on the operating styles and processes adopted by those bodies, rather than on an AFCA approach,” the paper stated.
“For these reasons, it is likely that there would be insufficient time between AFCA’s authorisation and the time its first member firms join AFCA for it to have a fully developed and sustainable funding model accepted,” it added.
The three existing schemes use different models to fund the costs associated with disputes and the consultation paper suggested that an annual member levy, based on the size of a member firm, would apply to AFCA.
The paper, which is requesting feedback on an interim and permanent funding model, stated that “…funding for dispute resolution functions must come from member firms — the dispute resolution services must be free to consumers…”.
Those wishing to comment on this current paper have until 20 November to do so.