THE Ombudsman and Chief Executive of the Credit and Investments Ombudsman (CIO), Raj Venga, today excoriated the government’s move to introduce legislation into the Senate to create a ‘one-stop-shop’ ombudsman, the Australian Financial Complaints Authority (AFCA).
AFCA is intended to replace CIO, the Financial Ombudsman Service (FOS) and the Superannuation Complaints Tribunal (SCT) from 1 July 2018, and is in response to a review of financial sector ombudsman schemes led by Professor Ian Ramsay.
"The one-stop shop is being trumpeted as something entirely new, but the government has simply dusted off and reproduced benchmarks that were first published in 1997, and which already apply to CIO and FOS," says Mr Raj Venga, CEO and Ombudsman, CIO.
"There’s nothing new here. AFCA will essentially have the same powers and jurisdiction as CIO, FOS and the SCT:
- The SCT already possesses the ‘additional powers’ that are being given to AFCA for superannuation complaints.
- CIO and FOS need only amend their existing terms of reference to incorporate those few extra requirements that are to apply to AFCA which do not already apply to CIO and FOS.
- The proposal to allow ASIC to issue ‘directions’ to AFCA adds little, if anything, to ASIC’s regulatory oversight. There is already the ability to revoke CIO or FOS’ approval. This is a far greater incentive for CIO and FOS to comply with regulatory requirements than the threat of a direction from ASIC.
"More significantly, since only one scheme will be authorised by the Minister, it is inconceivable that the Minister would revoke AFCA’s authorisation and leave hundreds of thousands of consumers with absolutely no redress against financial firms other than through costly legal proceedings. What then is the sanction for poor performance or non-compliance by AFCA? A single scheme will result in a weaker system of external dispute resolution.
"We’re being sold a pup. AFCA will have no greater or effective powers than FOS, CIO and the SCT. It ticks none of the boxes and it fixes nothing. AFCA is a pitiful attempt to fend off calls for a Royal Commission.
"It also makes absolutely no sense to design a scheme such as AFCA without the benefit of the findings of a Royal Commission’.
"AFCA is not fit for purpose. It will neither provide better consumer outcomes nor be able to address past, or prevent future, financial scandals.
"AFCA is not equipped to weed out poor entrenched corporate culture or address the string of financial scandals that regularly grace the pages of our newspapers. Only a Royal Commission can do this. Not being able to investigate the root cause of these scandals, AFCA will be powerless to prevent their re-occurrence to the detriment of consumers.
"Not having statutory powers, AFCA will not be able to redress the power imbalance between big banks and small businesses and primary producer borrowers, or deal effectively with small business claims against banks, even with expanded monetary limits and compensation caps.
"For example, AFCA will not be able to join, bind or obtain information from third parties that have been appointed by a bank, such as valuers, investigative accountants and receivers. Nor will it be able to make or enforce decisions against them.
(This was specifically recommended by both the Parliamentary Joint Committee on Corporations and Financial Services (The Impairment of Customer Loans) and the Small Business Loans Inquiry Report by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO)).
"AFCA will not be able to accept complaints from primary producer borrowers who have previously undertaken farm debt mediation, another recommendation of the ASBFEO.
"Nor will AFCA be able to accept small business complaints against commercial lenders that are not required to be licensed. Presently, no licensing is required for commercial lending creating an obvious work-around.
"Consumers will also not be able to enforce AFCA’s decisions or seek a judicial review of an unfavourable AFCA decision.
"AFCA is a rebadging exercise that achieves nothing. Referring to it as an ‘Authority’ doesn’t magically make this non-statutory body a statutory one.
"AFCA is nothing more than a political announcement and the appearance of action."
* CIO is an alternative dispute resolution scheme approved by the Australian Securities and Investments Commission to provide consumers with an alternative to legal proceedings for resolving financial services-related disputes with members of CIO, which include finance brokers, non-bank lenders, payday lenders, timeshare operators, mutual banks, financial planners and debt purchasers.