Ramsay Review Interim Report – dangerously undermining EDR in financial services says CIO

THE Credit and Investments Ombudsman (CIO) has rejected a recommendation that CIO and the Financial Ombudsman Service (FOS) should be replaced by a single ombudsman scheme, in its response to the Interim Report into Australia’s three financial sector Ombudsman schemes by a panel led by Professor Ian Ramsay.

According to CIO’s Ombudsman and Chief Executive, Raj Venga, the proposed single ombudsman scheme would be "far less accountable and transparent to its stakeholders than a statutory scheme. A statutory scheme is subject to important checks and balances and, in the absence of these, the only check on the broad discretions and powers of a non-statutory scheme is the existence of two ombudsman schemes operating in the same sector and benchmarking their performance against each other."

Mr Venga noted the irony that "the Interim Report failed to explain how the proposed single ombudsman scheme would deal with major banking and insurance scandals of the kind which invited the scrutiny of numerous parliamentary inquiries, prompted calls for a Royal Commission, and which spurred the Government to commission the review in the first place."

Mr Venga was also critical of the lack of economic analysis undertaken by the review.

"For example, the recommendation for a single scheme was only supported by anecdotal evidence from some consumer advocacy organisations – organisations which represent less than five per cent of consumers lodging complaints with CIO and FOS," said Mr Venga.

Given this lack of economic evidence, CIO commissioned its own independent economic analysis of the Interim Report’s recommendation. According to ACIL Allen Consulting:

• The proposal to introduce a single ombudsman scheme is not supported by economic analysis, sound argument or evidence. The Report does not demonstrate any cost benefits to replacing CIO and FOS with a single scheme.
   
• None of the perceived problems identified in the Report would be addressed by introducing a single scheme. In fact, a single scheme would create problems that do not currently exist.
   
• A single scheme would see the loss of the benefits the existing two schemes currently provide: price competition, service quality comparison, pressure to keep costs down, and innovate with better processes and services.
   
• A monopoly not-for-profit organisation, such as the single ombudsman scheme being proposed, can cause the same amount of economic damage as a monopoly for-profit organisation, by charging more and spending the proceeds on bloated staff numbers, excessive executive compensation, lavish offices and other wasteful spending – as well as providing poor service.

Mr Venga reiterated his concerns that "small businesses would not be better off under a single ombudsman scheme because it would lack the appropriate powers and expertise to deal effectively with their complaints. The Ramsay review ignored the weight of evidence that small businesses would be better served by their own limited scope statutory tribunal for disputes outside the existing remit of CIO and FOS."

Mr Venga noted that it was ironic that the major banks were the big winners of a review specifically commissioned to address the scandals attributed to them.

"The major banks, who are members of FOS, would be the main beneficiaries of the proposed single ombudsman monopoly because their ombudsman costs will be subsidised by the influx of more than 23,000 smaller financial firms (who are presently members of CIO) being forced to join a single scheme.

"Equally, smaller and more innovative financial firms, including fintech disrupters, operating on thinner margins and not having the benefits of scale and incumbency, would be least able to absorb or pass on any increased cost that may result from an inefficient single scheme monopoly," said Mr Venga.

Significantly, Mr Venga noted that "it was disappointing that the Interim Report placed little or no weight on submissions made by a number of industry bodies in support of the retention of the two ombudsman scheme model. Their members represent about 97% of the entire financial services industry and are a crucial source of competition to the major banks."

Mr Venga further commented that "the Report is also silent on how the creation of a single scheme would lead to lower costs, greater efficiencies and better outcomes. Almost all the submissions made by industry to the Review expressed concern that a single scheme monopoly would lead to higher costs, inefficiencies and poorer outcomes – advice which was totally ignored by the Review Panel."

Mr Venga reiterated his previous view that recommendations of the review panel were "a solution looking for a problem", and implored the Review to focus on enhancing the current competitive market for dispute resolution, rather than making change for the sake of change.

The Credit and Investments Ombudsman

The Credit and Investments Ombudsman (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 disputes with financial services providers who are members of CIO. These include finance brokers, non-bank lenders, building societies, mutual banks, credit unions, financial planners, finance companies, debt purchasers, small amount short term lenders and mortgage managers.

www.cio.org.au

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