The Federal Government has not provided explicit scope to consider the cost of the Australian Financial Complaints Authority (AFCA) alongside the cost of the proposed new compensation scheme of last resort in the terms of reference provided for a review of the cost and effectiveness of AFCA.
While the Government has a compensation scheme of last resort on the legislative drawing board, it did not open the issue for discussion in its scheduled review of AFCA.
However, the terms of reference for the AFCA review do give stakeholders, including financial advisers, the opportunity to point to broader funding and cost issues, including whether the cost of the AFCA is impacting competition in the industry.
The legislation underpinning the creation of AFCA required a review be conducted two years’ after its formation and the process is occurring at a time when there is also debate over the effectiveness and affordability of the professional indemnity (PI) insurance regime statutorily imposed on financial planning firms.
The terms of reference specifically ask: “Do AFCA’s funding and fee structures impact competition? Are there enhancements to the funding model that should be considered by AFCA to alleviate any impacts on competition while balancing the need for a sustainable fee-for-service model?”
But in asking the question, the Government then demands stakeholders provide specific examples and case studies.
Announcing the AFCA review, the Minister for Superannuation, Financial Services and the Digital Economy, Senator Jane Hume, said the Government was determined to ensure AFCA was working effectively and meeting its objectives.
For its part, AFCA has welcomed the review with the Chief Ombudsman, David Locke, saying the authority was proud of what it had achieved in the space of two years.
“AFCA welcomes the opportunity to make a submission and put forward our views of how external dispute resolution for the financial services industry can be further improved.” he said.
