Updated: 10 March 2022

The vast majority of financial firms would pay the same or less to the Australian Financial Complaints Authority under a proposed new user-pays funding model now the subject of consultation by AFCA with financial firms.

Under the model about 90% of members would see a positive or neutral impact on total cost. One in five members would experience a decrease in fees.

About 10% – the very largest financial institutions which make most use of AFCA’s services – would experience an increased cost that more accurately reflects their usage, addressing cross-subsidisation of larger firms by smaller members of the ombudsman scheme.

“It’s a fair, transparent and equitable model that is supported by strong data and modelling,” AFCA’s Chief Ombudsman and Chief Executive Officer, David Locke, told a webinar for members today.

“We have listened to what you have told us over the past few years and this has been used to design a model that rewards good performance and early resolution, and apportions fees fairly based on use of AFCA’s services.”

Under the user-pays model, firms would have control over the fees they paid by managing their complaints well, he said.

The proposed funding model includes a single registration fee, a simplified complaints fee structure and introduces five free complaints per year to all members. It removes the superannuation levy and brings super funds under the same fee structure as other AFCA members – with a positive or neutral impact for most superannuation members.

Under the proposed model, 66% of fees would be recovered from the 2.5% of AFCA’s members that represent 66% of all complaints received by AFCA.

The model would reduce the burden on small members like financial planning firms and brokers, as well as other less frequent users of the scheme, through its user-pays approach and the buffer of five free complaints.

Overall, 95% of licensed financial firm members of the AFCA external dispute resolution scheme would pay only their annual registration fee each year, currently estimated to be $376 for the coming financial year. Among authorised credit representatives, 99.9% would pay only $65.98 annually – steady with their annual membership levy today.

AFCA has been seeking feedback on the proposed model from firms and industry groups in recent weeks and today held the first of five member webinars.

The proposed model being consulted on would minimise the cross-subsidisation across sectors that had been occurring under the interim model put in place at AFCA’s inception in 2018, Chief Operating Officer Justin Untersteiner told today’s webinar. This was because it considered both the volume of complaints registered for a firm along with the time being taken to resolve those complaints.

The user-pays approach meant firms would have ultimate control over their costs, Mr Untersteiner said.

“The amount a member has to pay above and beyond the low annual registration fee is totally within their control,” he said. “Our user-pays approach incentivises firms to use internal dispute resolution to decrease complaints to AFCA. Firms can absolutely significantly reduce their fees and charges through improvements to their own processes and procedures.”

The proposed user-pays model emerged from a study of AFCA’s funding by PwC Australia that incorporated feedback from members, including submissions made to last year’s Treasury-led Independent Review of AFCA.

AFCA will be taking feedback from members during a six-week consultation period that ends on April 22. The model will then be put to AFCA’s independent board in May, for a decision. Any changes would take effect from 1 July 2022.

Fact Sheet - Expected impact by sector

Modelling shows the following expected impacts of the proposed funding model

Banking

The majority of licensee Banking and Finance members (86%) would either experience reduced or the same total annual fees under the future funding model (based on FY21 complaints data).

  • 33% will see a decrease in total annual fees
  • 53% will see no change 
  • 14% will see an increase, largely due to higher relative complaint volumes 
  • 86% will only pay the annual registration fee

Insurance

The majority of Insurance members (92%) would either experience reduced or the same total annual fees* under the future funding model (based on FY21 complaints data).

  • 39% will see a decrease in total annual fees
  • 52% will see no change 
  • 8% will see an increase, largely due to higher relative complaint volumes 
  • 89% will only pay the annual registration fee

Investments and Advice

The majority of Investment and Advice and other lending advisor members (94%) would either experience reduced or the same total annual fees* under the future funding model (based on FY21 complaints data)

  • 16% will see a decrease in total annual fees
  • 78% will see no change 
  • 6% will see an increase, largely due to higher relative complaint volumes 
  • 98% will only pay the annual registration fee

Superannuation

Removing the super levy means the majority of Superannuation members (82%) would experience reduced total annual fees under the future funding model (based on FY21 complaints data)

  • 82% will see a decrease in total annual fees
  • 0% will see no change 
  • 18% will see an increase, largely due to higher relative complaint volumes 
  • 25% will only pay the annual registration fee

 

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About AFCA
The Australian Financial Complaints Authority (AFCA) is a non-government ombudsman service providing free, fair and independent help with financial disputes.

AFCA is a one-stop-shop for consumers and small businesses who have a dispute with their financial firm, over things such as banking, credit, insurance, advice, investments or superannuation.

Where an agreement cannot be reached between parties, AFCA can issue decisions that are binding on financial firms.

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