JOINT STATEMENT BY:
Mortgage and Finance Association of Australia (MFAA); Customer Owned Banking Association (COBA); Australian Collectors & Debt Buyers Association (ACDBA); Association of Securities and Derivatives Advisers of Australia (ASDAA); Australian Timeshare and Holiday Ownership Council (ATHOC); Association of Independently Owned financial Professionals (AIOFP)
The above peak industry associations (Associations) represent about 80 per cent of all financial firms in the Australian market. Their members are currently members of either the Financial Ombudsman Service (FOS) or the Credit and Investments Ombudsman (CIO).
The Associations reject a key recommendation of the Final Report into Australia’s three financial sector ombudsman schemes. The report, prepared by a panel led by Professor Ian Ramsay, recommended a single ombudsman scheme to replace FOS, CIO and the Superannuation Complaints Tribunal (SCT).
The government, in response to the Ramsay report, has announced the creation of a ‘onestop shop’ ombudsman scheme, the Australian Financial Complaints Authority (AFCA), which will replace FOS, CIO and the SCT and will consider disputes about financial firms.
The Associations believe the ‘onestop shop’ will undermine the fabric of external dispute resolution (EDR) in the financial services sector because, as the weight of evidence submitted by industry suggests, the continued and separate existence of FOS , CIO and the SCT is vital in ensuring accountability, innovation and cost control in EDR.
Disappointingly, the Ramsay review based much of its recommendation on the views of consumer advocates who represent consumers in less than five percent of all complaints received by FOS and CIO.
The Associations are also disappointed in the way the Ramsay review was conducted. The panel only held two public consultations with industry, during which it refused to articulate the reasons for proposing a single monopoly scheme and failed to engage with the credible arguments put forward by the Associations.
The success of EDR is largely reliant on both consumers and financial firms committing to resolve their disputes through the schemes’ processes. The aim of EDR is to bring the parties together and assist them to reach a mutually acceptable and fair outcome. This can only be achieved if the parties have trust in the scheme’s processes. Such outcomes are much less likely to occur in the absence of trust in the EDR process.
Submissions made by the Associations to the Ramsay review expressed the view that a single monopoly scheme would not have the trust or support of over 80 per cent of all financial firms represented by the Associations.
The vast majority of financial firms are extremely concerned with the recommendations of the Ramsay Review because:
At no point has the case for change been adequately made, nor have the sensible alternative approaches proposed by industry for improving the current multiprovider EDR system been in any way considered.
Credible evidence provided by industry to inform the review’s deliberations were largely ignored.
A ‘onestop shop’ ombudsman scheme which is a monopoly is likely to be less accountable to stakeholders and less responsive to industry’s legitimate concerns.
Large financial firms, who are members of FOS, will be the main beneficiaries of the single ombudsman monopoly because their ombudsman costs will be subsidised by the significant number of smaller financial firms (presently members of CIO) who will be made to join the new single scheme.
Smaller and more innovative financial firms, most of which are represented by the Associations and which operate on thinner margins and lack market dominance or the benefit of scale, will struggle to absorb or pass on any increased cost which may result from an inefficient single scheme monopoly.
The Review fails to explain how the proposed single ombudsman scheme will deal with the kind of major financial scandals that have undermined trust in the sector.
The Associations call on the Government to abandon its plans to establish a single monopoly EDR scheme.
This media release was directly sourced from the Mortgage and Finance Association of Australia's website here.
