AFCA promises slashed costs in proposed funding model

The proposed model has included a single registration fee, a simplified complaints fee structure and five free complaints per year for all financial firms that are obliged to be members under the complaints scheme.

It would also remove the superannuation levy and bring super funds under the same fee structure as other AFCA members.

Notably, AFCA expects 66 per cent of fees would be recovered from 2.5 per cent of its members, which represent 66 per cent of all complaints received by the body.

According to AFCA, 90 per cent of financial firms under the scheme would end up paying the same or less in total annual costs. It has estimated one in five members would see a decrease in fees.

In the current financial year, AFCA members have paid a levy that has varied, depending on their circumstances, from $375 to $27,325.

But under the new model, AFCA has estimated that 99.9 per cent of authorised credit representatives would pay only the registration fee of $65.98 annually.

The majority (95 per cent) of licensed financial firm members would reportedly only pay their annual registration fee each year, currently estimated at around $376 for the coming financial year.

AFCA has reported the remaining 10 per cent of firms that would see a rise in fees would be the largest financial institutions that make most use of AFCA’s services.

To offset reduced complaint fees and the five free complaints, AFCA has planned to introduce a larger user charge, which will only apply to the bigger companies in the system, with six or more complaints.

The larger user charge will require eligible firms to pay a proportion of the total user charge, based on the proportion of complaints about them.

For example, if a company represented 1 per cent of the total complaints in the previous year, they would pay 1 per cent of the total user charge for the current year.

The cost burden for smaller companies, such as financial planning and broker firms, as well as other less frequent users of the scheme, would supposedly decline, through the buffer of five free complaints and the user-pays approach.

AFCA also believes members who have fewer complaints will be rewarded, while those who have a higher level will need to cough up more.

AFCA chief ombudsman and chief executive David Locke told members during a webinar on Thursday (10 March) that it would be a “fair, transparent and equitable model that is supported by strong data and modelling”.

“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,” Mr Locke said.

Chief operating officer Justin Untersteiner said the proposed model would minimise cross-subsidisation across sectors that had been occurring under the current arrangements, which have been in place since AFCA’s inception in 2018.

The new model has sought to solve the issue by considering both the volume of complaints registered for a firm along with the time taken to resolve the complaints.

“The amount a member has to pay above and beyond the low annual registration fee is totally within their control,” Mr Untersteiner 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 webinar on Thursday (10 March) was the first of five, as the body has sought feedback from industry, during a six-week consultation period that ends on 22 April.

The model will then be put to AFCA’s board in May, for a decision.

Any changes would be effective from 1 July.

In November, a number of brokers reported they had received pre-expulsion notices from AFCA citing unpaid invoices, despite having already paid their membership renewals. 

After multiple complaints, the deadline for payments was extended by one week.

[Related: ‘What the hell happened?’: ASIC charge per broker triples]