AFCA finalises new funding model

The vast majority of financial organisations, including insurance brokers, will pay the same or less to the Australian Financial Complaints Authority (AFCA) under a new, user-pays funding model that will be implemented from 1 July 2022. 

The new model was approved by AFCA’s independent board after an extensive consultation process with users of the external dispute resolution scheme and peak industry bodies. 

AFCA’s Chief Ombudsman and Chief Executive Officer, David Locke, said “Members welcomed the fact the model rewards good complaints resolution performance, and that it apportions fees fairly based on use of AFCA’s services.

“This is a fair, transparent and equitable funding model,” Mr Locke added. “Ultimately, firms have control over the fees they pay by taking a resolution mindset when managing complaints.” 

NIBA CEO Philip Kewin said “NIBA welcomes the common sense approach taken by AFCA in relation to the funding of the external dispute resolution authority. The overwhelming majority of brokers record less than five complaints in a calendar year. The new funding model will reduce costs for many members and end the cross-subsidisation that currently occurs.” 

AFCA’s consultation process included more than 60 meetings with peak bodies and members likely to experience a greater impact, five webinars open to all member organisations, and the delivery of 11,000 individual, tailored impact assessments to financial organisations. 

Under the new model about 90% of members of the national ombudsman scheme will see a positive or neutral impact on total fees. The 10% of heavy scheme users that are expected to experience an increase in cost will do so because this more accurately and fairly reflects their usage. 

The model minimises the cross-subsidisation across sectors that was occurring under the interim model put in place at AFCA’s inception in 2018, by considering both the volume of complaints registered for a firm along with the time taken to resolve them. 

The new model includes a single registration fee and a simplified complaints fee structure. All members qualify for five free complaints a year. 

Overall, 95% of licensed financial firm members of the AFCA external dispute resolution scheme will pay only their annual registration fee, which has been set at $375.55 for the coming financial year. Among authorised credit representatives, 99.9% will pay only $65.98 annually – steady with their annual membership levy for the past year. 

Mr Locke noted that AFCA would continue to monitor the performance of the new model over the coming year, including ensuring positive, fair and equitable member and complainant resolution behaviours were occurring under the new model. 

 “Our user-pays approach incentivises firms to use internal dispute resolution to decrease complaints to AFCA,” he said. “At AFCA, we believe our role isn’t just to resolve complaints escalated to us but also to play a preventative role.”