How AFCA’s funding model affects financial services providers

The Australian Financial Complaints Authority (AFCA) has developed a three-phase funding model approach, consisting of initial transition funding, an interim funding model, and a long-term funding model. Background.

Confirmation of the final AFCA funding model will be released by early September 2018.

Financial firms must join AFCA by 21 September 2018.

AFCA is expected to commence with a staff of around 550 people.

The Government expects AFCA is to receive up to 1000 complaints in the first week commencing 1 November 2018.

Funding model components

The proposed AFCA funding model will have three components: a membership levy based on business size and type; a user is charged based on the number of complaints, and complaint fees calculated based on complaint complexity and the resolution stage reached.

For superannuation trustees, the interim funding model provides for an annual levy based on the APRA levy model, rather than the three funding components outlined above.

Authorised Credit Representatives will continue to pay only a membership administration fee of $55, with all complaints referred to the relevant Licensee.

Funding stages

The funding will cover three different stages.

Stage one will meet the costs of transition for three agencies – the Credit and Investments Ombudsman (CIO), the Financial Ombudsman Service (FOS) and the Superannuation and Complaints Tribunal (SCT).

Stage two interim funding will cover the first three years of AFCA’s operations from FY19 to FY21. This will comprise a hybrid of the existing funding arrangements for FOS and CIO, and the APRA levy model for superannuation trustees who become AFCA members.

The final stage of funding, to set up AFCA for the long-term, will be determined following further industry consultation; complaint forecasts, operational efficiency savings; and resource requirements. This is set to be implemented in July 2021.

How you will be affected by the interim funding model

FOS members

The AFCA interim funding model is broadly based on the current FOS funding model.

Approximately 70% of all revenue will be derived from complaints fees and a user charge, with the remainder derived from membership fees, reflecting a user-pays approach.

CIO members

CIO members will also be subject to the three funding components outlined above, with approximately 70% of revenue derived from complaint fees and user charge, with the remainder derived from membership fees.

A majority of CIO members are likely to receive a reduction in membership fees. Smaller members will have a minimum membership levy of $350 rather than $400 currently paid in 2017-18.

For the CIO members that have complaints lodged against them with AFCA, as AFCA will be funded by a user pays model, there may be an increase in complaint fees compared with those currently paid to the CIO. Complaint handling requires the use of AFCA staff resources, which will not be subsidised by membership fees of AFCA members that don’t have complaints.

Superannuation trustee members

A superannuation membership levy will be collected to cover the first eight months of AFCA’s operation in 2018-19, as well as a proportionate share of the AFCA establishment costs. Individual trustee levies will be calculated by applying the same fund data utilised for the existing APRA levy paid by superannuation funds.

Any Superannuation trustee members that were already existing FOS or CIO members will not pay a general AFCA membership levy, only a superannuation membership levy.

Superannuation trustee members will not pay individual complaint fees for superannuation complaints. Any Superannuation trustee members that were already existing FOS or CIO members, however, will be charged complaint fees for any complaints received against them that come within AFCA’s non-superannuation jurisdiction.

A full funding review is intended to be conducted early in the third year of operation and will be based on complaint forecasts and resource requirements for the longterm future of AFCA.

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