Government to set up new financial complaints authority for small business disputes
The federal government plans to set up a new financial complaints authority as a “one-stop shop” for dispute resolutions.
The Australian Financial Complaints Authority (AFCA) will replace the three existing schemes – the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) and the Superannuation Complaints Tribunal (SCT), revenue and financial services minister Kelly O’Dwyer announced yesterday.
Small businesses will be able to seek dispute resolution where the credit facility is up to $5 million and potentially receive compensation up to $1 million, which is more than twice the existing monetary limit and compensation cap.
Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell says the “landmark initiative” will significantly improve access to justice for small businesses.
“The initiative addresses a key recommendation from ASBFEO’s Small Business Loans Inquiry and will significantly improve access to justice, especially for capital-intensive enterprises,” Carnell says.
“The FOS is currently limited to considering disputes of not more than $500,000 arising from a credit facility no higher than $2 million, which excludes many small businesses.
“Small businesses do not have the money or time to challenge banks through the court system and there is a significant power imbalance between banks and small businesses.
“Small businesses do not have the financial capacity to hire expert legal advice to help them overcome this disadvantage.
“The new one-stop-shop will be able to make binding determinations.”
The Ombudsman says the higher compensation cap could also encourage banks to resolve disputes through internal processes before approaching the AFCA.
“The Government’s proposed model will provide a genuine alternate dispute resolution option in a forum where the needs of small business are understood,” Carnell says.
“It will save time and money by significantly reducing the need for litigation.”
Changes to the Bill
The Government will make a number of improvements to the Treasury Laws Amendment (Putting Consumers First – Establishment of the Australian Financial Complaints Authority) Bill 2017, previously known as the Treasury Laws Amendment (External Dispute Resolution) Bill 2017.
Key changes include:
- strengthened governance – the Bill allows the Minister for Revenue and Financial Services to appoint a minority of the AFCA board on its establishment, including the independent chair. This will ensure that the board has the necessary skills and expertise to deliver an improved EDR service
- superannuation – key features of the SCT’s complaints handling model, including requirements for handling death benefit complaints, the decision-making test and the unlimited monetary jurisdiction, will be enshrined in the Bill, to provide certainty to stakeholders
- transitional arrangements – the Bill will require membership of the FOS and CIO to be maintained for up to 12 months following AFCA’s commencement on July 1, 2018, to enable the orderly resolution of their outstanding disputes prior to cessation of the two schemes. In relation to superannuation disputes, from July 1, 2018 all new superannuation complaints will be lodged with AFCA. The SCT will continue to operate until June 30, 2020 in order to resolve its backlog of legacy complaints
- transparency of internal dispute resolution (IDR) – to improve transparency and accountability of firms’ IDR practices, the Bill provides for ASIC to publish IDR data, including firm-level data that identifies firms
A government-appointed transition team, being led by former Reserve Bank assistant governor Malcolm Edey, will undertake stakeholder consultation in order to develop AFCA’s terms of reference, governance and funding arrangements.