The government’s proposed Australian Financial Complaints Authority (AFCA) will not have the requisite structure or power to prevent financial scandals, says the Credit and Investments Ombudsman.
In a submission to Treasury released to media yesterday, the Credit and Investments Ombudsman (CIO) – which would become obsolete under the government’s plans – strongly criticised the concept of a single ombudsman implicit in the establishment of the AFCA.
“AFCA is not fit for purpose,” the submission states. “It is clear from the [external dispute resolution] framework documents that AFCA will neither provide better consumer outcomes nor be able to address past, or prevent future, financial scandals.”
The submission contends that the body will not be able to effectively investigate the financial industry or the “root cause” of scandals, making them “not equipped to weed out poor entrenched corporate culture”.
In particular, the submission criticises the lack of statutory powers available to the AFCA and its inability to subpoena or cross-examine third-parties, arguing that its establishment would be redundant since it “has essentially the same powers and jurisdictions as CIO, FOS and the SCT”.
These inefficiencies may have the additional detriment of hindering competition in the financial services sector, the CIO argued.
“While the cost of having complaints heard by an ombudsman scheme which is inefficient (which typically can be expected where the body is a monopoly) may not be a significant cost to the major banks and insurers, it certainly will be for smaller players who operate on much thinner margins,” the submission said.
The troubles faced by accounting body CPA Australia, which has seen a chief executive and numerous board directors resign in recent weeks, are an example of problems with “not-for-profit member-based monopoly”.
“AFCA, being also a member-based non-for profit organisation which enjoys a monopoly, will not be immune from allegations of governance dysfunction, particularly since its directors will be appointed by the board itself, not by its members,” the submission said.
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