The Credit and Investments Ombudsman (CIO) has slammed Australia’s big banks and their dispute resolution scheme, the Financial Ombudsman Service (FOS), for calling for the creation of a single industry Ombudsman scheme in the financial services sector.
Financial services businesses are required by law to join an Ombudsman scheme approved by the Australian Securities and Investments Commission (ASIC). CIO and FOS are the only two Ombudsman schemes currently approved by ASIC. Neither are statutory schemes.
“A single Ombudsman scheme would mean that about 37,000 licensed businesses would be forced by law to join and pay membership and service fees to a single private sector provider. No other provider would be allowed to operate in the sector," said Mr Raj Venga, CEO and Ombudsman, CIO.
“This would be a bizarre outcome. It’s like legislating that compulsory superannuation contributions should only be made to a named industry super fund. Or that a person can receive the Government’s private health insurance rebate only if they take out private health insurance with a named mutual health fund (both of these are not-for-profits, like CIO and FOS).
“It would be extraordinary for any government to mandate that its citizens and businesses financially contribute to, and comply with the requirements imposed by, a private sector provider operating to the exclusion of all other providers," Mr Venga said.
"Apart from being completely unacceptable and offensive to Australian norms, one wonders what its legal and constitutional basis is.
"And a single Ombudsman scheme like that being proposed by the big banks, FOS and, oddly enough, some consumer advocates, would essentially be a non-statutory private sector monopoly capable of dictating terms to businesses. It would not be subject to efficiency and cost disciplines. It could set any price it wanted. There would be little or no incentive to improve its services or performance, or to respond to the legitimate interests of its stakeholders”, Mr Venga continued.
“CIO’s 23,000 members, 97% of whom are sole traders and small businesses, would be forced to join a single Ombudsman scheme that would be beholden to the big end of town which generates the most number complaints and pays the most fees. Who’s looking out for the small guy? It tends to be forgotten that these small businesses are also consumers.
“The paradox in all this is that the proposed solution to address the sins of the major banks is a measure which will do nothing more than entrench their dominant position to the detriment of consumers, businesses and the economy. A single Ombudsman scheme proposed by, and beholden to, the major banks will serve their interests in maintaining the status quo in the Australian financial sector. Imposing a ‘big end of town’ solution on smaller and more innovative financial services providers will damage their ability to compete with the major banks and will continue to leave Australian consumers and businesses with an uncompetitive financial system.
“A statutory scheme or tribunal is not the answer either because a large bureaucracy would be legalistic, less flexible and substantially less consumer-friendly, and this would have a negative effect on turnaround times, service levels and innovation.
“We believe that the present two Ombudsman scheme model has served both consumers and financial services providers exceptionally well. The existence of two separate Ombudsman schemes has allowed each scheme to benchmark its performance against the other. This has produced better outcomes for businesses and consumers alike, and can’t be achieved under a single Ombudsman monopoly.
“Any consolidation of CIO and FOS would mean that businesses, particularly small businesses, who are dissatisfied with service levels or costs, will have absolutely nowhere else to go,” Mr Venga concluded.