The Financial Ombudsman Service (FOS) will be rolled into the new Australian Financial Complaints Authority (AFCA) from July next year.

The move, announced in last week’s federal budget, will see the service expand to include the work of the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal.

At present FOS deals with disputes involving general and life insurers, insurance brokers, banks, credit providers, financial advisers and planners, debt collection agencies, as well as other businesses that provide financial products and services.

The new authority was recommended in the Ramsay review of external dispute resolution and was generally supported by the general insurance industry. The banks, by contrast, have lobbied for access to external dispute resolution schemes to be limited by refining the definition of “small business” and cutting compensation awards.

“Australian financial services licensees will be required to be members of AFCA, and its decisions will be binding on all firms,” the Government said.

The Insurance Council of Australia (ICA) has asked to be consulted on the change to prevent disruption to current arrangements between FOS and insurers, but says the new authority could deliver efficiencies and offer a more streamlined consumer experience.

“The merger must be carefully managed to prevent any detrimental impact on consumer services, such as backlogs or delays,” CEO Rob Whelan said.

FOS Chief Ombudsman Shane Tregillis says the single body will simplify, strengthen and increase access to free external dispute resolution.

He also supports a proposed increase in claim and compensation limits.

“This will enable more Australians, including those involved in small business, to obtain access to justice by being able to bring their dispute to a single, independent alternative dispute resolution body rather than having to navigate multiple schemes or go to the court,” Mr Tregillis said.

Maurice Blackburn Lawyers has criticised the lack of detail on ensuring consumers have the right to legal representation in financial disputes. The firm also continues to push for an enforceable code of conduct for the finance and insurance sector, and “last resort” powers for the Australian Securities and Investments Commission (ASIC).

The budget allocated $4.3 million to ASIC over four years to help monitor the development of AFCA.

“This funding will also enable ASIC to develop infrastructure for the reporting and analysis of internal dispute resolution performance data by financial firms,” budget documents say.