The Financial Ombudsman Service (FOS) should have its monetary jurisdiction limited to $50,000 in line with other external dispute resolution services such as the Telecommunications Industry Ombudsman, according to an analysis prepared by Sydney law firm, Wotton Kearney.
The analysis, to be published in next week's edition of Money Management, points out that FOS' current monetary jurisdiction currently exceeds that of a number of courts and that, by splitting complaints it can handle matters exceeding $800,000.
"Given that FOS' monetary jurisdiction clearly exceeds the jurisdictional limit of other comparable Australian EDR schemes such as TIO and (the Energy and Water Ombudsman) EWO, and even some Australian courts, the question must be asked: ‘what independent review mechanisms are currently in place to ensure FOS remains accountable for its decisions?' Surprisingly little is the answer," the analysis states. "This response should come as no surprise to those in the financial services industry".
The analysis, prepared by Wotton Kearney partner, Heidi Nash-Smith and associate, Jack Geng, points to the frequent criticisms of FOS and the perceptions of its lack of accountability and argues that the "existing semi-regulatory approach has failed to strike the correct balance between efficiency and accountability".
"ASIC must now seriously consider the ever growing chorus of discontent about FOS and its role as an External Dispute Resolution (EDR) scheme," the analysis states. "It is time for the Australian Securities and Investments Commission (ASIC) to act to redress the imbalance."
It said that, given the lack of available legal avenues for financial services providers (FSPs) to challenge FOS' wide discretionary powers, "the only remaining option is for the FSPs to agitate for regulatory reform, since the (FOS) terms of reference must be approved by ASIC".
"Maintaining FOS' discretionary powers are clearly desirable for reasons of public policy, as doing so will continue to promote flexibility and accessibility for consumers. However, flexibility and accessibility must be balanced against other equally important public policy considerations such as consistency of decision making and predictability."
The analysis said that, to date, the terms of reference had failed to adequately balance those competing public policy considerations and it was only appropriate that FOS' monetary jurisdiction match its level of accountability.
The Wotton Kearney analysis comes ahead of a Money Management breakfast analysing the continuing relevance of professional indemnity insurance and the role of FOS in Sydney on 16 October.
