The Financial Ombudsman Service Australia has revived its case for a financial services compensation scheme, reiterating there is broad industry and community consensus about a clear gap in the consumer protection framework.
Updating its calls from a 2009 report prepared by consultants appointed by FOS, the new report emphasises the level of unpaid determinations, and sets out the governance structure, scope, and legislative changes needed for such a scheme to operate.
The report found that between 1 January 2010 to 31 December 2014, there were 26 financial services providers who were unwilling or unable to pay determinations despite 120 FOS determinations made in favour of consumers, with a total of 176 individuals affected.
This puts the value of the outstanding amounts at $12.69 million plus interest as at 31 December, 2014.
This makes up 30.07 per cent of the total value awarded by the Investments, Life Insurance and Superannuation decision makers and 25.85 per cent of the total number of binding decisions made in this space.
“It is primarily in the financial planning and advisory sector where the problems arise, with 69 per cent of non-compliance relating to disputes in that sector,” the report said.
“The number of firms involved also represents only a small number of the total number of FOS member firms engaged in the financial advisory sector,” it said, adding the figures represent a small section of all awards FOS issues across banking, insurance, life insurance and investments.
FOS is proposing a compensation scheme that is a “limited scheme of last resort”, which would complement professional indemnity insurance and focus particularly on helping retail clients who lose money due to insolvency or disappearance of an Australian Financial Services licensee.
In line with the Australian Securities and Investments Commission’s stand in its December 2014 submission to the Scrutiny of Financial Advice Inquiry, the scheme “would only provide compensation where all other options have truly been exhausted”.
FOS proposed that Australian Financial Services licensees would fund establishment and operating costs, as well as compensation costs.
It said either the Government could collect funds or the scheme could invoice it to industry participants of the scheme.
