The Financial Ombudsman Services (FOS) has stated that the failure of some FOS members to pay determinations is “emerging as a structural issue in our investments jurisdiction” after more than $8.3 million is still to be paid to consumers.
FOS Chief Ombudsman Shane Tregellis said the figure related to 18 financial services providers who have not complied with determinations made against them by FOS during the period from 1 January 2010 to 1 January 2014.
Tregellis said while the failure to pay determinations involved a small minority of the 4900 FOS members, the $8.3 million represented a third of all determinations made in FOS’ investments jurisdiction.
The $8.3 million is owed to 99 applicants to FOS, with all the unpaid determinations - except one - involving financial advisers. FOS is required to report the non-payment of the determinations to the Australian Securities and Investments Commission (ASIC).
ASIC is able to take further action against the groups involved and FOS stated that it understands the regulator has taken regulatory action against some of the financial services providers who have not paid determinations.
According to Tregellis eight of the firms involved have claimed they have insufficient funds to pay the determinations while one of the firms involved is in administration and nine are in liquidation.
FOS has in turn raised concerns about the adequacy of professional indemnity insurance to assist financial service providers pay determinations against them, particularly in the event a financial services provider ceases operating.
It stated that aggregate funds available under PI policies were not sufficient to meet payments against financial services providers and that the behaviour examined at FOS fell outside of the policy.
FOS said it would remain an advocate for limited last resort compensation schemes and is in ongoing discussions with ASIC, industry, consumers and policy makers to ensure compensation for consumers can be met by those responsible.