PI not adequate for fintechs providing financial advice

A Parliamentary Committee has been told that financial technology companies using the Australian Securities and Investments Commission’s (ASIC’s) regulatory sandbox could quite likely go bust and that consumers would not necessarily be protected by the fintechs holding professional indemnity (PI) insurance.

Choice campaigns and communications director, Erin Turner has told the Senate Economics References committee that the consumer group continues to hold serious concerns about the dangers posed by the regulatory sandbox environment.

In doing so, she suggested that while there were consumer protections proposed in the new regulations, notably that fintechs in the sandbox would need to be a member of an external dispute resolution (EDR) scheme and hold PI insurance, Choice did not believe this would adequate.

“There have been a number of cases where basically indemnity insurance doesn't cover instances where consumers are harmed,” Turner said. “This is really well demonstrated by unpaid determinations held within ombudsman schemes. I think I have the numbers from 2016, although they may have been updated since then.”

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She said the Financial Ombudsman Service (FOS) currently had 137 unpaid determinations and that with interest and adjustments for inflation, that represented $16.63 million owed to consumers where a business had gone bust and people had been harmed.

“Now, 56 per cent of these determinations relate to financial planning and advice. I think it's quite likely that we'd see fin techs providing advice potentially go bust,” Turner said. “Professional indemnity insurance doesn't cover every instance of loss. It's not designed to. It particularly doesn't cover instances of fraud. We think it's quite likely that if the sandbox proceeds in its current form then these unpaid determinations could increase.”