The new Australian Financial Complaints Authority (AFCA) has taken up the mantra of the former Financial Ombudsman in calling for the imposition of a compensation scheme of last resort on the basis that bannings and other actions imposed by the regulator don’t ensure consumers get their money back.
In doing so, AFCA pointed to $16 million in unpaid determinations affecting 246 consumers, with more than half the issues (52 per cent) relating to financial advisers.
In a submission filed with the Senate Economics Legislation Committee, AFCA said the current reality was that some consumers who took complaints to external dispute resolution (EDR) were awarded monetary compensation but ended up not being paid.
“This occurs typically when the financial firm has gone into liquidation or administration or their compensation arrangements fail to respond,” the submission said. “For example, the firm’s professional indemnity insurer may deny indemnity if there are a large number of disputes about similar conduct, conduct may fall within a point exclusion or the excess carried by the firm may be too high.”
It said AFCA could respond to a financial firm’s default by reporting the firm to ASIC and terminating its membership of AFCA but that “neither of these responses assists the unpaid consumer however”.
“An EDR mechanism is clearly not satisfactory if binding awards of compensation are not paid,” the AFCA submission said. “Consumers must have confidence that when things go wrong, they will be compensated when there is a decision made in their favour.”
“What can often get lost in this discussion is the impact that losses and unpaid compensation awards have on the lives of individual consumers, their families and small businesses. We consider that there needs to be a workable and acceptable compensation scheme of last resort to provide access to justice for consumers who do not receive awarded compensation for financial loss and fill the structural gap in the existing dispute resolution framework.”