The Financial Ombudsman Service (FOS) has played down concerns it will have little legal guidance once the Future of Financial Advice (FOFA) ‘best interests’ duties become law.
FOS made the statement in response to claims by Argyle Lawyers principal Peter Bobbin that a lack of legal precedent relating to the changed laws would see the ombudsman effectively "swimming in the dark".
FOS ombudsman for investments, life insurance and superannuation Alison Maynard said FOS was well prepared for the new environment.
Legal principles were one of four factors the ombudsman took into account when determining what was "fair in all the circumstances", Maynard said. FOS also considers applicable industry codes, good industry practice, and previous relevant decisions of FOS or a predecessor scheme, she added.
"When legal precedent is created, of course we’ll be looking at it. But it’s only a very small part of the equation," Maynard said.
Financial service providers already have a requirement to operate efficiently, honestly and fairly under the Corporations Act, and the new best interests duties contained in FOFA would just be an "additional overlay" to the current requirements, she added.
FOS has been involved in the FOFA consultation process, and will be guided by the Australian Securities and Investments Commission’s (ASIC’s) regulatory guidance when it is released, Maynard said.
While Bobbin agreed with Maynard for the most part, he took her comments as an admission that FOS would be taking a pragmatic approach and forming its own view on FOFA as soon as an issue relating to the new laws was brought before the ombudsman.
"That’s one of the issues for anyone who finds they’re involved with FOS. It’s not a strict application of the pure law – it’s what is perceived to be ‘fair’. And that has been FOS’s standard throughout," he said.
Bobbin labelled the willingness of FOS to rely on ASIC guidance as "scary", because the courts were unlikely to interpret the new laws the same way as ASIC.
"Various individuals within ASIC have displayed their colours and their distaste for financial planning in the past. As a regulator of financial planning, ASIC is all about regulation – and less so about the smooth operation of the industry," Bobbin said.
Gold Seal Risk Management Services managing director Claire Wivell Plater agreed with Maynard that the onset of the FOFA regime was unlikely to present FOS with significant problems.
"The legislation provides more guidance to FOS than they’ve ever had in the past," she said.
She added that the FOFA legislation was very descriptive, and bore many similarities to the Financial Planning Association’s Code of Professional Practice. "[The Government has] almost written a mini-code of practice or standard for the financial adviser, which is something you’d tend to see from an industry association rather than a regulator," she said.
