Raising the cap on client complaints

A new consultation paper from the Australian Securities and Investments Commission (ASIC) proposes increasing the cap on compensation that can be awarded by an external dispute resolution (EDR) scheme to $280,000.

The consultation on Regulatory Guidance 139 and 165 follows the creation of the new Financial Ombudsman Scheme (FOS), which came about through an amalgamation of the three dispute resolution bodies – the Financial Industry Complaints Service (FICS), the Banking and Financial Services Ombudsman (BFSO) and the Insurance Ombudsman Service (IOS).

“To ensure that the majority of consumer complaints can be heard through an EDR scheme, as an alternative to the court process, we propose to increase the cap on EDR scheme compensation to $280,000, to reflect the significant increases in the value of consumers’ investments in recent years,” says Jeremy Cooper, ASIC deputy chairman.

“This would mean that some schemes would need to lift their current limits within an appropriate transitional period.”

He adds: “It is timely that we review our guidance so that the new Financial Ombudsman Service has the best possible framework in which to develop its terms of reference over the next 18 months and set the standard for external dispute resolution.”

ASIC is also proposing that consumers and investors with a complaint that exceeds a scheme’s compensation cap should be able to waive the excess to access the scheme.

Prior to the merger, consumer body CHOICE had been lobbying for FICS to raise its monetary limit on complaints to $280,000, in line with BFSO and IOS.

Elissa Freeman, senior policy officer at CHOICE, says the proposal to apply the limit to the award, rather than the claim, is a positive step forward, but she believes there is a case for raising the cap even higher – up to $500,000.

Alison Maynard, chief executive of FOS, says ASIC’s consultation is consistent with the FICS board’s decision last year to reassess monetary limits in 2009.

Last year, FICS increased the limit to $150,000 for financial advice complaints and to $280,000 for life insurance complaints, effective from July 1 this year.

“We have an obligation to be effective and if you’re rejecting a number of complaints because they’re outside your monetary limits, then to be an effective organisation you need to look at that, which is what we did last year,” she says.

 “There was a commitment [made last year] to revisit the issue of monetary limits in July, 2009, so we would see this ASIC review as being quite in line with what the FICS board had previously decided; that is to look at [limits] again in 2009 and that in the future there should be some harmonisation, or that you would have to have regards to limits across all of the complaints schemes.”

According to FICS’ annual report for 2007, 430 complaints were finalised in the past year. A total of 33 written financial planning complaints were rejected for being over the monetary limit.

However, Maynard says the figure is only indicative, rather than absolute.

“If someone rang before they wrote to us, we would have told them ‘your complaint is above the limit’, so that’s probably only part of the picture, but it’s still a substantial number to be turning away,” she says.

The Financial Planning Association of Australia (FPA) has begun consulting with members on Key Principles for External Dispute Resolution and will be tabling the FPA’s External Dispute Resolution Principles as part of the ASIC consultation process.

“It is an ideal time to enhance the current system under its new umbrella structure, for the benefit of consumers and members of the financial services industry,” says Jo-Anne Bloch, chief executive officer of the FPA.

“We also note that FICS previously committed to reviewing monetary limits in 2009, after extensive debate last year. There were no commitments made to increasing limits to $280,000 any earlier. We would be extremely concerned if greater pressure was applied to this issue without the appropriate consultation and consideration of the impact for members.”

As part of the consultation, ASIC is also considering bringing the internal dispute resolution (IDR) procedures in line with the new Australian standard on complaints handling (AS ISO 10002), and requiring EDR schemes to publicly report in the annual report the quantity of complaints received against each individual scheme member.

The consultation paper was released just days after ASIC’s new structure kicked in.

Under the restructure, which took effect on September 1, there are 12 stakeholder teams and eight deterrence or enforcement teams, each headed up by a senior executive leader.

Deborah Koromilas, assistant director, financial services compliance at ASIC, has been appointed senior executive leader of the financial adviser team.

Submissions close on November 7.

A new consultation paper from the Australian Securities and Investments Commission (ASIC) proposes increasing the cap on compensation that can be awarded by an external dispute resolution (EDR) scheme to $280,000.

The consultation on Regulatory Guidance 139 and 165 follows the creation of the new Financial Ombudsman Scheme (FOS), which came about through an amalgamation of the three dispute resolution bodies – the Financial Industry Complaints Service (FICS), the Banking and Financial Services Ombudsman (BFSO) and the Insurance Ombudsman Service (IOS).

“To ensure that the majority of consumer complaints can be heard through an EDR scheme, as an alternative to the court process, we propose to increase the cap on EDR scheme compensation to $280,000, to reflect the significant increases in the value of consumers’ investments in recent years,” says Jeremy Cooper, ASIC deputy chairman.

“This would mean that some schemes would need to lift their current limits within an appropriate transitional period.”

He adds: “It is timely that we review our guidance so that the new Financial Ombudsman Service has the best possible framework in which to develop its terms of reference over the next 18 months and set the standard for external dispute resolution.”

ASIC is also proposing that consumers and investors with a complaint that exceeds a scheme’s compensation cap should be able to waive the excess to access the scheme.

Prior to the merger, consumer body CHOICE had been lobbying for FICS to raise its monetary limit on complaints to $280,000, in line with BFSO and IOS.

Elissa Freeman, senior policy officer at CHOICE, says the proposal to apply the limit to the award, rather than the claim, is a positive step forward, but she believes there is a case for raising the cap even higher – up to $500,000.

Alison Maynard, chief executive of FOS, says ASIC’s consultation is consistent with the FICS board’s decision last year to reassess monetary limits in 2009.

Last year, FICS increased the limit to $150,000 for financial advice complaints and to $280,000 for life insurance complaints, effective from July 1 this year.

“We have an obligation to be effective and if you’re rejecting a number of complaints because they’re outside your monetary limits, then to be an effective organisation you need to look at that, which is what we did last year,” she says.

 “There was a commitment [made last year] to revisit the issue of monetary limits in July, 2009, so we would see this ASIC review as being quite in line with what the FICS board had previously decided; that is to look at [limits] again in 2009 and that in the future there should be some harmonisation, or that you would have to have regards to limits across all of the complaints schemes.”

According to FICS’ annual report for 2007, 430 complaints were finalised in the past year. A total of 33 written financial planning complaints were rejected for being over the monetary limit.

However, Maynard says the figure is only indicative, rather than absolute.

“If someone rang before they wrote to us, we would have told them ‘your complaint is above the limit’, so that’s probably only part of the picture, but it’s still a substantial number to be turning away,” she says.

The Financial Planning Association of Australia (FPA) has begun consulting with members on Key Principles for External Dispute Resolution and will be tabling the FPA’s External Dispute Resolution Principles as part of the ASIC consultation process.

“It is an ideal time to enhance the current system under its new umbrella structure, for the benefit of consumers and members of the financial services industry,” says Jo-Anne Bloch, chief executive officer of the FPA.

“We also note that FICS previously committed to reviewing monetary limits in 2009, after extensive debate last year. There were no commitments made to increasing limits to $280,000 any earlier. We would be extremely concerned if greater pressure was applied to this issue without the appropriate consultation and consideration of the impact for members.”

As part of the consultation, ASIC is also considering bringing the internal dispute resolution (IDR) procedures in line with the new Australian standard on complaints handling (AS ISO 10002), and requiring EDR schemes to publicly report in the annual report the quantity of complaints received against each individual scheme member.

The consultation paper was released just days after ASIC’s new structure kicked in.

Under the restructure, which took effect on September 1, there are 12 stakeholder teams and eight deterrence or enforcement teams, each headed up by a senior executive leader.

Deborah Koromilas, assistant director, financial services compliance at ASIC, has been appointed senior executive leader of the financial adviser team.

Submissions close on November 7.