Financial Ombudsman Service (FOS) lead ombudsman (investments and advice), June Smith.
Financial planners would be subject to a single external dispute resolution (EDR) scheme and face higher compensation caps under recommendations contained in the interim report of the Review of the financial system external dispute resolution and complaints framework, released yesterday.
The review, headed by Professor Ian Ramsay and including Productivity Commission commissioner Julie Abramson and CHOICE chief executive Alan Kirkland, recommends a single financial services industry ombudsman scheme to deal with all financial, credit, and investment disputes, with a separate dispute EDR being maintained for superannuation disputes, including group life disputes.
It says this is a first step to eventually integrating the two schemes to “create a single ombudsman scheme for all financial services disputes”.
The report says moving to a single ombudsman scheme will “incorporate all the strengths of the existing industry ombudsman model – such as the focus on providing low cost, fair and accessible dispute resolution, the ability to innovate and adapt to changes in the regulatory and broader socio-economic environment, and the focus on improving industry behaviour – while addressing the problems that arise where the framework consists of multiple schemes with overlapping jurisdictions”.
The review’s terms of reference were to examine three existing EDRs – the Financial Ombudsman Service (FOS), the Superannuation Complaints Tribunal (SCT) and the Credit and Investments Ombudsman Scheme (CIO) – and “consider whether changes to current dispute resolution and complaints schemes in the financial sector are necessary to deliver effective outcomes for users in a rapidly changing and dynamic financial system”.
Most financial planners are currently member of FOS, which itself resulted from the mid-2008 merger of the Finance Industry Complaints Scheme (FICS), the Banking and Financial Service Ombudsman and the Insurance Ombudsman Service. Shortly thereafter, Insurance Brokers Disputes Ltd and the Credit Union Dispute Resolution Centre both merged with FOS. About 30 per cent of FOS’s 13,576 members are financial services providers engaging in the investments and advice area. About 49 per cent are authorised credit representatives.
The report says the proposed new dispute resolution scheme should have a jurisdiction “at least as broad as FOS’s existing jurisdiction”, be independent of its members and sufficiently resourced to make high-quality decisions in a timely manner, and have monetary limits and compensation caps higher than the caps of both FOS and CIO.
It says the review panel found the current monetary limit of $500,000 (that is, the value of the claim under dispute cannot exceed $500,000) and compensation cap of $309,000 are “no longer fit-for-purpose and bear little relationship to the value of some financial products (for example, mortgage balances) that may give rise to disputes”.
The panel did not recommend a monetary limit for the new EDR, but did recommend that whatever new limit is set be subject to indexation. The SCT, by comparison, currently has an unlimited monetary jurisdiction.
(The review recommends that the monetary limit for disputes heard by FOS brought by small businesses be increased from $500,000 to $2 million, and that the compensation cap be raised from $309,000 to $2 million.)
The report says that EDRs remain an important way of providing consumers with a means of redress that is faster and cheaper than the courts, and that they are “generally working well”, providing value for money for both consumers and financial services providers.
However, the history of the various EDRs and their monetary limits and compensation caps mean there are overlaps and gaps in their respective jurisdictions.
It says a new, single industry ombudsman will improve efficiency and equity, reduce complexity and confusion, improve transparency, accountability and consistency of outcomes, and reduce regulatory costs.
The review has called for submissions on the issues raised in its review. The closing date is January 27, 2017.
