There have been two reportable incidents of non-compliance since the last update. As a result, between the commencement of our single Terms of Reference on 1 January 2010 and 31 December 2017, these are the latest figures for unpaid determinations:
- Forty FSPs who are unwilling or unable to comply with 157 determinations, affecting 223 consumers;
- In 118 of these determinations, the consumer received no payments at all, despite the requirement on AFSL holders to have ‘adequate compensation arrangements’ in place;
- Of the remaining 39 determinations, partial payment to consumers was usually the proceeds of insolvency proceedings and represented a minimal return on the dollar.
- As a result of this non-compliance, $14,695,298.25 has not been returned to affected consumers.
- This figure does not include any interest awarded on the base award by the Ombudsman.
Only a very small percentage of all FOS members are involved, and these figures represent only a small proportion of all the awards we issue across all our jurisdictions in banking, insurance, life insurance and investments.
However, despite the small number of FSPs involved, unpaid determinations represent 17.05% of all accepted determinations issued in favour of consumers by the Investments and Advice (I&A) team. As a proportion of total compensation awarded by the I&A team, the value of unpaid determinations is 24.04%.
The issue of non-compliance is not spread evenly throughout different sectors of the financial services industry. The top three categories of non-compliant financial services providers are:
1. Financial Planners and Advisors: 55%
2. Operators of Managed Investment Schemes: 13%
3. Credit Providers: 10%
Possible actions to address uncompensated losses
The Ramsay Review panel, tasked with reviewing Australia’s external dispute resolution framework, released their final report in April 2017. Following this, the government announced the formation of the Australian Financial Complaints Authority (AFCA).
The government then extended the terms of reference for the panel to make recommendations on the establishment, merits and potential design of a compensation scheme of last resort and the merits and issues involved in providing access to redress for past disputes in the financial sector.
The Ramsay Review’s Supplementary Final Report has been released on these expanded terms of reference. Since then, the government has announced that it will establish a Royal Commission to investigate allegations of misconduct by Australian banks and other financial services providers.
The Royal Commission is likely to consider many of these issues and therefore the government will defer its consideration of the report until it has concluded.
FOS believes that it is essential for the effective operation of external dispute resolution that consumers who get an award of compensation by FOS can be confident that this compensation will be paid.
You can read more details on unpaid determinations here.