In our March 2014 Special Circular we discussed the issue of some consumers not receiving compensation from financial services providers following FOS determinations. This article provides an update on the number of unpaid FOS determinations for the period 1 January 2010 to 30 June 2014 (the period for which FOS’s Terms of Reference has been operating).
Since 1 January 2010:
- 22 financial services providers (FSPs) have been unwilling or unable to comply with 105 FOS determinations made in favour of consumers.
- As at 30 June 2014, the value of the outstanding amounts awarded by these determinations is $10,157,401.23 plus interest (interest accrues at approximately 5% per annum).
- Four unpaid determinations relate to disputes that are now the subject of legal proceedings commenced by FOS.
This issue affects approximately 150 individuals whose claims FOS upheld but who have not been paid the compensation awarded to them.
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, unpaid determinations represent 29.33 per cent of all determinations issued in the Investments, Life Insurance and Superannuation (ILIS) area, and relate to disputes in the financial planning and advisory sector. This is despite the small number of FSPs involved.
Possible actions to address uncompensated losses
The interim report of the Financial System Inquiry canvasses the concerns expressed by FOS and others that current compensation arrangements are not adequate to provide redress to consumers who have suffered financial loss. It also canvasses some of the issues about the sufficiency of relying on professional indemnity insurance as a compensation mechanism. The interim report noted that submissions were mixed on the need for a statutory compensation scheme. The Inquiry is now seeking further information on the question: Given the limitations of professional indemnity insurance, what options, if any, exist for addressing the issue of consumer loss?
FOS remains an advocate of some form of limited compensation scheme of last resort as the most effective way to deal with the issue of consumer losses. We remain willing to work with all stakeholders on how such a scheme can be designed and funded in a way that addresses stakeholder concerns while also addressing consumer needs. We will provide a further submission to the Inquiry in response to their request for more information on this issue.
You can read more details on unpaid determinations here.