Welcome to the autumn edition of The FOS Circular for 2015.
The last couple of months have been a particularly busy time for FOS.
Last resort compensation scheme - the missing element in current reforms
I am pleased that the issue of a last resort compensation scheme has been receiving renewed attention and support in recent weeks. FOS has long been an advocate for such as scheme.
Based on our dispute experience, FOS supports current moves to improve the professionalism and competency of the financial advice and planning sectors. However, as highlighted in our recent FOS FSI submission, the lack of a last resort compensation scheme to address unpaid FOS determinations is the missing element in the current reform proposals designed to restore confidence and trust in the financial advice industry.
We consider the implementation of such a scheme is an essential pre-condition for any recognition of the industry as meeting the standards of a profession.
The public policy behind such a scheme is already well established as part of the consumer protection and licensing mechanisms in the Corporations Law. The Corporations Law currently requires all licensees to have compensation arrangements for the purpose of ensuring that where consumers have legitimate claims, these get paid.
The existence of some $21 million dollars of unpaid FOS determinations highlights the failure of the current approach to deliver the clear objectives of the current Corporations Law licensing provisions.
Every review of this topic over the years has confirmed that the current mechanism of Professional Indemnity Insurance does not work as an effective consumer compensation mechanism.
The challenge is that while there is widespread acceptance of the problem and of a market failure, everyone in the industry points to someone else as responsible for fixing the problem. The result is that consumers continue to lose out in getting paid the compensation due to them.
FOS considers that it is time for industry leadership and for all relevant stakeholders to come together in putting the interests of consumers first.
FOS has provided details on how such a scheme could be structured and operated in our various submissions over a number of years and we remain willing to work with all stakeholders on the design and implementation of a cost effective last resort compensation scheme.
General customer remediation programs
Our FSI submission also sets out the principles and framework we consider should apply to general customer remediation programs by financial firms when these are required to address customer concerns.
We recommend in our submission that ASIC should establish industry-wide principles and operating guidelines for the implementation of major remediation programs by FSPs, including interaction with independent dispute resolution arrangements.
We consider an industry-wide framework should leverage FOS’s existing well-established role as an ASIC-approved independent External Dispute Resolution scheme, its extensive experience in resolving financial sector disputes, current Ombudsman infrastructure and streamlined processes for dealing with significant event disputes
FOS is ready to work with ASIC and Financial Service Providers to put in place tailored general customer remediation programs when required based on the principles and framework set out in our FSI submission.
There has been some recent incorrect reporting that FOS jurisdiction is limited to awards of $150, 000. This is not correct. The current compensation cap per claim is in fact $309,000. You can read more about the compensation limits under the revised Terms of Reference, which was covered in the January 2015 edition of The FOS Circular.
FOS dispute process reforms
With 1 July fast approaching we are working on the practical, detailed implementation issues involved in the transition to going live with our new dispute resolution process.
Thank you to all our stakeholders for the feedback you have provided about how we can improve dispute resolution. I am pleased to report that in addition to reaching our goal of eliminating the dispute backlog in our case management area, we have now also reduced our dispute backlog at the Decision stage.
In this edition of The FOS Circular we have included the quick guide for members explaining our new dispute process starting 1 July 2015. I trust you will find this helpful and encourage you to keep an eye on our website over the coming few months as we continue to share more information on what the new process means for our stakeholders.
We have also published two FOS Approach documents, which explain how we deal with section 47 of the Insurance Contracts Act and Statements of Advice.
We have also made a submission regarding the draft Bill on the proposed Small Business and Family Enterprise Ombudsman.
Our latest statistics report shows that we received 8,341 disputes between January and March 2015. This was a slight increase (7%) from the previous quarter and a 4% increase from the same quarter last year. Also included in this edition of The FOS Circular is an update on unpaid FOS determinations and Systemic Issues update.
If you have comments or suggestions about anything you read in The FOS Circular, we would be pleased to hear from you. Please let us know at firstname.lastname@example.org.