AFCA should be able to name firms that ignore determinations: FAAA

During the period from 1 April 2024 to 31 March 2025, a total 64 financial firms have failed or refused on at least one occasion to give effect to an Australian Financial Complaints Authority (AFCA) determination.

While AFCA noted in its 2025 proposed rules amendments paper that failing to comply with a determination is a “serious breach” and can result in expulsion from the complaints scheme, which would also mean a firm is no longer able to offer financial services to retail clients.

However, its current rules do not allow the authority to name a financial firm that has not complied with a determination.

In its submission to the consultation on the proposed rules update, the FAAA said it would “strongly support” changing this rule to allow public naming.

“The failure of financial firms to pay AFCA determinations and the resultant impact on the Compensation Scheme of Last Resort (CSLR) is a particularly important issue for our organisations and our members,” the FAAA said in its joint submission with the SMSF Association, CA ANZ, CPA Australia, and the Institute of Public Accountants.

“Financial advisers are evidently covering more than 75 per cent of the cost of the CSLR and the cost is expected to increase substantially over the next couple of years. The cost of the CSLR is a major threat to the financial advice sector.

“We strongly support greater publicity with respect to those who fail to pay, enabling other participants in the financial services industry to see those entities that have contributed to the cost of the CSLR.”

It noted that there have been a spate of licence cancellations stemming from failures to comply with determinations, with ASIC taking action once the CSLR has paid a claim.

The first of these was Sequoia Financial Group subsidiary Libertas Financial Planning in August 2024, however it was far from the last.

While ASIC names the firms involved, the FAAA argued it is a “suboptimal outcome” given the limited additional detail released.

“We believe that greater awareness of these unpaid determinations is both important and a strong disincentive to those responsible for businesses that put clients in this position,” the submission said.

The FAAA said the publication of information on unpaid determinations should include firm-level reporting for each relevant sector of “the total number of unpaid determinations and gross amount payable for both the current year and on a cumulative basis across all years”.

“Whilst we do not want to cause excessive additional work for AFCA, we would like to see this information updated on a monthly basis (or if this is not possible, then at least quarterly),” it said.

“We also consider that it may be appropriate for AFCA to issue media releases with respect to specific firms, once the number of unpaid determinations reaches a certain threshold (such as 25 or 50).

“This would be an important message for the clients or former clients of this financial firm. The publication of information on unpaid determinations will help the financial advice sector to understand where these problems are arising and be better able to project the likely impact on future CSLR levies. This would be a form of early warning system for emerging issues.”

According to the submission, beyond helping improve transparency for consumers of firms that have failed to meet their obligations, it would also help identify “phoenixing activity” where related entities of failed firms continue to operate.

“The threat of publication of this information provides an additional incentive for financial firms to pay their determinations on time and without delay or refusal. We would expect that the consequences of being named by AFCA would be an important motivator,” it said.

Further, it is “particularly unfair” that clients that have gone through the AFCA process and received a determination to not be paid, the submission added.

“In certain cases, depending upon the sector that the firm belongs to (such as financial advice), this will be addressed (either fully or partially) through the payment of compensation by the CSLR. In other cases (such as managed investment schemes), it will not, due to the limitations of the CSLR and the exclusion of that specific sector,” the FAAA said.

“AFCA was established to ensure the fair payment of compensation to those clients/consumers who have suffered as a result of misconduct and mistakes. The fact that some clients/consumers do not get paid (or are paid via the CSLR), is a reflection on the system as a whole and should be publicly available information.

“This can be a useful trigger to highlight the need for further reform or other action by the government or other authorities and delivering this outcome provides the benefit of increased transparency. Where this results in additional reforms, this should better enable overall fairness.”