Deadlines for failed financial firms a ‘challenging’ question: AFCA

The deadline for impacted clients to make complaints to the Australian Financial Complaints Authority (AFCA) once ASIC has cancelled a firm’s licence has been a hot topic for financial advisers in the context of the Compensation Scheme of Last Resort (CSLR).

Before the CSLR was in operation, for the most part this wasn’t a concern for the broader advice profession, as it only impacted the firm itself and any clients seeking remediation through the external complaints process.

However, now that the costs of AFCA determinations on firms that are unable to pay get passed along to other advisers through the CSLR, how long impacted clients have to make a complaints can drastically alter the levy advisers need to pay.

“The deadline question is a challenging one,” AFCA lead ombudsman for investments and advice Shail Singh said on the ifa podcast.

“Take the Dixon scenario, right? In my view, consumers need an adequate chance to make their claim, right? So, the deadline exists because they've either gone into liquidation or ASIC's cancelled their membership, cancelled their AFSL.

“And then, if you go back to first principles, what ASIC has been doing is they cancel it and then they give notice. Normally it's a year to allow people to make claims. That's sort of how the system's supposed to work, that it enables consumers to make claims.”

In a statement in July last year, Financial Advice Association Australia (FAAA) chief executive Sarah Abood noted the large number of complaints made in the final weeks of Dixon’s membership, with an extended AFCA membership exacerbating that amount.

“Now that Dixons’ AFCA membership has finally ceased – after two false deadlines, and almost 2.5 years after being put into administration – we can see the full potential impact of this matter on our profession and the costs we may need to pay for it, via the CSLR,” Abood said.

General manager policy, advocacy and standards Phil Anderson told ifa that the “late rush of an extra 263” pushed the cost to advisers into the range of $136 million.

“We’ve now got 1,134 cases that are going to be industry funded … we’re talking about $136 million. That is a very sizable number, and it’s one that worries us greatly, and we will be vigorously continuing our CSLR advocacy campaign, particularly with that escalating our concerns,” he said.

Singh told ifa that the administrator of Dixon paid for an “extra period of membership after ASIC's mandatory period”, leaving the complaints authority with a “challenge”.

“Well, what do we do?” Singh said.

“Because normally it would just lapse. But as you know, we decided to cancel it because consumers had enough time and it's not fair.

“Every law in the country requires there's a statute of limitations, so you've only got a fixed time. The balance is giving consumers an adequate opportunity to make their claim versus … the industry and everyone having certainty around when that period will end.

“That's the balance. Now, I think it's an ongoing challenge for everyone.”

The issue has once again reared its head with the First Guardian Master Fund failure, with ASIC only taking asset freezing action against the fund and its responsible entity in February this year.

However, United Global Capital (UGC), which had itself collapsed in 2024, had directed clients into First Guardian as well as its own failed fund.

With UGC’s AFCA membership ceasing at the end of May this year, many clients may not have even realised that there was an issue in need of complaint until just a few months before that deadline – or well after it had passed.

“I don't think that's ideal where consumers have missed out,” Singh said.

He added: “I think the answer to this is a challenge. It's a challenge for all of us, for regulators. UGC wasn't cancelled because of the link to [First Guardian], that only came up very late in the piece. I think then it becomes a challenge. Have consumers got enough time?

“Now, I would point out with UGC, all these consumers that had the link to First Guardian were written to by ASIC a number of times. Right now, the reality is some of them still didn't click where their claim might lie. And I'm not criticising them for that, but I think this is the ongoing challenge.”

This challenge, Singh added, is ensuring that impacted consumers understand where the claim needs to be made.

“It's extremely brutal for them when the membership is cancelled because that extinguishes the rights to claim,” he said.

“It's really balancing consumer rights and really what the thing's designed for, which is that people do have enough time to complain. And with First Guardian and Shield, it is so complex. There's so many entities involved, consumers struggle to understand who to claim against, but then that's against trying to give certainty around the periods.”

To hear more from Shail Singh, tune in here.