Members of the Financial Ombudsman Service and Credit and Investments Ombudsman should be prepared for possible complaints.
Every Australian Financial Service Licence (AFSL) holder dreads the thought of a customer complaint being escalated to the Financial Ombudsman Service (FOS) or Credit and Investments Ombudsman (CIO).
However in the event this occurs, AFSL holders should have an understanding of the process. If you are a member of FOS or CIO, take the time now to make sure your contact details are up to date.
The registered contact details are how you will be contacted by FOS if a complaint comes in.
FOS proceedings are not bound any legal rules of evidence and therefore not subject to precedent.
FOS has an obligation to carry out its consideration and resolution of disputes in a manner that is fair to the AFSL holder and the client bringing the dispute.
FOS is only required to draw out the facts but does not require parties to give evidence under oath.
CIO is another ASIC-approved external dispute resolution (EDR) scheme.
AFSL HOLDERS AVOIDING DETERMINATIONS
In a recent trend by AFSL holders, consumers are failing to receive entitled compensation from FOS determinations.
This is due to an increasing number of AFSL holders cancelling their AFSL once a determination by FOS has been reached, therefore avoiding the required compensation to the client.
This practice is certainly not recommended and AFSL holders are encouraged to follow the terms outlined in a determination.
Currently there is close to $15 million in outstanding amounts to be paid that have been awarded in determinations.
AFSL holders should also ensure they have adequate Professional Indemnity (PI) Insurance to cover monetary payments found in a FOS recommendation or determination.
AFSL holders may find that the PI Insurance they currently hold is not sufficient in covering FOS determinations or that the excess on the policy is prohibitive.
HOW DOES FOS WORK?
FOS is an independent body and is governed by its own Terms of Reference.
Disputes escalated to FOS require no payment by the client.
FOS calculates the cost of a dispute upon closure of the matter which is payable by the AFSL holder.
The fee is dependent on two factors – the point in the EDR process when the dispute has been resolved and the complexity of the dispute.
All disputes are charged a once off registration, acceptance and initial case management fee.
TIPS FOR INTERNAL DISPUTE RESOLUTION
Pointers for IDR:
1. Ensure the response to the client is on company letterhead rather than on your legal or compliance firm’s letterhead.
ASIC has recently issued a media release about QBE Insurance (Australia) Limited corresponding with clients on the letterhead of the company’s legal representation and the barriers it creates for clients.
ASIC also found that corresponding with clients on legal letterhead was inconsistent with an AFSL holder’s dispute resolution obligations and Australian standards for complaints handing.
2. Consider whether the complaint is really about you or whether it is actually more appropriate that the client contacts a product provider or some other party. Tell them who to contact in writing.
3. Do a cost benefit analysis in terms of the time you will spend defending the complaint versus the cost of settling the matter.
4. Remember that complaints can feel personal and often responses become emotional, it is good practice to get someone external to the situation, ie. a colleague, compliance consultant or lawyer, to proofread the response before it is sent out.
POINTS TO CONSIDER
In the circumstance that an AFSL holder has a FOS dispute bought against them, we recommend considering the points below:
1. If you haven’t already let your PI insurer know about the complaint and the potential for paying compensation, now is the time to do so.
2. Do your cost benefit analysis again – speak with FOS to get an indication of the fees that will be charged each step of the way through their process.
3. If the AFSL holder does not feel that they are the appropriate person to be on the receiving end of a complaint, the AFSL holder should deter FOS from investigating them any further and point FOS toward a more appropriate person to be on the receiving end of the complaint.
4. Can the dispute excluded based on it falling outside the FOS Terms of Reference? Read the provisions carefully. This may help you avoid a lengthy FOS dispute.
5. Have all necessary documents on hand and easily accessible to ensure you can provide responses to FOS within the specified time frame and ensure the dispute is resolved in a timely manner. It is best practice to ensure all correspondence with clients is kept.
HOW WILL THE DISPUTE BE RESOLVED?
When an applicant first lodges a dispute with FOS, FOS will refer the dispute back to the AFSL holder and set a time frame for the AFSL holder to either resolve the dispute or provide an IDR response (if this has not already been done).
FOS sets time frames for responding to their queries on a case-by-case basis.
Throughout the dispute process, FOS may require a party to a dispute to provide any information that has been deemed necessary to understand all of the facts of the dispute.
The party requested to provide information must comply within the specified time frame. In some circumstances FOS may require a party to attend an interview, request the AFSL holder investigate the dispute further or have an independent expert review the dispute and report back to FOS on any matter pertaining to the dispute.
Throughout the EDR process FOS may allow/require another party to be joined to the dispute proceedings.
After giving the parties to a dispute an opportunity to make submissions and provide information about matters in the dispute, FOS will make a recommendation.
The recommendation will be in writing and provided to all parties. FOS’s recommendation will outline the action/s or monetary compensation arrangements the AFSL holder or the applicant will have to undertake.
If both parties to the dispute accept the recommendation within 30 days of it being received, the dispute will be resolved on the basis of the recommendation.
However, if an AFSL holder does not accept the recommendation or either party is not happy with the result, the AFSL holder or the applicant can request a determination.
A determination will be made by either an ombudsman, adjudicator or FOS panel. Before the determination is made, both parties will again be given an opportunity to make submissions and provide any further information in response to the recommendation.
A determination is final, and the applicant can either accept or reject the determination reached by FOS.
If the applicant accepts the determination it becomes binding on both parties, however if the applicant rejects the determination it is not binding on the AFSL holder and the applicant can look to other means for dispute resolution ie. court action. The AFSL holder can neither accept nor reject the determination.
DISPUTE RESOLUTION SYSTEMS
All AFSL holders that deal with retail clients are required to have adequate dispute resolution procedures in place to handle customer complaints.
The AFSL holder should have an IDR system (this means a process for handling complaints that come direct to your business) and be a member of an ASIC approved EDR scheme under section 912A of the Corporations Act system to effectively deal with consumer complaints.
In the circumstance that a complaint is brought against the AFSL holder, final IDR responses to clients should be issued within 45 days of first receiving the complaint.
Should membership with the EDR scheme cease, the AFSL holder is in breach of one of its AFSL obligations. ASIC will also need to be advised should EDR membership details change.
ASIC is required to be notified within three business days of EDR membership cessation or change of details.
Sophie Gerber is a lawyer and director of Sydney-based consultancy Sophie Grace Compliance.
She specialises in financial services regulatory issues including AFSL applications and ongoing management, PI insurance, external dispute resolution and ASIC actions.
She has degrees in commerce and law from the University of Sydney and completed coursework in international finance at Boston University in the United States.
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