The FPA recently made a submission to the Australian Financial Complaints Authority, expressing concerns about how the new remediation body will deal with legacy complaints.
In the submission, FPA head of policy and professional standards Ben Marshan detailed the current rules, whereby "legacy complaints must be determined in accordance with the scheme rules as in force at the date the instrument commences, being 30 June 2019."
These rules are that the AFCA decision maker must do what they consider is fair in all the circumstances regarding:
Marshan noted that this language left unclear as to whether the AFCA decision maker's judgement is based on "the law, codes, guidance and good industry practice available at the time the conduct occurred."
This lack of clarity was concerning because AFCA is able to make decisions pertaining to complaints made as far back as January 2008, during which the GFC occurred and after which there were "significant changes in the laws governing financial advice, including the Future of Financial Advice (FOFA) reforms and the introduction of the Tax Agent Services Act 2009 Code to financial planners from 2014."
What's the impact for advisers?
As Marshan explained, complaints that would have fallen outside AFCA's data for jurisdiction will now be considered under the current monetary limits and compensation amounts. Professional indemnity (PI) insurers base coverage and premiums "on the laws of the day relevant to the duration of the risks."
He continued: "As legacy complaints would have passed the date of limitations and the AFCA jurisdiction date, and there have been significant changes in the financial advice laws since 1 January 2008, professional indemnity insurance policies may no longer cover the services provided to the consumer, or provide cover for potential claims and damages for services provided in 2008 based on the AFCA Rules and monetary limits in place on 30 June 2019."
As a further concern, Marshan highlighted feedback from the insurance industry which indicated that “PI cover may be more expensive in the future should there be an increase in claims arising in relation to legacy complaints.”
Ultimately, the FPA recommended AFCA develop separate claims data on legacy complaints, and that claims data on legacy complaints should not inform the development of AFCA’s future funding model.
We’ll keep you posted on how AFCA’s implementation progresses.
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