Escaping the minefield of advice remediation 

Alex Burke,  Senior Writer,  No More Practice Education

With Treasury's review of the Australian Financial Complaints Authority now underway, serious concerns have been raised as to whether the duplication of consumer remediation guidelines may be putting advice businesses at unnecessary risk.

These concerns, highlighted at length in the FPA's submission to the review, involve four different pillars of the consumer remediation framework in Australia. These are: the existing compensation obligations in the Corporations Act, ASIC's RG 256, the Financial Services and Credit Panel (FSCP) under ASIC which will oversee adherence to the FASEA Code of Ethics and the internal dispute resolution/external dispute resolution system.

Each piece of legislation/regulatory guidance, the FPA notes, contains different set timeframes and definitions for consumer remediation, and that's before considering that ASIC is currently consulting on updates to RG 256 which may alter these further. Moreover, new definitions and obligations pertaining to breach reporting and client notification will also apply as part of the Financial Sector Reform (Hayne Royal Commission Response) Act 2020 from October 1st.

All of this can create circumstances where ASIC, the FSCP's single disciplinary body and AFCA are investigating the same matter - and, potentially, charging licensees for the privilege. (The FPA points to AFCA's charges to licensees for the operation of an EDR scheme and ASIC funding its investigation via the industry levy as examples.) In order to fix this, the FPA recommends rationalising the licensee remediation obligations in the FSRC Act, the FSCP's enforcement of the FASEA Code, consumer rights in the Corporations Act, ASIC's updated consumer remediation guidelines and the mechanisms of IDR and EDR schemes.

The submission also suggests that duplication of remediation processes (and associated costs) is complicated further in instances where complaints made through AFCA are "frivolous, vexatious and malicious".

This is because while an individual matter can be closed/resolved at various points in AFCA's seven-stage complaint resolution process, a complainant can request that their complaint proceed to full determination - even if, as the FPA notes, "multiple AFCA resolution points have found in favour of the planner and not awarded compensation to the consumer, and the [EDR] scheme has recommended the complaint does not proceed further."

In this scenario, the submission adds, the proverbial vexatious complainant incurs "little impact" while resources are diverted away from "valid EDR complaints". On top of that, these kinds of vexatious complaints can be "devastating" for advice providers, with outcomes including "loss of face, financial costs, time diverted away from servicing clients and a significant impact on PI insurance premiums" even in cases where the complaint has been successfully defended.

To address these problems, the FPA has recommended two things: first, that if AFCA's resolution finds in favour of the adviser and the EDR scheme doesn't recommend that complaint process continue, the complainant should not have the option to proceed.

Second, if a complaint proceeds despite multiple resolution points finding in favour of the adviser, no compensation being awarded to the consumer and the EDR scheme recommending it not proceed, and a full determination again finds in the adviser's favour, the cost of the complaint should be shared and recovered through the annual AFCA membership fee for the relevant industry sector.

This, the FPA argues, "would reduce the impact on innocent firms and the flow on effects to ongoing professional indemnity insurance costs and exclusions."

Consultation on the AFCA review has closed and a report is expected by June 30th.


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