FOS -Unpaid Determinations
For a number of years the FOS has been disclosing the fact that a very significant number of the Determinations that it has issued in the Investments and Advice area have not been paid (this being the area that financial planners fall into) – incredibly nearly a quarter of all Determination issued with respect to this area since 1 January 2010 have not been paid – the underlying figures being 137 Determinations that as at 1 June 2016 had a value of $16.6M. The problem is actually far worse because many clients who would have otherwise made a claim will not do so if they believe that their claim will not be paid – I’ve told many clients that there is nothing that I can do for them, for this reason.
The Corporations Act requires all AFSL holders to have adequate insurance arrangements in place. Like much of what occurs in financial services regulation the myth and the reality are very different. In practice, many AFSL holders provide advice without having PI insurance at all, have inadequate PI insurance coverage, have a deductible that is so high that they cannot pay it, have insurance coverage that is so limited that it is effectively useless or provide advice about matters that falls outside of the ambit of the policy such that the Insurer can deny coverage. The outcome with respect to unpaid Determinations reflects this practical reality.
As I have said in other posts – we don’t need any more laws or inquires about the financial services industry – we just need the proper enforcement of the laws that we have. What is the point of holding an inquiry into the FOS’ operations in circumstances where a very significant number of its Determinations are unenforceable – the FOS could have the best processes in the world but what is the point if its Determinations don’t get paid. ASIC needs to take action – all Responsible Managers who are associated with an AFSL holder that cannot meet a FOS Determination should be banned for a significant period. If this were to happen, the number of unpaid Determinations would surely drop significantly.