When balance is needed on EDR
If planners and licensees are asked to cede ground on the monetary and time limits which apply to FOS claims, then consequent FOS decisions must be laid open to appeals, Mike Taylor writes.
It is no secret that many financial planners have a very jaundiced view of the financial planning industry's primary external dispute resolution (EDR) organisation, the Financial Ombudsman Service (FOS) believing, rightly or wrongly, that its decisions tend to err on the side of complainants.
It is therefore hardly surprising that a specialist financial services lawyer has point to the Australian Securities and Investment Commission's (ASIC's) ongoing development of a regulatory guide dealing with how financial services licensees should undertake review and remediation processes.
The ASIC process was generated by events within Commonwealth Financial Planning, Macquarie Bank and other instances where advice review and remediation processes were put in place but, importantly, the eventual ASIC guide will be aimed at dealing with much smaller entities than the major banks and vastly less capacity to reimburse clients who have received bad advice.
Thus, where the Commonwealth Bank has had the funds and resources to evolve what many now consider to be an industry best-practice advice review and remediation process, lesser entities will be forced to rely on the basic foundations which have been in place for years - resort to EDR and, if necessary, a professional indemnity insurance claim.
However, licensees and planners who have used EDR and have had to resort to a PI claim know the process is far from easy, not to say flawed.
It is on this basis, that financial services lawyer, Ian McDermott, was probably right to point to the language being used by ASIC when it announced development of the regulatory guide in May.
Describing the intended environment, ASIC said:
"Clients must have free access to processes to review the licensee's assessment of their advice. This will generally be through normal EDR review but licensees may be required to waive any time limit, monetary or other limits that might constrain the EDR scheme's jurisdiction.
"Licensees should engage with the EDR scheme when establishing the review and remediation program to agree upfront the relevant documentation, timelines and other arrangements to facilitate streamlined consideration, review and decision by the EDR scheme when necessary.
"Clients should receive clear communication about their EDR options. In many cases it will be appropriate to offer assistance to clients who wish to seek their own independent professional advice to assist their response to a review and remediation program."
In other words, taken at face value, the regulator could be viewed as contemplating circumstances within which financial planning firms should be prepared to cede the usual monetary and time limits which normally apply to matters considered by FOS. What is more, they would be expected to do so at a time when their commercial interests are most at risk.
Noting this, McDermott, the principal of imac legal & compliance, said he believed planners and licensees should stand ready to oppose the trading away of monetary and time limits.
He said that while he had every sympathy for innocent people who had lost money as a result of poor advice or other conduct and believed it was important for them to have legal recourse to compensation where the wrong thing had been done, ASIC might be aiming to go too far.
"...it is going too far to expect advice firms to have a blank cheque awaiting the outcome of an EDR determination," McDermott said.
Not unreasonably, he pointed to the common criticism of FOS and other EDRs - that they do not have the same judicial standing as the courts and that there are no rights of appeal.
"What's more, in agreeing to be a member of such schemes, AFS licensees also agree to be bound by the decisions of the EDR scheme and not to pursue any legal rights of appeal," he said. "In other words, licensees already trade away many of the legal rights that are the bedrock of our justice system in order to provide a cost-effective EDR solution for consumers."
McDermott said that it was in these circumstances that it was not appropriate that AFS licensees should also waive monetary award and time limits.
What McDermott might also have said is that if ASIC is to produce a regulatory guide which effectively asks planners and licensees to cede serious ground in terms of time limits and monetary exposures, then the performance of FOS also requires review and possibly the notion that its decisions should be open to appeal, perhaps to the Administrative Appeals Tribunal (AAT).
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