AFIA opposes reducing compensation threshold from $20 to $5
The Australian Finance Industry Association (AFIA) has opposed the Australian Securities and Investments Commission’s (ASIC) proposal to lower the consumer compensation threshold from $20 to $5, citing it would put unnecessary burden on operational costs.
ASIC’s proposal was contained in a draft regulatory guide released in November which would update the existing Regulatory Guide 256 (RG 256) to consult on the way licensees should conduct remediations to return money owed to consumers.
At the time, ASIC deputy chair, Karen Chester, said the guidance would be expanded to cover all financial services licensees, credit licensees and retirement service providers and would be aimed at helping firms remediate with greater confidence and speed.
In its submission to ASIC, AFIA chief executive, Diane Tate, drew specific attention to the operational impost of the threshold change for financial providers needing to contact or issue cheques for customers without bank account details.
“AFIA believes that the existing low compensation threshold of $20 is practical. It balances the needs of customers and financial services providers in returning customers, as near as possible, to the position they would have otherwise been in had the misconduct or other failure not occurred,” she said.
In addition, AFIA recommended that where a financial services provider did not have the customer’s bank account details, that a charitable donation for amounts below $20 per customer be permitted.
“This approach ensures the financial services provider does not derive any benefit from the error and there is a relevant community benefit,” Tate said.
AFIA also did not support changing remediations to include incidents that went back more than seven years.
“AFIA believes that having a ‘fixed’ seven-year threshold will increase certainty around compliance settings and drive more consistency across the industry and aligns with various corporate record keeping requirements,” Tate said.
“It will also be useful and bring objectivity where a complaint is referred to the AFCA and they consider whether the remediation has been undertaken in a way that is ‘fair’.”
The Financial Services Council (FSC) had also called on ASIC to not lower the compensation threshold as it would result in disproportionate additional operational costs to licensees, increased risk of scam activity and other potential customer detriment.
ASIC had not yet set a date as to when it would publish its final regulatory guide.
Earlier this week, Money Management reported that the Big Four banks, AMP and Macquarie had paid or offered a total of $3.1 billion in compensation to customers who suffered loss or detriment because of fees for no service misconduct or non-compliant advice as at 31 December, 2021.
AUTHOR
Liam Cormican
Recommended for you
The FSCP has announced its latest verdict, suspending an adviser’s registration for failing to comply with his obligations when providing advice to three clients.
Having sold Madison to Infocus earlier this year, Clime has now set up a new financial advice licensee with eight advisers.
With licensees such as Insignia looking to AI for advice efficiencies, they are being urged to write clear AI policies as soon as possible to prevent a “Wild West” of providers being used by their practices.
Iress has revealed the number of clients per adviser that top advice firms serve, as well as how many client meetings they conduct each week.
