ASIC action set to stymie FICS

Alison Maynard

The decision by the AustralianSecurities and InvestmentsCommission (ASIC) to take legal action on behalf of Westpoint investors has thrown into jeopardy 40 complaints by Westpoint investors to the Financial Industry ComplaintsService (FICS).

This is the result of section 50 of the ASIC Act — under which ASIC is pursuing legal action against an initial five financial planning dealer groups — inadvertently coming into conflict with current FICS operating rules.

Section 50 of the ASIC Act enables the regulator to undertake civil proceedings for damages for investors in cases where ASIC considers the proceedings to be in the public interest.

On the other hand, FICS’ rule 14.1 (n) prohibits FICS from dealing with a complaint, or continuing to deal with a complaint, where the complainant commences legal proceedings relevant to that complaint.

ASIC and FICS are currently liaising on how this conflict will affect the current 40 FICS complaints, as well as the impact on FICS of any decision ASIC takes to pursue additional dealer groups over Westpoint.

ASIC, which will be seeking $63 million in damages from the five dealer groups, has already announced (in media release 07-291) that it is considering action against additional dealer groups over the failed property scheme.

The two bodies have so far agreed that FICS should continue processing the current 40 cases until ASIC actually launches its Westpoint proceedings, which is expected to occur early next year.

In order for ASIC to launch proceedings under section 50 on behalf of an individual, that individual must give ASIC written consent for the action to proceed, which has not yet occurred in the Westpoint case.

However, the conflict between the two sets of regulations will effectively require an investor to drop their Westpoint complaint through FICS once they have given ASIC written consent.

FICS chief executive Alison Maynard agreed that “after ASIC proceedings are issued, (Westpoint) consumers will actively need to decide whether to continue with their FICS complaint or participate in the ASIC proceedings”.

“Some of the 40 FICS complainants affected (at this stage) by the pending ASIC legislation have already advised FICS that they want their complaints to stay with FICS,” she added.

Specialist financial planning lawyer Mark Halsey said “no further FICS fees should be incurred by AFSL [Australian Financial Services Licence] holders subject to FICS complaints that are now part of ASIC’s proposed section 50 actions”.

“My concern about this process is that such an investor will have already caused the licensee to meet all of the FICS fees and expenses in dealing with the FICS system.

“If the FICS complaint is discontinued, there does not seem to be any recourse to the AFSL holder — who will now face new and additional expenses — to recover the FICS-related expenses,” he said.