Can advisers challenge AFCA determinations?
A determination from the Australian Financial Complaints Authority (AFCA) may be binding, but there is an alternative way for financial advisers to progress if they disagree with an outcome.
While consumers are able to challenge an AFCA outcome in court if they disagree with it, there is no such option available to financial advisers.
Shail Singh, lead ombudsman for investments and advice at AFCA, said a determination is a binding outcome and the firm must provide any remedy in the determination within the specified time frame. It is therefore difficult to challenge a result if it has been arrived at in accordance with AFCA rules.
Asked by Money Management why financial advisers are unable to challenge a decision, Singh shared the alternative route they can choose.
“Under the contract, it says it is a final resolution. To have an AFSL, they need to be members of an EDR [external dispute resolution] scheme, and AFCA is the only EDR scheme, and we have rules that contract advisers to not go to court.
“Technically they can’t go to court, but they can do so on a technicality around the contract if they think there has been a breach of that contract. There’s been around five or six cases, outside of super, that have been taken to court in that way.
“Generally we have won those, but on occasion there have been issues with procedural fairness, for example. To simplify this, you don’t go to court, but there’s technicality where they can for breach of contract.”
He gave the example of a successful case between AFCA and Notesco in 2022, where AFCA’s determination had ordered Notesco to pay compensation to a resident of France who had lost €306,900 ($508,000) by trading contracts for difference (CFDs) on Notesco’s platforms.
The court ruled in favour of Notesco as the required separation between AFCA’s preliminary assessment of the complaint and the determination stage had not been observed.
This was because the same ombudsman had been consulted by the case manager at both stages of the decision process, which the court felt undermined the ombudsman’s independence and impartiality.
However, not all cases are successful as this week, NextGen Financial Group entered into liquidation after failing to pay an AFCA determination of $270,000 regarding inappropriate financial advice. NextGen had unsuccessfully argued that the debt was not due and payable as an AFCA determination did “not have the effect of creating a debt enforceable by the way of a statutory demand”, but was overruled by Justice O’Callaghan.
AUTHOR
Laura Dew
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