Criticism of expanding FOS jurisdiction

Financial Ombudsman Service (FOS) investments, life insurance and superannuation ombudsman Alison Maynard and financial services lawyer Mark Halsey have clashed over an allegation by Halsey of an “unwarranted and unjustified” expansion of the FOS’s jurisdiction.

Recently appointed a member of FOS’s new financial planning advice committee, Halsey, of WA-based Halsey Legal Services, told Money Management that since its inception, FOS has “assumed an expanded jurisdiction” in two critical areas beyond that of its predecessor, the Financial Industry Complaints Service (FICS).

It has expanded its jurisdiction under the technicalities of the FICS rules as it relates to non-retail clients, as well as services beyond those defined as ‘financial services’ under the Corporations Act and ASIC Act, he said.

“This represents an unwarranted and unjustified expanded jurisdiction in areas well beyond that contemplated by Parliament when it introduced the financial services laws.

“It must logically lead to a broader range of potential claims against Australian Financial Service (AFS) licensees than those contemplated by the Federal Parliament, and hence is a cost burden on the industry at the worst possible time,” Halsey said.

He added that few AFS licensees or representatives are really aware of just how wide the FOS’s jurisdiction currently is.

“Its jurisdiction can potentially extend to cover things such as rental properties, antiques and collectibles, estate and structuring advice if a representative of an AFS licensee provides advice in relation to them that results in a loss.”

This is because FOS can make determinations against AFS licensees on complaints relating to matters not included in the definition of ‘financial services’ under either the Corporations Act or ASIC Act, he said.

Another “most concerning area” of the expanded jurisdiction for Halsey is that FOS now has the ability to hear complaints from non-retail (ie, wholesale) clients “at its discretion”.

Maynard responded that FOS and its predecessor, FICS, have always had an ability to deal with disputes by non-retail clients, and more recently had the discretion to exclude a complaint from a non-retail client.

She said since it has had this discretion, the fact that a complainant is a non-retail client has rarely been raised by a financial services provider as a reason for the FOS to exclude a dispute.

“In our experience, many financial services providers are happy for the FOS to deal with complaints by non-retail clients as a way of extending an enhanced service to those clients.

“FOS’s jurisdiction, since inception, has included disputes about any form of service, advice or product provided by a financial services provider, and have not been limited by the definitions in the Corporations Act,” she added.