Consumers who have been wronged by financial planners and other financial services providers (FSPs) should be able to directly sue professional indemnity (PI) insurers in the event that the planners go broke, according to leading plaintiff law firm, Maurice Blackburn.
In a submission to the Government’s review of the financial services external dispute resolution (EDR) regime, Maurice Blackburn has pointed to what it sees as a loophole in the current regime and the manner in which this has led the Financial Ombudsman Service (FOS) and the Credit Industry Ombudsman (CIO) to decline jurisdiction on a large number of cases.
It has suggested that this, in turn, means that the number of unmet cases is much higher than has actually been recorded.
“FOS and CIO only accept disputes against FSPs that are registered members. When an FSP loses its AFS [Australian Financial Services] Licence or no longer provides financial services it’s EDR scheme membership ceases. Hence these determinations are from matters where the FSP ceased trading or became insolvent after the dispute was lodged, and any statistics of those entities do not include cases where the FOS or CIO declined jurisdiction,” the submission said.
It said this meant that while the available data was concerning, it only told a part of the story.
The Maurice Blackburn submission said that the Government discussion paper on EDR arrangements had correctly noted that the Australian Securities and Investments Commission (ASIC) did not approve professional indemnity insurance arrangements for FSPs and that it does not have “data about the renewal of advice licensees’ professional indemnity insurance cover”.
It said this was problematic and a monitoring and approval regime needed to be introduced and administered by the regulator.
“These arrangements would ideally include claimants being able to access direct recourse to professional indemnity insurers through EDR schemes including AFCA [Australian Financial Complaints Authority] when it commences operations from 1 July 2018,” the submission said.
Maurice Blackburn noted that such a move would run contrary to the views of AISC that PI insurance “is neither intended nor designed to provide compensation directly to consumers”, but the law firm suggested the regulator was actually wrong in law.
“We would assert that ASIC’s position taken on that point is contrary to the common law doctrine of ‘direct recourse;’ and the statutory regimes which grant claimants the right to look beyond the insured wrongdoer and seek recovery directly from the relevant PI insurer,” the submission said.
