ISA wants naming and shaming on unpaid EDR determinations
Financial services organisations which fail to pay compensation in line with determinations from external dispute resolution bodies such as the Financial Ombudsman Service (FOS) should be named and shamed, according to Industry Super Australia (ISA).
ISA has used its submission to the Government's Review of the Financial Services External Dispute Resolution (EDR) Framework to back calls for a last resort compensation scheme and to urge the naming of those who fail to comply.
At the same time it has argued that superannuation funds should not be made to contribute to a last resort compensation scheme and therefore cross-subsidise "non-prudentially regulated providers that have paid conflicted remuneration such as commissions to advisers".
"For a scheme to meet the needs of consumers, providers must comply with its determination," it said.
"This is not always currently the case in relation to FOS. According to FOS, unpaid determinations represent 22.83 per cent of all accepted determinations issued in favour of consumers in the investments and advice area."
The ISA submission noted that more than half (56 per cent) of the non-compliance related to disputes in the financial planning and advisory sector.
"There is significant consumer risk in engaging with a financial services provider who does not comply with determinations," it said.
"ISA recommends that where there is non-compliance with an EDR scheme or SCT determinations, this information should be made public."
The submission said a statutory compensation scheme of last resort should be established to ensure that consumers who suffered loss as a result of the action or inaction of a financial services provider should not be left uncompensated.
It said the scheme should be industry funded using a formula which ensured that industry sectors which pose the greatest risks to consumers carried a proportionate funding burden.
"Prudentially regulated super funds should not be forced to cross subsidising a compensation scheme to support a compensation scheme for non-prudentially regulated providers that have paid conflicted remuneration such as commissions to advisers. The design of the industry funding model for the last resort compensation scheme should reflect this," the submission said.
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