Apply the full force of law on unpaid determinations says AFA
The full force of the law needs to be imposed to ensure the payment of Australian Financial Complaints Authority (AFCA) determinations in circumstances where some are left so long the guilty licensees are not held to account.
That is one of the bottom line issues raised by the Association of Financial Advisers with respect to a compensation scheme of last resort which the organisation argues might not be necessary if more was done to pursue unpaid determinations.
“In fact, we would argue that throughout this process, there is not enough visibility of the reasons why EDR determinations are not being paid and there has been little if any focus upon what can be done to reduce the risk of unpaid determinations in the future,” the AFA has said in a submission.
“We welcome the Government’s decision to undertake an Inquiry to look at the effectiveness of Professional Indemnity Insurance. Capital adequacy is also an important issue, however we believe that capital adequacy for financial firms, and financial advice licensees in particular, is a delicate balancing act as it needs to be structured in a way that does not unreasonably limit the creation of new financial advice licensees.”
“Through the work we do with complaints, the AFA is aware of unpaid determinations that are outstanding for a long period of time, even whilst a licensee remains operational,” the AFA said. “Seemingly the full force of the law is not being applied soon enough to get these firms to pay the determinations that have been awarded. We would therefore like to see a stronger enforcement regime.”
“We are not opposing the establishment of a CSLR, however we believe that it needs to happen in parallel with other measures to reduce the risk of future matters arising and the scheme should be designed on the basis of an expectation of a decline in the number of matters that will arise in the future.”
“An appropriate focus upon the cause of unpaid determinations and relevant solutions, should help to reduce occurrences in the future.”
Elsewhere in its submission, the AFA said it believed the sub-sectors responsible for unpaid determinations be required to pay the full direct cost of compensation and that the annual operating costs of the CSLR be equitably shared across the full spectrum of participants in the banking and financial services industry through the existing ASIC funding levy.
AFCA and ASIC would probably argue that CSLR is a fair mechanism to ensure guilty licensees are held to account. CSLR is paid by all licensees, and AFCA and ASIC regard all licensees as guilty. They see no need to fairly distinguish between the dishonest minority and the honest majority, because in their warped view there is not so such thing as an honest financial adviser. They are all guilty and they all need to be punished.