In an April Circular, FOS revealed that since 1 January 2010, 18 financial services providers (FSPs) have been unable to comply with 99 determinations made by FOS in favour of consumers – totalling $8.34 million.
All but one of the unpaid 99 determinations “were in the investment area involving financial advisers”, according to FOS.
“In the investments, life insurance and superannuation area, the level of unpaid determinations is 33 per cent of all determinations made,” said the ombudsman.
“The value of the outstanding amounts awarded by these determinations is at 31 December 2013 is $8,335,479.95 plus interest,” said FOS.
The 18 firms involved represent a small proportion of the FOS’s 4,700 financial licensee members, said the ombudsman.
“One of the [18] firms is currently in administration and a further nine are in liquidation. The remaining eight have advised they have insufficient funds to meet their obligations,” said FOS.
“Under FOS’s terms of reference and ASIC’s Regulatory Guide 139, FOS must report financial services providers’ non-compliance with determinations to ASIC,” said the ombudsman.
“We are also examining if there are any further steps we can take under our constitution and terms of reference to address consumer concern,” said FOS.
FOS remains in “active discussions” with ASIC on the issue.
“We understand that ASIC has taken regulatory action against, or is currently investigating, many of the financial services providers who have not paid determinations,” said FOS.
The ombudsman added that professional indemnity insurance is not an adequate compensation mechanism where companies have entered administration or are insolvent.
The is especially the case where aggregate funds available under the policy are insufficient to meet all awards; conduct which gives rise to the compensation awarded is not covered by the policy; or the amount of the award is below that of the applicable excess under the policy, said FOS.
For its part, FOS is an advocate of ‘limited last resort’ compensation schemes for consumers.
“FOS will continue to discuss appropriate mechanisms with ASIC, industry, consumers and policy makers to ensure that when decisions of compensation are made in favour of consumers, these are able to be paid,” said the ombudsman.
“We propose releasing a discussion paper by mid-year examining the options available to address this problem,” said FOS.
