AustLII Home | Databases | WorldLII | Search | Feedback

Precedent (Australian Lawyers Alliance)

You are here:  AustLII >> Databases >> Precedent (Australian Lawyers Alliance) >> 2016 >> [2016] PrecedentAULA 35

Database Search | Name Search | Recent Articles | Noteup | LawCite | Author Info | Download | Help

Smith, June --- "Engaging effectively with external dispute resolution in financial services" [2016] PrecedentAULA 35; (2016) 134 Precedent 39

ENGAGING EFFECTIVELY WITH EXTERNAL DISPUTE RESOLUTION IN FINANCIAL SERVICES


By Dr June Smith

The effective resolution of disputes between financial services providers (FSPs) and consumers is a key element underpinning the trust and confidence required by all stakeholders in the sector.

From time to time, a client may attend your office because of a dispute with an FSP. Independent dispute resolution plays an important role in resolving disputes within this sector.

This article provides information about the operation of one of these externally approved dispute resolution schemes, the Financial Ombudsman Service (FOS) Australia, including an outline of our role, our broad jurisdiction, and our process for investigating and resolving disputes. This information should help you to engage effectively with internal and external dispute resolution for financial services and products, should the need arise.

ABOUT FOS

FOS is one of two externally approved national dispute resolution schemes funded by FSPs and approved by the Australian Securities and Investments Commission (ASIC), in accordance with benchmarks outlined in ASIC Regulatory Guide 139: Approval and Oversight of Externally Approved Dispute Resolution Schemes. The other externally approved national dispute resolution scheme is the Credit and Investments Ombudsman (CIO).

FOS offers fair, independent and accessible dispute resolution for consumers who are unable to resolve complaints with FSPs that are members of its scheme.).


MEMBERS OF THE SCHEME

The Corporations Act 2001 (Cth) requires licensed financial and credit service providers to be members of an external dispute resolution (EDR) scheme as a condition of their licence. They must also have appropriate internal dispute resolution (IDR) services and adequate compensation arrangements in place to ensure that any liability to pay compensation can be met.

FOS currently has 13,850 financial services members, of which 5,114 hold an Australian Financial Services Licence, and 8,736 are Australian Credit Representatives.

These members include many of Australia’s largest financial institutions, such as major banks, customer-owned banks, general and life insurers, credit providers, accountants, financial advisers and insurance brokers, debt collection agencies, and numerous other businesses that provide financial products and services to consumers, both within Australia and overseas.

TYPES OF DISPUTES THAT CAN BE LODGED

We can handle disputes about a range of financial issues, including:

• banking and finance;

• credit;

• home, contents, travel and life insurance;

• insurance broking;

• financial planning;

• investments;

• managed funds;

• mortgage and finance broking;

• pooled superannuation funds;

• stockbroking;

• timeshares;

• estate planning and management; and

• traditional trustee services.


OUR TERMS OF REFERENCE (TOR)

The FOS TOR describes our dispute resolution rules and processes, such as who can lodge a dispute, the monetary limits that apply to matter types and what types of disputes can and cannot be considered by FOS.

We are committed to fairness and consistency in our consideration and resolution of disputes. In identifying what is fair, and to support consistency in decision-making in resolving and determining disputes, we take into account:

• legal principles that may apply;

• industry codes, practice guides and good industry practice; and

• our previous decisions (though we will not be bound by these).

Our objective is to reach an outcome that is fair in all of the circumstances.


OUR JURISDICTION

We may accept claims up to $500,000.

A compensation ‘cap’, however, is the maximum value of a remedy that we may award for a claim. The TOR sets the levels of the caps.

The monetary limit on awards that we can make for a claim is $309,000 for all disputes, except:

• general insurance broking: $166,000;

• income stream life insurance (per month): $8,300; and

• uninsured third party motor vehicle claims: $5,000.

We may award loss other than direct loss as follows:

• consequential loss per claim: $3,300; and

• non-financial loss per claim: $3,000.


WHO CAN LODGE A DISPUTE

Anyone who has an unresolved dispute with an FSP can lodge a dispute, if the provider is a FOS member. This includes:

• individuals;

• partnerships of individuals;

• small businesses; and

• clubs or incorporated associations.

CURRENT TRENDS IN DISPUTE-HANDLING

In 2014-2015, FOS resolved almost 35,000 disputes across many areas of the financial services sector and identified over 170 possible systemic issues. Almost half of all accepted disputes related to credit, while one-quarter related to general insurance.

For the period July 2015 to February 2016, FOS has accepted 12,815 disputes from consumers. Credit disputes remain the primary product line, with 5,722 disputes.

General insurance disputes represented 31 per cent or 4,004 disputes.

Just 12 per cent of these disputes, or 1,392, were associated with services related to managed investments, superannuation and life insurance.

2016_3500.png

Source: Financial Ombudsman Service

HOW WE INVESTIGATE AND RESOLVE DISPUTES

FOS is an important alternative to court and is a free service for consumers, although not all disputes fall within our jurisdictional limits. Our TOR require us to resolve disputes between consumers and FSPs using a range of investigation, conciliation and arbitration services. We are required to act:

• in a co-operative, efficient, timely and fair manner;

• with minimum formality and technicality; and

• as transparently as possible, taking into account our obligations for confidentiality and privacy.

Determinations made by FOS Ombudsmen or Panels are binding on members, but not consumers.

OUR INVESTIGATION AND RESOLUTION PROCESSES

There are three main stages in our process once a dispute is lodged with us.

1. Registration and referral.

2. Case management.

3. Decision.


Registration and referral

If your client has already gone through the FSP’s IDR process and the dispute has not been resolved, we will register the dispute, let the FOS member know that it has been lodged with us and give it a further 21 days to try to resolve the matter directly with you and your client. At the end of this period, if the matter remains unresolved, we will begin our investigation.

First, we refer the dispute to the FSP and request that it responds to us and to the applicant. The amount of time that the FSP has to respond depends on the type of dispute and what has happened previously, including whether the FSP has had an opportunity to complete its IDR process.

For most disputes, the FSP has up to 45 days to complete its IDR process. Therefore, if no complaint has been made to the FSP before the dispute is lodged with us, we need to allow this amount of time for the FSP to respond.

Where the FSP has already conducted its IDR process, a shorter timeframe of 21 days applies.

During this period, the FSP may seek to resolve the dispute directly with the applicant. In our experience, complaints will quite often be resolved at this stage. If the dispute is not resolved, the FSP will be asked to respond, outlining its position to us and to the applicant.

When we register and refer a dispute, we do not conduct a detailed assessment of whether it falls within our jurisdiction under our TOR.

Case management

If a dispute is not resolved during the ‘registration and referral’ stage, it will progress to our ‘case management’ stage. If there are issues with whether we have jurisdiction to consider the dispute, we will review these at the beginning of this stage. Otherwise, the dispute will be allocated to a case owner, who will commence the investigation process.

As a first step, the case owner will review all of the information and contact the

applicant and the FSP to clarify the issues and/or to request any further information.

We may try to resolve the dispute through negotiation or conciliation. However, if we need to investigate the dispute further to make a decision, we will do so.


Decisions

If a dispute is not resolved by agreement between the parties, then it will be resolved by a decision based on the merits of the dispute. The decision will be in the form of a determination and will take into account all the information provided by the parties.

A determination is a final decision on the merits of a dispute, made by:

• an ombudsman; or

• a panel of three decision-makers chaired by an ombudsman.

All decisions will be based on what is fair in all the circumstances, taking into account the relevant law, any applicable industry codes of practice, as well as good industry practice.

If a determination is made by a panel in relation to a medical indemnity dispute, the other members of the panel will be a medical representative and a medical indemnity insurer representative. In other disputes, the members of the panel will comprise a consumer representative and an industry representative, both with relevant experience.

All ombudsmen and panel members are appointed by the FOS Board on the basis of their objectivity, qualifications, experience and relevant personal qualities, and their ability to make decisions on the merits of financial services disputes.


CAN A PARTY APPEAL A DETERMINATION?

There is no further ‘appeal’ or review process within the FOS TOR once a determination is made. An applicant has the right to accept or reject the determination within 30 days of receiving it (or within any additional time we have allowed).

If the applicant accepts the determination, then it is binding on both parties. If the applicant does not accept the determination, it is not binding on the FSP and the applicant may take any other available action against the FSP, including legal action.

The FSP cannot accept or reject the determination.


ACTION TO BE TAKEN BY A FOS MEMBER IF THERE HAS BEEN A BINDING DETERMINATION

If the determination requires action by the FSP and it is accepted by the applicant, then the FSP must implement the determination. We ask the applicant to sign a confirmation of settlement accepting the determination, in full and final resolution of the dispute.

An FSP can ask the applicant to sign a deed of release in addition to the confirmation of settlement, but only if it provides FOS with a copy of the deed within 14 days of being told that the applicant has accepted the decision. The deed must also be consistent with the determination and refer only to those matters that are in dispute before us.


LEGAL PROCEEDINGS

It is important to note that while we are dealing with a dispute lodged with us, the FSP must not:

• instigate legal proceedings against the applicant relating to the dispute;

• pursue debt recovery proceedings instituted before lodgement, except to the minimum extent necessary to preserve the FSP’s legal rights (unless the applicant has taken steps beyond lodging a defence); or

• take action to recover a debt that is the subject of the dispute, to protect assets securing that debt or to assign any right to recover that debt.


WHAT INFORMATION DO THE PARTIES NEED TO PROVIDE?

The best approach is to be thorough in what is provided. This means FSPs will be expected to send all relevant contracts, account statements, policy documents, diary notes and dates, reports, emails, analysis, expert opinions, plans, notes, statements from staff (if applicable) and other documents. Applicants should send all the relevant information they have.

NON-FINANCIAL LOSS

We may decide that the FSP should compensate the applicant for non-financial loss only if there has been an unusual amount of physical inconvenience, time taken to resolve the situation, or interference with the expectation of enjoyment or peace of mind. In privacy disputes, we may compensate for non-financial loss only if the applicant has suffered humiliation or injured feelings.

No compensation is payable for non-financial loss if the dispute involves a claim on a general insurance policy that excludes liability for such loss.

CLIENTS WHO MAY BE EXPERIENCING FINANCIAL DIFFICULTY

We have developed a streamlined process for disputes about financial difficulty. Financial difficulty disputes are identified as soon as we receive them. We will review the FSP’s response to the applicant’s request for assistance.

In most cases, a telephone conciliation conference is mandatory. If a telephone conciliation conference is conducted, both the FSP and the applicant must participate. A representative of the applicant may also participate. Each party must have the authority to settle the dispute in the conference.

OUR APPROACH TO DISPUTE RESOLUTION

The FOS approach is a series of documents that outlines the way we look at different types of disputes. We have published similar documents before as articles in our quarterly newsletters, and as bulletins and practice notes through our predecessor schemes.

The aim of these documents is to provide practical information and explain our approach on substantive issues. We want to share the way we approach different types of disputes – the issues we will look at, the things we will consider, and the relevant Codes, legal principles, obligations and industry best practice that we will apply – so that members, consumer representatives and consumers can better understand how FOS will deal with their disputes.

However, it is important to understand that each dispute that comes to us is unique in nature, so this information is a guide only. No determination (decision) can be seen as a precedent for future cases, and no approach document can cover everything you might want to know about key issues.

OUR OTHER ROLES

FOS has a number of other roles in addition to the resolution of individual disputes.

Systemic issues

As an EDR scheme, we identify, resolve and report on systemic issues and cases of serious misconduct. A systemic issue is defined in the FOS TOR as an issue that will have an effect on other persons beyond the parties to the dispute.

Several disputes of the same type may indicate a systemic problem. However, issues may also be identified out of the consideration of one single dispute where it is clear that the effect of the problem will extend beyond the parties to the dispute. We define serious misconduct as conduct which may be fraudulent, grossly negligent, or involve wilful breaches of applicable laws.

We have established a clear process flow for dealing with:

• identification of possible systemic issues;

• referral to the member for comment;

• assessment and review as to whether the matter represents a definite systemic issue;

• if definite, a collaborative process for resolution of the issues identified as systemic; and

• a process for reporting de-identified systemic issue investigation agreed outcomes to ASIC.

The aim of a systemic issue investigation is to achieve an agreed outcome between FOS and the member including, where appropriate:

• action to ensure that all affected customers are identified by the member;

• action to ensure that all identified affected customers are reimbursed with any agreed financial loss;

• action to ensure that the problem causing the definite systemic issue has been rectified moving into the future; and

• an undertaking from the member that any future affected customers will be reimbursed for the loss in the same way as the identified affected customers.


Codes of practice

FOS also provides administrative, secretariat and code monitoring services to independent Code Compliance Committees that monitor compliance against financial services codes of practice.

Codes of practice set standards of good industry practice for FSPs when dealing with people who are, or who may become, individual or small business customers in areas relating to:

• service provision;

• standards of professional conduct;

• practice standards; and

• ethical behaviour.

Our aim through this service is to support FSPs to:

• strengthen relationships with their customers;

• improve complaints-handling; and

• reduce the number of customer disputes through improved service delivery.

In this role we administer the:

• Code of Banking Practice;

• General Insurance Code of Practice;

• Insurance Brokers Code of Practice; and

• Customer-owned Banking Code of Practice.

For further information about our service To learn more about our TOR, dispute resolution process or our approach documents, go to www.fos.org.au.

Lodging disputes online Disputes can be lodged online at fos.org.au or by sending an email to info@fos.org.au.

Telephone Disputes can also be lodged or information provided by calling us on 1800 367 287 (1800 FOS AUS) - 9am to 5pm from Monday to Friday.

Dr June Smith is the Lead Ombudsman, Investments and Advice, Financial Ombudsman Service. EMAIL JSmith@fos.org.au.


AustLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback
URL: http://www.austlii.edu.au/au/journals/PrecedentAULA/2016/35.html