FPA raises concerns about impact of AFCA legacy complaints rule changes on professional indemnity market
The Financial Planning Association of Australia (FPA) has raised concerns about the Australian Financial Complaints Authority’s (AFCA) proposed legacy complaints rule changes and the potential impact they will have on the professional indemnity (PI) costs for financial planners.
In its submission to AFCA’s consultation on the proposed changes to its rules, the FPA supported the intent of the measure as it is vital for consumers to have the ability to have their complaints heard and have the opportunity to seek redress. However, it has concerns about whether PI policies will cover potential legacy complaints reaching back more than ten years.
Once approved by ASIC, the new rules will expand AFCA’s jurisdiction to deal with eligible complaints about conduct dating back to 1 January, 2008. The amended rules will be released in June 2019, and AFCA plans to consider all eligible complaints received between 1 July, 2019 and 30 June, 2020.
Commenting on the submission, FPA CEO, Dante De Gori CFP® said: “The FPA has concerns regarding the rules change as proposed in the consultation paper. It is unclear whether the consideration of the AFCA Ombudsmen will be based on the law, codes, guidance and good industry practice available at the time the conduct occurred, rather than the current standards.
“We are concerned about whether professional indemnity policies will cover potential legacy complaints. If PI cover does not extend to legacy complaints under the conditions set in the proposed rules change – particularly in relation to the application of the 30 June 2019 rules, jurisdiction and monetary limits to legacy complaints – this will have a significant impact on the ability of licensees to pay any determinations made by AFCA in relation to legacy complaints.”
In the submission the FPA recommends this issue warrants urgent consideration and further investigation by AFCA with the professional indemnity insurance industry.
The FPA is also concerned about the impact of potential legacy claims on financial planners and the future professional indemnity insurance market. “Initial feedback from the insurance industry indicates that PI cover may be more expensive in the future should there be an increase in claims arising in relation to legacy complaints,” said Mr De Gori.
“This may include complaints that may have fallen outside the jurisdiction of predecessor schemes as set in the terms of reference applicable at the time the conduct occurred, which may now be accepted under the AFCA rules as at 30 June, 2019.”
AFCA started operating on 1 November, 2018. The new body has taken over from the Financial Ombudsman Service, the Credit and Investments Ombudsman and the Superannuation Complaints Tribunal. AFCA operates with higher compensation limits than its predecessors – for consumers ($500,000), for small businesses ($1 million) and primary producers ($2 million).