In a submission to the Senate’s ‘scrutiny of financial advice’ inquiry, Maurice Blackburn partner John Berrill laid out the problems facing the Financial Ombudsman Service (FOS) and proposed an alternative model.
“The biggest problem confronting FOS is that a significant proportion of orders for compensation to be paid in financial advice disputes are never in fact paid,” the submission stated.
“This is usually because the financial services provider has ceased trading or gone into liquidation.
“In some cases, the financial services provider simply refuses to pay such that FOS has initiated a handful of recovery proceedings for breach of the contractual agreement the financial services provider enters into to abide by FOS’s decisions.”
In order to combat this enforceability problem, Mr Berrill suggests that the government consider a “last resort compensation scheme to pay out claims of victims of financial services providers who have court or FOS findings against them”.
The scheme should also be available to victims of providers that have gone into liquidation or become deregistered, cannot be located or fail to satisfy court or FOS orders, the submission contended.
While many of the dispute resolution mechanisms in the financial services industry are ineffectual, Mr Berrill argues that the Commonwealth Bank’s Open Advice Review program – to which Maurice Blackburn is an appointed expert – is the one that “attracts some optimism”.
“Set up in response to the criticism of the first CBA compensation process, it is much more comprehensive than either its predecessor or the [Macquarie Equities] scheme.”
