09-88AD ASIC improves dispute resolution schemes
Monday 18 May 2009
ASIC has improved consumer access to dispute resolution schemes so that disputes can be resolved more quickly and efficiently, saving time and money for industry and consumers.
The key changes are twofold:
- With effect from 1 January 2010, all schemes will be required to deal with claims worth up to $500,000, even though they will be allowed to limit the maximum amount of compensation payable per claim to less than that amount, in accordance with their existing rules. Currently, EDR scheme rules bar a complaint involving more than the applicable compensation limit; and
- With effect from 1 January 2012, EDR schemes will only be allowed to limit (cap) the maximum amount of compensation payable per claim to a minimum of $280,000 (or $150,000 if the claim relates to an insurance broker) with the ability to opt for a higher figure in the rules of the scheme.
These key changes, and the timing of their implementation, are illustrated in Table 1 and Table 2 below.
‘The increase in claim limits and compensation caps in EDR schemes will ensure that many more consumers and retail investors will be able to bring their claims to EDR schemes, avoiding the expense of litigation. We think this is a big improvement,’ said Jeremy Cooper, ASIC’s Deputy Chairman.
EDR schemes will also be able to award interest in addition to compensation awards.
Other significant changes to ASIC’s dispute resolution guidance include:
- EDR schemes will have a discretion whether or not to cancel a member's membership and/or to continue to handle a complaint where a member ceases to carry on business. This change will improve complainants' access to EDR, in light of difficulties some investors have had in the wake of recent corporate collapses;
- EDR schemes will be required to publish statistics about the number of complaints received and resolved against individual EDR scheme members; and
- Financial service providers will be required to adopt a new definition of ‘complaint’ (based on the 2006 Australian Standard on dispute resolution (AS ISO 10002-2006)) in their internal dispute resolution processes.
The changes are outlined in two revised regulatory guides. ASIC has released the revised guides now to ensure that the new Financial Ombudsman Service (FOS), the amalgamation of five dispute resolution bodies, will develop its new Terms of Reference in line with the new guides and set the standard for external dispute resolution.
Phased implementation of new arrangements
Most of the new requirements will be implemented from 1 January 2010, in line with the implementation of the FOS' new Terms of Reference. The new minimum level for compensation caps will be implemented from 1 January 2012. This will ensure that financial service businesses, EDR schemes and the professional indemnity insurance market will have sufficient time to understand and reflect these changes.
TABLE 1 - timing of KEY changes
| 1 January 2010 | Schemes adopt all new requirements, including the $500,000 claim limit, except for those mentioned below. |
| 1 January 2012 | Schemes adopt a minimum compensation cap of $280,000 (or $150,000 for insurance brokers). |
TABLE 2 – monetary limits/caps
 | Current | 2010 | 2012 |
| Claim** | Comp# | Claim** | Comp# | Claim** | Comp# |
| FOS* – Banking and Finance Division (previously BFSO) | $280,000 | $280,000 | $500,000 | $280,000 | $500,000 | $280,000 |
FOS – Investments and life insurance and superannuation division (previously FICS)
Complaints – lump sum life insurance products | $280,000 | $280,000 | $500,000 | $280,000 | $500,000 | $280,000 |
| Complaints – income stream life insurance products | $6,000
per month | $6,000
per month | $6,000
per month | $6,000
per month | $6,000
per month | $6,000 per month |
| Complaints about investment advice | $150,000 | $150,000 | $500,000 | $150,000 | $500,000 | $280,000 |
FOS – General insurance division (previously IOS)
Third party claims | $3,000 | $3,000 | $3,000 | $3,000 | $3,000 | $3,000 |
| Other claims | $280,000 | $280,000 | $500,000 | $280,000 | $500,000 | $280,000 |
| FOS - Mutuals division (previously CUDRC) | $280,000 | $280,000 | $500,000 | $280,000 | $500,000 | $280,000 |
| FOS – Insurance brokers division (previously IBDL) | $100,000 | $100,000 | $500,000 | $100,000 | $500,000 | $150,000 |
| Financial Co-operative Dispute Resolution Scheme (FCDRS) | $280,000 | $280,000 | $500,000 | $280,000 | $500,000 | $280,000 |
| Credit Ombudsman Service Ltd (COSL) | Unlimited | $250,000 | $500,000 | $250,000 | $500,000 | $280,000 |
*Financial Ombudsman Service
**Claims up to this amount may be brought to an EDR scheme
#Maximum compensation award that may be made by an EDR scheme
ASIC found that the compensation cap for investment advice complaints needed to increase from $150,000 to $280,000 because of the significant increase in the value of retail investor portfolios in recent years.
ASIC will continue working with industry and the EDR schemes to ensure a smooth transition to the new arrangements.
Download
ASIC Website: Printed 09/03/2010
