Firms rebuffing AFCA determinations should be named: FAAA, professional bodies

The Financial Advice Association Australia (FAAA) and four other professional bodies are urging the Australian Financial Complaints Authority (AFCA) to name and shame financial firms that fail to follow through on a determination as more than 60 have failed to do so.

The submission to AFCA's proposed amendments to its rules highlighted a troubling number of financial firms that refused or failed on at least one occasion to give effect to an AFCA determination.

Along with the Chartered Accountants ANZ, CPA Australia, Institute of Public Accountants and SMSF Association, the FAAA expressed concerns that failure to "pay AFCA determinations and the resultant impact on the Compensation Scheme of Last Resort (CSLR) is a particularly important issue for our organisations and our members."

"Financial advisers are evidently covering more than 75% of the cost of the CSLR and the cost is expected to increase substantially over the next couple of years. The cost of the CSLR is a major threat to the financial advice sector. We strongly support greater publicity with respect to those who fail to pay, enabling other participants in the financial services industry to see those entities that have contributed to the cost of the CSLR," they said.

The consultation, which ended on June 13, proposed changes to AFCA's rules to reflect a recent authorisation condition issued by the federal government and to improve the effectiveness, transparency, and efficiency of its complaint-handling processes.

Since the CSLR was established in April 2024, they argued that ASIC has on several occasions announced the cancellation of AFSLs because of the payment of a claim with respect to that AFSL by the CSLR.

"Very little additional detail is made available, which is a suboptimal outcome. We believe that greater awareness of these unpaid determinations is both important and a strong disincentive to those responsible for businesses that put clients in this position," they said.

Going forward, they want to see reporting at the firm level and relevant sector, the total number of unpaid determinations and gross amount payable for both the current year and on a cumulative basis across all years. This information should then be updated on a monthly or quarterly basis.

In other matters, the organisations said they support the proposed changes to force paid representatives to use approved AFCA processes and for AFCA to refuse to deal with a third party where they are not a member of AFCA, despite being required to be by their AFSL.

"We also support the ability for AFCA to exclude a paid representative from the AFCA service where they have repeatedly failed to comply with the AFCA requirements," they said.

"We firmly support the ability for complainants to access AFCA without the need to incur fees being paid to third parties to assist in the submission of complaints, however we accept that in some cases a complainant may wish to seek the support of a third party."

The organisations asked for more information regarding the scale of the paid representative issue.

While they recognise that AFCA receives thousands of complaints from paid representatives each year, they said it would be helpful to understand the scale of non-compliance with requirements and an estimate of the number of paid representatives who are operating without the necessary AFCA membership, and keen to understand the likely impact this is having on AFCA's costs.