The royal commission highlighted many of the shortcomings of the financial services sector. But has it left us in a better place?
The royal commission was an incredible media spectacle. The level of attention it received by the local and even international media was astounding. This was effective in raising awareness among consumers about the issues within the system and how they could lodge a legitimate complaint.
But this consumer-focused environment skewed towards the complainant can easily be gamed by those who know better.
There is an inherent danger this crusade to rid the financial services sector of unscrupulous operators, while noble, can also harm innocent businesses. With the royal commission now well behind us, legal professionals are now beginning to question how the new regulatory landscape could be making the provision of financial services increasingly risky.
Sydney-based lawyer Nik Albrecht of Albrecht + Associates recently warns that AFCA provides a “free shot” to complainants and can be used unfairly against financial services operators. In a 24 June article titled ‘AFCA Guide (Part 1) – Not a Level Playing Field’ , Albrecht warns that while AFCA is designed for consumers, it can easily be abused by sophisticated clients:
“AFCA considers itself to be a body set up to level the playing field for consumers. If you think of bodies like NSW Fair Trading, the core idea is to provide access to dispute resolution to normal people (e.g. consumers, tenants) who may otherwise not have the resources or capability to challenge a larger company,” Albrecht says.
“Accordingly, it will limit access to certain types of clients and claims, and it generally won’t manage disputes that are larger or between companies or commercial entities. The problem with AFCA is that it does not limit access to its service in the same way.”
AFCA’s services are not limited to retail clients. Albrecht points out that sophisticated and wholesale clients are perfectly eligible to claim under the scheme and, while AFCA can consider this in exercising its discretion not to hear complaints, it very rarely does so.
AFCA considers a small business one that has up to 100 employees, which means a business of this size could lodge a complaint against a sole financial adviser or mortgage broker.
Albrecht argues that when combined with very significant claims limits – $1 million per complainant, $500,000 per claim – this can lead to some very unfair (and legally inappropriate) outcomes.
“For instance, AFCA can be used by highly sophisticated entities such as family offices or fund managers to claim large amounts through a deeply skewed system,” he said.
“Entities like this comfortably have the resources to use the court system, in fact more so than many small licensees, yet they have been given access to a forum where they can take a free shot at the licensees expense. And why wouldn’t they?
“Accordingly, AFCA can be about much more than just retail advice, and any company with mid-range sophisticated clients – for example advisers with family office clients – should be thinking about this.”
Commercial brokers should also pay attention. Savvy business owners, sophisticated clients and those running corporate structures need to be appreciated for their aptitude and experience. Particularly when it comes to dispute resolutions.