The Financial Planning Association (FPA) has warned the Australian Financial Complaints Authority (AFCA) about the unintended consequences of allowing the authority to handle complaints dating back as far as 2008.
In doing so, the FPA has warned that there is a high likelihood that professional indemnity (PI) insurers will refuse to extend coverage in circumstances where the regulatory environment had been changed dramatically in the past decade.
The FPA said it believed the matter warranted urgent attention on the part of AFCA and consultation with the PI sector. “Professional indemnity insurers based policy coverage and premiums on the laws of the day relevant to the duration of the risks. This would include the risk of complaints and damages based on the relevant external dispute resolution (EDR) scheme’s Terms of Reference,” it said.
“As legacy complaints would have passed the date of limitations and the AFCA jurisdiction date, and there have been significant changes in the financial advice laws since 1 January 2008, professional indemnity insurance policies may no longer cover the services provided to the consumer, or provide cover for potential claims and damages for services provided in 2008 based on the AFCA Rules and monetary limits in place on 30 June 2019,” the FPA submission to Treasury said.
“The FPA is concerned about whether professional indemnity policies put in place around 2008, will cover a potential legacy complaint. If PI cover does not extend to legacy complaints under the conditions set in the proposed Rules change, particularly in relation to the application 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,” it said.
The submission said the FPA was also concerned about the impact of potential legacy claims on financial planners and the future PI 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. 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,” it said.