Thinking | 26 September 2008

Proposed increase to external dispute resolution limit

Dispute Resolution Background

Financial services providers must have a dispute resolution system that covers complaints by retail clients. The dispute resolution system must consist of:

  • an internal dispute resolution (IDR) procedure that complies with standards and requirements made or approved by the Australian Securities and Investment Commission (ASIC) and
  • membership of an external dispute resolution (EDR) scheme approved by ASIC.

Regulatory Guide (RG) 165 sets out how ASIC administers the dispute resolution requirements for a financial service provider and RG 139 sets out ASIC’s approval guidelines for an external dispute resolution schemes.

A June 2008 Newspoll found that more than half of consumers and investors experienced some dissatisfaction with a financial product or service in the last two years and more than a quarter actually made a complaint, with only just over half of those complaints ending in a satisfactory outcome.

Consultation Paper

On 8 September 2008, ASIC released Consultation Paper 102 with proposed updates and improvements to RG 139 and 165. The key proposals are as follows:

  • an increase to the cap on compensation that can be awarded by an EDR Scheme from $150,000 to $280,000 to reflect the significant increases in the value of consumers’ investments in recent years
  • to replace EDR monetary limits with compensation caps which will allow the consumer/investor to waive part of their claim and avail themselves to the EDR process (thereby avoiding other costlier options to pursue their claim) and
  • replacement of the current dispute resolution standard AS 4269–1995, by adopting certain aspects of AS ISO 10002, including the new definition of complaint: “An expression of dissatisfaction made to an organisation, related to its products or services, or the complaints handling process itself, where a response or resolution is explicitly or implicitly expected”, which is aimed to remove the onus on investors and consumers to explicitly state that something is a complaint, promotes more consistent treatment of complaints and helps prevent complaints from falling through the cracks.

This paper is timely as it allows the new Financial Ombudsman Service to form an improved framework as it develops over the coming 18 months.

The closing date for submissions to the consultation paper is 7 November 2008.


Harry New

Harry leads our financial services team and focuses extensively on financial services law and corporate advisory.

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