1. Sydney Melbourne Brisbane Canberra Newcastle Perth The Financial Ombudsman Service (FOS) August 2012

2. Sydney Melbourne Brisbane Canberra Newcastle Perth Presenter Jeremy PeckMoray & Agnew PartnerLevel 8, 440 Collins St Ph: +61 3 9600 0877 MELBOURNE VIC 3000 Email: jpeck@moray.com.aujpeck@moray.com.au

3. Sydney Melbourne Brisbane Canberra Newcastle Perth Ongoing Importance of FOS  Explosion of GFC related claims over last 3 years.  Possible decline as market conditions improve.  Offset by changes to FOS jurisdiction:  Increase in monetary limits for awards.  Change in value of claims that might be brought.  Wider class of claimant.

4. Sydney Melbourne Brisbane Canberra Newcastle Perth The Role of FOS  External Dispute Resolution Scheme.  Approved by ASIC (RG139).  Condition of AFSL if dealing with retail client.  Independent/accessible/fair/accountable/efficient and effective.  Free to consumers.  Paid for by industry via fees and levies.  Resolves disputes by negotiation, advice and conciliation.  Makes decisions binding on Members (not consumers).

5. Sydney Melbourne Brisbane Canberra Newcastle Perth The Role of FOS – TOR 8.2 Decision making criteria - FOS “….. FOS will do what in its opinion is fair in all the circumstances, having regard to each of the following: (a)Legal principles; (b) applicable industry codes or guidance as to practice; (c) good industry practice; and (d) previous relevant decisions of FOS or a Predecessor Scheme (although FOS will not be bound by those).”

6. Sydney Melbourne Brisbane Canberra Newcastle Perth Historical Relationship  PI insurers have been dealing with predecessors of FOS for many years (especially FICS).  Historically, this relationship could be characterised as “fraught”.  FICS/ FOS generally perceived as “applicant” (claimant) friendly.  Nature of FOS in conflict with traditional assumptions of dispute resolution.  Concern in regard to increasing “limits”.

7. Sydney Melbourne Brisbane Canberra Newcastle Perth 2012 terms of reference  Some significant changes.  Monetary limits and caps.  Consequential and non-financial loss.  Time limits.  Recommendations and determinations.

8. Sydney Melbourne Brisbane Canberra Newcastle Perth Compensation Caps  A “cap” is the maximum value of the remedy FOS may award for a “claim” (excluding costs and interest).  Monetary limit for a claim is now $500,000.  Different caps apply for different types of claims.  Caps increased on 1 January 2012.  Caps will be indexed.

9. Sydney Melbourne Brisbane Canberra Newcastle Perth Amount of Caps 1 January 20101 January 2012 Banking & Finance$280,000 General Insurance $280,000, but $3,000 for TP motor vehicle claim Insurance Broking$100,000$150,000 Investments, Life Insurance & Superannuation Lump Sum insurance - $280,000 Income stream insurance - $6,700 per month Investment - $150,000 Lump Sum insurance - $280,000 Income stream insurance - $7,500 per month Investment - $280,000 Mutuals$280,000

10. Sydney Melbourne Brisbane Canberra Newcastle Perth Compensation  Direct financial loss.  Consequential (indirect) financial loss capped at $3,000 per claim.  Non-financial loss capped at $3,000 per claim.  Legal or other professional costs or travel costs incurred by Applicant capped at $3,000 (unless exceptional circumstances apply).

11. Sydney Melbourne Brisbane Canberra Newcastle Perth Time Limits  Dispute must be lodged with FOS:  within 6 years of date when Applicant first became aware (or should reasonably have become aware) they suffered the loss; and  where Applicant received “IDR response” within 2 years of the date of that IDR response.  In exceptional circumstances, FOS may consider dispute lodged outside these time limits.

12. Sydney Melbourne Brisbane Canberra Newcastle Perth Recommendation  Recommendations have been introduced as the first stage of the decision-making process.  A case will proceed to determination by an Ombudsman or Panel if either party rejects the recommendation.

13. Sydney Melbourne Brisbane Canberra Newcastle Perth Process  Lodge Dispute  FSP response  Negotiation/Conciliation/Assessment/ Decision making

14. Sydney Melbourne Brisbane Canberra Newcastle Perth Financial Planner Claims  Importance of initial dispute period.  Early involvement of authorised representatives:  Vital evidentiary role.  Without a clear document trail kept by the authorised representative, claims can be hard to defend.

15. Sydney Melbourne Brisbane Canberra Newcastle Perth FOS – Indemnity Issues  Generally Financial Planner PI policies contain FOS Extension or Endorsement.  Sublimit:  Generally reflects FOS monetary limit at the time policy written.  This can cause underinsurance as a result of shifting FOS monetary limit.  Applicable to Claim/Award/Complaint.  The language of FOS is disconnected from the language of the PI policies.  Substantial underinsurance risk.

16. Sydney Melbourne Brisbane Canberra Newcastle Perth FOS Process  Not Litigation.  No opportunity to test the claimant.  Claimant at no cost or litigation risk:  Potential for “Dry Runs”.

17. Sydney Melbourne Brisbane Canberra Newcastle Perth FOS Process Response and Conciliation  Front loads costs.  Role of case officers.  Conciliation.

18. Sydney Melbourne Brisbane Canberra Newcastle Perth FOS Process Quantum  Application of Monetary Limits to ‘Claims’:  Jurisdictional issues pre 1 January 2010.  Change in value of claims that can be brought in FOS changed the issue.  Desirability of forum for large claims.  Underinsurance.  Assignment of Investments to Members:  Evolution.  Power?  Ramifications:  Administrative Problems.  Jurisdictional Issues.

19. Sydney Melbourne Brisbane Canberra Newcastle Perth End of Presentation Thank You