Earlier this month, the Australian Parliament approved the establishment of the Australian Financial Complaints Authority (AFCA). The new body is to be regulated by the Australian Securities Investments Commission (ASIC). The event signals an abrupt change in the way authorities are handling consumer complaints about financial services providers (FSPs).
According to the document, the AFCA will begin handling client complaints against FSPs from the beginning of November. While the final details are still being worked out by Australian authorities, brokers from Australia are expressing worry about the new framework.
Speaking with Finance Magnates, three different sources from the local FX industry shared that the new system is likely to create moral hazard risks.
Two brokers expressed that regardless of whether a complaint is legitimate, they need to pay costs associated with the investigation. In the opinion of a compliance expert, the new system is potentially creating a new opportunity for clients to exploit FSPs.
Brokers to Pay for Complaint Handling
According to existing regulatory frameworks around the globe, including in regulatory jurisdictions like the EU, Australian clients have to pay a fee in order for a complaint to be processed. This ensures that the system is not abused by clients attempting to take advantage of brokers.
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Under the new regulatory framework, clients do not have to pay to make a complaint. This creates the risk of them having no responsibility for what happens afterwards. Regardless of whether a customer has lost his/her funds in a fair way, he/she can still flag their case with the AFCA.
“The AFSL holder has to pay for every complaint that is lodged. Then the longer the complaint stays with the complaint body (currently FOS and CIO), the more the AFSL holder has to pay,” an industry expert from the region shared with Finance Magnates.
“The complaint body is incentivized to keep the disputes as long as possible (even though they pretend they’re trying to solve them), and not find in favor of the AFSL but find in favor of the client so they can generate more business for themselves,” the source elaborated.
Below, our readers can have a glimpse at the full complaint framework published by ASIC last week.