Many industries have established schemes for resolving disputes between industry participants and their customers. Are these schemes legally effective?
This issue was recently decided in the case of Financial Industry Complaints Service Limited (FICS) which was originally established by the life insurance industry as Life Insurance Complaints
Services Limited to resolve disputes with policy holders. When FSR required investment advisers (many of whom were insurance agents) to be a member of an external dispute resolution scheme FICS Terms of Reference were extended to include investment advice on securities to retail investors. ASIC approved FICS as an external dispute resolution scheme for the purpose of the Corporations Act which requires AFS licensees to be a member of such a scheme.
In Financial Industry Complaints Service Ltd v Deakin Financial Services Pty Ltd [2006] FCA 1805 (21 December 2006) Deakin challenged FICS’ jurisdiction to resolve disputes by clients of Deakin. The complainants claim that Deakin or its representative recommended that the client
invest in a project undertaken by the Westpoint group. Following the collapse
of the Westpoint group, several clients (at least sixteen and perhaps more)
filed complaints with FICS against Deakin. In broad outline each client alleges
that Deakin or its representative recommended the investment in the Westpoint
group (specifically purchase of promissory notes with a face value of $50,000 or more) without giving adequate warning of the risk involved.
While Judge Finkelstein found that the FICS Constitution only deals with its right to regulate a member relating to membership issues, he found that FICS’ authority to resolve disputes could be found in a contract
between Deakin and FICS to the general effect that Deakin would be bound by
FICS’ rules that establish its dispute resolution scheme.
Judge Finkelstein also considered whether the advice allegedly given by Deakin relates to a
"financial service" or "product". He was "in no doubt that a promissory note issued by a
Westpoint group company is a "financial product"."
