AFCA trying to ‘set standards’ on elder financial abuse standards: FAAA

While the Financial Advice Association Australia (FAAA) said it “appreciates” the Australian Financial Complaints Authority (AFCA) stepping up to the plate and addressing financial abuse of older people, it holds reservations over the body setting standards for firms in its approach documents.

In its submission to AFCA’s consultation on approaches to family violence and financial elder abuse, the FAAA said that, given the “large number of stakeholders putting in place strategies to maximise efforts to address this issue”, members need clarity on how the AFCA approaches fit into the broader framework.

“Importantly, we suggest the intention of AFCA’s approach must be to protect and support potential victims of financial abuse, rather than serve as a compliance or liability mechanism for determining compensation,” the submission said.

“While financial service providers, including financial advisers, can play a crucial role in helping identify victims, they are not the perpetrators and should not be held accountable for the acts of others.”

Noting that AFCA’s role includes working alongside financial firms to both improve processes and minimise future complaints, the FAAA argued that it is “unclear as to the enabling law that allows AFCA to set standards that firms must comply with or define the consequences of a breach”.

“AFCA’s other approaches generally state the relevant legal provisions and regulatory obligations under which each particular financial service must be provided, and the legal reasoning AFCA uses when considering complaints about that particular service or product. These provide welcome clarity for financial firms,” it said.

“However, the draft approach goes further by proposing actions firms should undertake to address financial abuse of older people and the steps firms should take to help potential victims.

“The expectations proposed in the draft approach include, for example, that the firm has internal policy and procedures and staff training in relation to the financial abuse of older people, and actions that should be taken by the firm in the event that the potential abuse of a client can be identified.

“This indicates that AFCA expects the information and actions detailed in the draft approach to act as standards and be ‘complied with’ by firms, including financial advice providers.”

Specifically, the FAAA said that the wording of the approach includes AFCA saying it considers it a “matter of good industry practice which should apply to all financial firms, regardless of whether a financial firm subscribes to a code of practice or not”.

This, the submission said, is “standard setting”.

“The legal framework for imposing these and other obligations on firms, the consequences for not meeting AFCA’s expectations, and how this AFCA approach will be considered by PI insurers, is unclear,” the FAAA said.

It added: “We suggest the AFCA draft approach should avoid setting compliance standards and blurring the lines between helping financial firms to recognise signs of financial abuse and taking steps to prevent victim losses, and the misconduct of the perpetrator of the financial abuse.”

Looking at the way expectations on dealing with financial abuse can impact financial advisers, the association warned that care needs to be taken to ensure these are consistent among the full range of stakeholder standards.

“Importantly, any expectation or standards that are developed should be appropriate to the interactions both potential victims and perpetrators may have with the financial system. For example, a transaction on a bank account may be done entirely online with no interaction between the individual making that transaction and representatives of a bank,” it said.

“In contrast, due to the nature of the financial advice process, the financial adviser-client relationship is formed over multiple interactions between the adviser and client involving face-to-face meetings, emails and phone calls.

“Expectations on how to identify and help victims of financial abuse in the financial advice space must cater for the vulnerabilities of the adviser-client relationship and interactions. Financial advisers are particularly concerned about protecting their client in these circumstances and ensuring any actions they take to help their client, do not make the situation worse for the victim.”