Financial ombudsman wants to regulate a compensation advisor profession
Autor: Przemysław Stopnicki
Financial Ombudsman aims at regulating compensation advisor profession. FO states that this profession should be practiced only by those who passed an exam before a state commission.
According to calculations, made by the Ombudsman’s Bureau, there is a cash flow of minimum 1.5 billion zloties on accounts of so called compensation offices, which currently aren’t subjected to any supervision. Frequent, and broadly publicized cases where employees of a compensation offices vanished along with recovered compensation confirm that this branch requires to be regulated.
'Even though in general we welcome the activity of compensation offices, we notice certain consumer risks. We see that after a period of boom and a dynamic growth of this market – the competition is getting more and more severe. New areas of activity are explored in order to increase income. We are afraid that potential financial problems may cause actions unfavorable to the consumers, and it is not only about those most severe and obvious cases – such as embezzlement of clients’ money by dishonest attorneys. We also see a problem of persuading clients to conclude fast out of court settlements, or agreeing to - so called - capitalized pension, in a form of a single payment. Such solution is not always in clients interest – but it provides compensation offices with a faster income. This is why we propose to introduce regulations, which would minimize these risks' – says Aleksandra Wiktorow, Financial Ombudsman.
Financial Ombudsman has recently submitted to the Ministry of Finance a project with propositions for the bill on compensation consultancy. Among propositions for changing the current legislation, the main goal was to introduce new laws, which would regulate the profession of a compensation advisor. According to the proposal, the profession would be regulated in an analogical manner, as in the case of e.g. tax advisors. Therefore there would be an obligation to pass a professional qualifying exam before a state commission (supervised by the Ministry of Finance), and to meet statutory qualifications – having university degree, and not being convicted by a valid judgment for an intentional offence.
Ombudsman proposes to introduce a supervision over compensation offices and to establish a professional self-government (National Council of Compensation Advisers) with a mandatory membership for compensation offices. The self-government would be responsible for keeping a register of compensation advisors and firms operating in this sector. The proposal requires an obligation of having TPL insurance by entities operating in compensation handling business. The Ombudsman also wishes that a practice of charging commission on pensions or medical costs will be discontinued. The proposal also stipulates a maximum amount of remuneration that could be obtained by the compensation office.
The above proposals are aimed to increase the level of consumer protection and consumer service by compensation offices. On the other hands the authors of the project are aware that the new law will not eliminate the fraud list completely.
'It is possible to imagine a list of detailed regulations aimed at eliminating the fraud risk. However we hope that on a regulated market, with an obligatory participation in a self-government organization, the compensation offices themselves will introduce expected market standards. For example - escrow account, which is currently commonly used in many different types of transactions, and which considerably increases the certainty and safeness of payment for the benefit of the authorized person. It is also possible to think of another safety mechanism, which consists in division of compensation amount when it is paid by the insurance company. The amount predetermined in the contract would go straight into the account of the client, and the fee would be paid up into the account of the compensation agent' – says Aleksander Daszewski, legal counsel in the Office of Financial Ombudsman.
The amounts obtained in the compensation procedure are currently paid up to compensation office’s bank account, and then the office deducts its fee and pays out the rest to the client. There are several cases where a compensation offices didn’t inform their clients of the awarded compensations and embezzled the awarded sums. Additionally, contracts between compensation offices and their clients often contain clauses unfavorable to the clients, and making fraudulent activity of the office easier.
Claims compensation market is growing rapidly. Experts point out, that the growth is associated with the lack of any regulations or market entry barriers in a form of licenses or required experience. Polish Compensation Chamber stated, that currently there are approximately 3 thousand compensation companies on the Polish market. Among them, there are companies listed on Polish stock exchange, as well as self-employed entrepreneurs. They make profits mainly on commissions for compensations obtained for their clients from insurance companies. According to Financial Ombudsman’s calculations, in 2015 there were 1.5 billion zloties which went through the accounts of compensation companies.