Executive Summary
3. Effective dispute resolution and redress mechanisms are essential to encouraging consumers to participate in financial markets and promoting market discipline for financial providers.
4. A discussion paper, released in August 2006, put forward a number of options for improving consumer access to dispute resolution and redress. These options included improved consumer education, enhanced civil remedies and specialist courts/tribunals, and voluntary and/or mandatory industry-based dispute resolution schemes.
5. Submissions on the discussion paper supported the view that there is sufficient evidence of a problem to warrant further government action to improve access to redress in order to promote consumer confidence in financial markets.
6. This paper proposes the establishment of a comprehensive, industry-based dispute resolution system across the financial sector. The key features of the proposed system include:
- Membership of an approved dispute resolution scheme will be mandatory for financial providers who are required to be registered and who transact with consumers. Membership of an approved dispute resolution scheme will also be mandatory for financial advisers who deal with members of the public. The legislation proposed in the paper "Review of Financial Products and Providers: Registration of Financial Service Providers" will establish rules for which financial providers must belong to a dispute resolution scheme and which consumers may have access to dispute resolution by reference to the definitions and applicability of other legislation governing specific sectors of the financial industry.
- An approved dispute resolution scheme is one that has satisfied the Minister of Commerce that it meets criteria of accessibility, independence, fairness, accountability, efficiency and effectiveness. In deciding whether to approve a scheme, the Minister must give regard to some mandatory considerations relating to the governance of the scheme, periodic reviews, the scheme's funding, the cost to consumers, membership restrictions, the scheme's jurisdiction, limits on liability of scheme members, evidence and processes, awareness, promotion and education, and reporting to stakeholders.
- It is anticipated that more than one scheme will be approved, and financial providers will have freedom to choose which scheme they wish to join.
- In the event of no schemes meeting the approval criteria or if there is not full coverage of the financial industry by those schemes which are approved, reserve powers will allow for a government-established scheme.
- A decision of a scheme will be binding on the member in relation to whom it is made, but will not preclude a consumer from rejecting the scheme's decision and taking alternative court action against a financial provider.
- The dispute resolution system will be fully funded by industry.
- Government involvement will be limited to approving schemes (including periodic renewal), receiving periodic reports, and powers of inspection if necessary, rather than involvement in the day-to-day operation of a scheme. Re-approval is to be obtained by schemes at 10 year intervals. Periodic reporting is to be annual and set out basic information about the activities of the scheme (eg number and type of complaints considered, promotional activities undertaken, etc), as well as identifying any systemic issues which the scheme considers require attention by government.
7. In addition to access to redress, improved consumer financial capability is also vital in promoting consumer confidence in financial markets. The Ministry of Economic Development and other relevant agencies are working on various initiatives to improve consumer financial capability.
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