Background
8. A Review of Financial Products and Providers commenced in 2005. Its key objective is to develop an effective and consistent framework for the regulation of non-bank financial institutions and financial products with the aim of promoting confidence and participation in the financial markets by investors and institutions, and achieving a sound and efficient non-bank financial sector.
9. On 23 August 2006, the Cabinet Economic Development Committee [EDC Min (06) 13/7 refers] agreed to the release of a discussion paper setting out options for improving consumer access to dispute resolution and redress.
Problem definition
10. The majority of submissions on the August 2006 discussion paper identified problems in relation to consumer confidence and access to redress mechanisms, although some submissions strongly argued that there were no current problems. On balance, I believe 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.
11. The discussion paper also noted recent consumer surveys which showed that, while the level of consumer problems with misleading or unfair treatment by financial providers is relatively low, there are significant problems with consumers seeking redress. Common reasons given by consumers included "did not know who to complain to", "did not think it would make a difference", and "couldn't be bothered". These responses indicated problems for consumers in relation to both knowing where to go to seek redress, and in having the capability to effectively use existing dispute resolution and redress mechanisms.
12. Dispute resolution and redress, which aims to provide a forum for consumers to have an independent person to listen to their concerns and potentially order compensation where the consumer has suffered a loss as a result of illegal or inappropriate conduct by a financial provider, should be contrasted with discipline and regulatory oversight, which is concerned with overall market stability, rather than the effects on any individual consumer.
13. While other proposals arising from the reviews of financial products and providers and financial advisers will help reduce the incidence of consumer problems, they will not completely eliminate the need for consumers to be able to access mechanisms to resolve disputes and seek redress if the provider fails to meet the consumer's reasonable expectations.
Need for government action
14. Effective dispute resolution and redress mechanisms are essential to encouraging consumers to participate in financial markets and promoting market discipline for financial providers.
15. Existing voluntary industry-based dispute resolution schemes, such as the Banking Ombudsman and Insurance & Savings Ombudsman, provide effective access to redress for consumers. These two schemes cover a large proportion of the financial sector; however, they do not currently extend to building societies, credit unions, finance companies, financial advisers and some superannuation schemes.
16. It is unlikely that these sectors will develop voluntary dispute resolution schemes. Therefore, further government action is needed to improve access to redress in order to promote consumer confidence in financial markets.
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