Recommendations
78. It is recommended that the Committee
1. Note that on 23 August 2006, the Cabinet Economic Development Committee invited the Minister of Commerce to submit a further paper to ECD by April 2007 seeking approval for policy decisions on the Review of Financial Products and Providers.
2. Note that this paper is part of a suite of Cabinet papers relating to the Reviews of Financial Products and Providers and Financial Advisers.
3. Agree to an industry-based consumer dispute resolution system with the following key features:
3.1 Dispute resolution schemes must be approved by the Minister of Commerce; and
3.2 Membership of an approved dispute resolution scheme will be mandatory for all (as specified in the accompanying paper Registration of Financial Service Providers):
- financial institutions that are required to be registered; and
- financial advisers;
who provide products or services to consumers; and
3.2.1 Invite the Minister of Commerce to report back to EDC by 31 August 2007 on how consumers will be defined; and
3.3 The purpose of the dispute resolution system is to provide a simple, low-cost avenue for consumers to seek redress; and
3.4 The dispute resolution system will be fully funded by industry.
4. Agree that the Minister of Commerce may, following consultation with the Minister of Consumer Affairs and Minister of Finance, approve a dispute resolution scheme if the scheme meets criteria of accessibility, independence, fairness, accountability, efficiency and effectiveness, and if the scheme meets minimum standards set out in legislation.
5. Agree that the scheme approval process include appropriate checks and balances, including a requirement for the Minister of Commerce to be satisfied that the scheme has undertaken appropriate consultation, timeframe for decisions, method of notifying approval, and other matters.
6. Agree that the Minister may impose conditions on the approval of a scheme or on an existing scheme if the scheme experiences any major changes after approval, or revoke the approval of a scheme. Conditions might cover issues such as the type of cases or sectors where a scheme may operate, requirements for training, governance requirements, internal review and other matters.
7. Agree to establish, in addition to the principle-based approval criteria (ie accessibility, independence, fairness, accountability, efficiency and effectiveness), mandatory considerations that the Minister must have regard to in deciding whether to approve a scheme.
7.1 The extent to which the scheme’s governance arrangements ensure the independence and accountability of the scheme.
7.2 Whether the scheme’s rules provide for periodic review, and the type of review required (ie internal or independent).
7.3 The competency of the directors and senior managers of the scheme.
7.4 Whether the scheme has adopted procedures to ensure that it has adequate funding to enable it to operate effectively.
7.5 The cost to consumers to lodge a complaint with the scheme.
7.6 The extent to which the scheme’s members cover a particular sector or sectors, however, each scheme will be free to set restrictions or qualifications on membership of the scheme to ensure that the scheme operates in an efficient and effective way.
7.7 Whether the scheme has adopted a minimum jurisdiction covering complaints about breach of contract or statutory obligation, and breach of an industry code. Schemes will also be free to adopt a wider jurisdiction, covering complaints of general unfairness, if the scheme members so desire.
7.8 Whether any proposed monetary limit on liability of scheme members is appropriate for the particular sector or type of business carried on by scheme members.
7.9 Whether the scheme’s rules provide that it is free to consider any information or make any inquiry as it sees fit and can have reference to what the scheme considers fair and reasonable in the circumstances, rather than strict adherence to legal rules.
7.10 The scheme’s obligations under its rules to engage in awareness, promotion and education.
7.11 The scheme’s obligations under its rules to report to stakeholders.
8. Agree in principle that 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, the legislation will provide reserve powers under which the Minister may, by regulation, establish a dispute resolution scheme (the “reserve scheme”).
8.1 Invite the Minister of Commerce to report back to Cabinet by 31 July 2007 with a more detailed proposal covering the powers of the reserve scheme, calculation of a levy on members of the reserve scheme, and the process for establishment of the reserve scheme.
9. Agree that a scheme’s rules must provide that a decision of the scheme is binding (subject to a limited exception) on the member in relation to whom it is made, but do not preclude a consumer from rejecting the scheme’s decision and taking alternative court action against a financial provider.
9.1 Agree that a member’s limited right to appeal from a decision of a scheme will be similar to rights available under the Disputes Tribunal Act for appeals against an order of a Disputes Tribunal. That is, an appeal is only allowed on the grounds that the proceedings were carried out in an unfair manner.
10. Agree that 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.
11. Note that, to assist affected parties in complying with the new regime, the Ministry of Economic Development will produce educational material: for dispute resolution schemes to help them meet their obligations in order to obtain approval; for financial institutions, to inform them of their obligation to join a dispute resolution scheme; for consumers, to inform them of the availability of new dispute resolution and redress mechanisms.
12. Note that the Ministry of Economic Development and other relevant agencies are working on various initiatives to improve consumer financial capability.
13. Invite the Minister of Commerce to issue drafting instructions to Parliamentary Counsel Office to give effect to the decisions above.
13.1 Agree to delegate decisions on minor issues that arise as part of the drafting process to the Minister of Commerce.
Hon Lianne Dalziel
Minister of Commerce
Hon Judith Tizard
Minister of Consumer Affairs
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