Under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (Act) most people who offer a financial service to members of the public will have to be a member of a dispute resolution scheme. Options are to join an applicable industry-led scheme which has been approved by the Minister of Consumer Affairs or to join the Government’s Reserve Scheme.
The Ministry of Consumer Affairs has released a discussion paper on the Reserve Scheme and draft guidelines for Approved Dispute Resolution Schemes (ADRS). Copies of these documents are available here.
Submissions are due by Friday 31 July 2009.
The requirement to join a dispute resolution scheme will apply to all financial advisers, banks, finance companies, share brokers, KiwiSaver managers, trustees and distributors, listed companies, trustee companies, issuers, financial lenders under credit contracts, credit card operators, foreign exchange operators, futures dealers, insurance companies, money market operators and other included parties who offer services to the public.
All schemes must comply with the principles of accessibility, independence, fairness, accountability, efficiency and effectiveness. The Act also sets out a minimal list of matters that must be provided for in the scheme rules, such as how complaints may be made.
The Reserve Scheme
The Ministry aims to have the Reserve Scheme established in May 2010. The purpose of the consultation paper is to seek feedback on the operating rules and the organisational form and governance arrangements.
What is a complaint?
For the purposes of the Reserve Scheme it is proposed that “complaint” means:
An expression of dissatisfaction or concern about a service or a product provided by a member company for which the complainant expects redress (remedial action or compensation) and has not received satisfactory resolution.
Dissatisfaction with commercial decisions, prices or interest rates where no actual “harm” has been suffered would not fall within this definition.
When can a complaint be brought?
Broadly, it is proposed that the service will be available free of charge for customers past or present of Reserve Scheme members and for consumers affected by the actions of Reserve Scheme members who have:
- exhausted the member’s internal complaint resolution procedure, and
- fewer than 20 full-time employees.
Discretion is proposed for the Reserve Scheme to consider a dispute from a complainant outside the eligibility criteria.
Submissions are also sought on whether members themselves may refer customer complaints to the Reserve Scheme. In such cases it is proposed that a fee will be charged to the member.
What outcomes are available?
All schemes must have a rule specifying the remedial action that the scheme can impose.
The discussion paper suggests that in respect of the Reserve Scheme, the consumer and the member concerned may settle, partially settle or withdraw the complaint by agreement. Alternatively, the dispute resolver may make a recommendation for settlement, partial settlement or withdrawal of the complaint.
If both parties agree to the recommendation it would become the full and final settlement. If the complainant accepts but the member does not, the dispute resolver may make an award of money or of the provision of service or any other action against the member. If the complainant does not accept the recommendation, it is proposed that he or she be entitled to pursue a remedy in any other forum. However, the member would be released from the dispute resolver’s decisions in relation to that complaint.
It is proposed that the Reserve Scheme have a general compensation cap of $100,000. A consumer may bring a dispute where the value of the transaction is above this amount but awards will only be made up to the value of the cap.
The Reserve Scheme cap has been set deliberately low so that industry-led schemes can have a point of difference for promotion to the public.
Organisation and Governance of the Reserve Scheme
A service provider contracted through open tender will perform the Reserve Scheme’s services, overseen by a Reserve Scheme advisory body to be established by the Ministry. The Reserve Scheme will be run at arm’s length from the Government, but the Ministry will continue to deal with policy matters relating to the dispute resolution regime.
Approved dispute resolution schemes
The policy decision to allow providers to form their own dispute resolution schemes reflects the Government’s belief that a dispute resolution scheme developed by financial service providers for their own particular industry will be more effective because the decision maker will have better knowledge and expertise regarding the participants’ products and services. However, the Ministry anticipates that there will be no more than half a dozen ADRSs.
The draft guidelines outline the proposed process for making and considering applications to become an ADRS. They also discuss in more detail how an applicant could meet the high level approval criteria prescribed by the Act.
The Ministry hopes to publish the finalised approval criteria on its website on 30 September 2009. The application process to become an ADRS will open on the same date.
Those considering establishing their own dispute resolution scheme are encouraged to use the proposed Reserve Scheme form and rules as a template.
Proposed approval criteria
Objective and Scope
- Clearly define the complaints that the scheme will consider
- State when those complaints can be taken to the scheme, and
- Set a claims limit.
One of the key issues here is whether the scheme will allow dual access by the member as well as the complainant.
- Establish an effective internal complaints handling process at the member level before a complaint can be brought to the scheme, and
- Impose compliance and co-operation obligations.
The member’s internal complaints handling mechanism may be a referral to an industry complaints board, or to another independent provider.
- Establish a members' forum to co-ordinate industry interests.
- Set out the powers for the decision maker, and
- Set out the matters to which the decision maker is required to have regard.
The Act does not require the scheme to provide appeal rights to an outside forum such as the District Court. Schemes may wish to consider internal mechanisms for reviewing determinations on procedural grounds.
- Set out a clear and transparent funding mechanism, and
- Ensure independence in budget setting.
Compliance monitoring and enforcement
- State the mechanism to ensure compliance and a scale of available sanctions, and
- Include information on member compliance in the annual report.
- Establish an independent review process.
Submitters are encouraged to respond in relation to the draft criteria, as well as suggest other possible approval criteria that ADRSs should be assessed against.