The Gibraltar Financial Ombudsman Service Limited A presentation concerning the establishment of a private, industry sponsored, Government ...
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The Gibraltar Financial Ombudsman Service Limited
A presentation concerning the establishment of a private,
industry sponsored, Government designated, Financial
Services Dispute Resolution Centre in Gibraltar.
Presented by Stephen Kerbel, February 2011.
1Contents
1 Introduction 3
2 What is ADR? 3
3 Global Context 5
4 Gibraltar financial services companies 15
5 Relevant Gibraltar laws 17
6 Impact on Gibraltar and its firms. 20
7 Proposal 22
21 Introduction
European States provide consumers with protection against the failures of the providers of
financial products. Written into European law, this protection has three pillars; regulatory
authorities of financial services, compensation schemes and alternative disputes resolution
(ADR) authorities to which consumers take their complaints. Gibraltar has a financial
industry that serves an international market; it has a regulator and a compensation scheme
that have equivalence with other EEC States. It does not have a structure for complaints that
is equivalent with most others, one that provides an alternative to Courts of Law for the
resolution of disputes for all sectors of the financial services industry. It has fulfilled the
minimal requirement to provide Customers of Gibraltar’s regulated payment services
institutions with access to a recently established complaints handling department of the
Gibraltar Financial Services Commission.
Government and industry have a common aim to grow the international financial services
business of Gibraltar. The implementation of best practice processes is necessary to
compete successfully in a market in which other EEC States such as Malta 1 lead by
providing ADR across their financial markets.
This paper compares Gibraltar Financial Services ADR with the world. It examines
alternative approaches to ADR and their background. It considers Gibraltar’s ADR options,
the existing Gibraltar laws and institutions and the constraints and opportunities these
provide. The impact of change on Gibraltar’s industry is considered.
Other gaps in consumer protection related to and beyond Financial Services are also
discussed. Implementation of certain provisions in statute law such as those contained in the
unfair terms of consumer contracts law that can be accommodated within an ADR
organisation.
Whilst the Ombudsman, adjudication method has been almost universally adopted for the
resolution of consumer disputes in Financial Services, the potential for enhancing Gibraltar’s
mediation and arbitration industry, particularly by encouraging international ADR here is
presented.
Finally, the way forward is proposed.
2 What is ADR.
Alternative dispute resolution is any type of procedure or combination of procedures
voluntarily used to resolve issues in controversy.
The main types of alternative dispute resolution used in consumer disputes are ombudsmen,
conciliation, mediation and arbitration and are usually provided by trade associations. Other
types of ADR used in commercial disputes include adjudication, early neutral evaluation and
expert determination.
Parties who decide to use ADR to settle their dispute can select a method and a provider of
their own choosing, depending on the source of the dispute. While ADR is not usually
compulsory, clauses providing for ADR in contracts are binding as long as they are specific.
1
http://ec.europa.eu/internal_market/consultations/docs/adr/adr_consultation_en.pdf Annex 3
3The Civil Procedure Rules provide for the judiciary to encourage the use of ADR in
appropriate cases. However the extra-judicial procedures are not themselves governed by
statute except for a number of Ombudsman Schemes which have been established by Act of
Parliament.
Ombudsmen
Ombudsmen investigate and resolve complaints about public and private organisations.
They also encourage good practice in the way complaints are handled by organisations and
government bodies. Many recognised ombudsman schemes are set up by statute; others
are voluntary non-statutory schemes set up on the initiative of the service sectors
concerned. For example, in the UK services provided by insurance companies, banks and
building societies were covered by industry sponsored schemes until they were
amalgamated into a single service, the Financial Ombudsman Service (FOS).
Adjudication
Adjudication is sometimes used to describe a non-specific alternative dispute resolution
process in which a third party makes a decision as to the best way to resolve the dispute. In
this sense, ombudsmen, arbitrators and judges are all types of adjudicators.
Adjudication involves an independent third party considering the claims of both sides and
making a decision. The adjudicator is usually an expert in the subject matter in dispute.
Adjudicators are not bound by the rules of litigation or arbitration.
Conciliation
Conciliation involves an impartial third party helping the people in dispute to resolve their
problem. The parties are free to agree to the resolution or not. In consumer disputes,
conciliation is often the first stage under an Ombudsman process or arbitration process
where often the conciliator is a member of the trade association.
Mediation
Mediation involves an independent third party helping disputing parties to resolve their
dispute. The disputants, not the mediator, decide the terms of the agreement. The mediator
has an important role, however, in 'reality testing' any agreement, i.e. in checking carefully
that the parties are able to do what they agree to do.
Mediation is now widely recognised in the UK and Europe as the most popular form of
alternative dispute resolution used in commercial, personal injury and clinical negligence
cases as it offers solutions beyond those that a court could ordinarily impose.
Family mediation helps those involved in family breakdown to communicate better with one
another and reach their own decisions about children, property and finance.
Arbitration
In arbitration an independent, impartial third party hears both sides in a dispute and makes a
decision to resolve it. In most cases the arbitrator's decision is legally binding on both sides,
so it is not possible to go to court if you are unhappy with the decision.
Arbitration is in many ways an alternative form of court with procedural rules which govern
issues such as disclosure of documents and evidence. But arbitration is private rather than
public. Hearings are less formal than court hearings, and some forms of arbitration do not
involve hearings but are decided on the basis of documents only.
4The first Ombudsman in European financial services was established in 1981 in the UK. The
Insurance Ombudsman Bureau (IOB)2 was an industry sponsored, voluntary membership
organisation, established to resolve disputes between general insurance and life assurance
companies and their customers. Established as a company limited by guarantee, by the
time that it was integrated into the Financial Services Authority’s Financial Ombudsman
Scheme (FOS) in 2000, it had an unassailable reputation for excellence as a consumer
protection organisation and had played a major part in underpinning the reputation of
insurers, the confidence of consumers and the ratification of the UK as the pre-eminent
European financial centre. The IOB’s style of ADR was soon copied by all UK retail financial
sectors, forward looking sectors in the EEC and beyond and many non-financial UK industry
sectors.
Membership of the IOB although voluntary was close to universal, the service was free to
consumers and members paid low annual and case fees, the maximum the Ombudsman
could award was £100,000, decisions were legally binding on the member but not on the
complainant. In contrast to this originating scheme, the decisions of the succeeding
organisation, FOS, established under the Financial Services Act 2000, are judicially
reviewable3, which has introduced an element of uncertainty of outcome.
3 Global Context
European Regulation
The EEC Directive 2002/92/EC on insurance mediation, referred to as the Insurance
Mediation Directive (IMD) was to be implemented before 15 January 2005 in all Member
States. As established in articles 10 and 11 of the Directive, Member States must also
promote procedures for registering clients’ complaints about intermediaries and for the out-
of-court settlement of disputes between clients and intermediaries particularly referencing
cross-border disputes4. Article 12.1 of the IMD (in chapter III) defines the obligations of
Insurance Brokers (intermediaries) to register complaints and the out-of-court dispute
resolution procedures5. Only four of the EU’s 15 countries transposed the IMD into National
legislation before the 2005 deadline.
1. Member States shall encourage the setting-up of appropriate and effective complaints and
redress procedures for the out-of-court settlement of disputes between insurance
intermediaries and customers, using existing bodies where appropriate.
2
http://www.peterjtyldesley.com/files/2003%20The_Insurance_Ombudsman_Bureau_-
_the_early_history.pdf
3
Law Report: Ombudsman not reviewable: Regina v Insurance Ombudsman Bureau, Ex parte Aegon
Life Assurance Ltd - Queen's Bench Divisional Court (Lord Justice Rose and Mr Justice McKinnon),
16 December 1993.
4
E EC Directive 2002/92/EC Article 11 Out-of-court redress
5
EEC Directive 2002/92/EC Article 12 Information provided by the insurance
intermediary
1. Prior to the conclusion of any initial insurance contract, and, if necessary, upon amendment or
renewal thereof, an insurance intermediary shall provide the customer with at least the following
information:
(e) the procedures referred to in Article 10 allowing customers and other interested parties to register
complaints about insurance and reinsurance intermediaries and, if appropriate, about the out-of-court
complaint and redress procedures referred to in Article 11.
52. Member States shall encourage these bodies to cooperate in the resolution of cross-
border disputes.
Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on
markets in financial instruments known as MIFID contains Article 53, Extra-judicial
mechanism for investors' complaints. This states:
1. Member States shall encourage the setting-up of efficient and effective complaints and
redress procedures for the out-of-court settlement of consumer disputes concerning the
provision of investment and ancillary services provided by investment firms, using existing
bodies where appropriate.
2. Member States shall ensure that those bodies are not prevented by legal or regulatory
provisions from cooperating effectively in the resolution of cross-border disputes.
The 2007 European Directive on Payment Services (2007/64/EC) established the legal basis
for the creation of an EU-wide single market for payments. Implementation was required in
all member States by 1 November 2009. Chapter 5 requires that every jurisdiction has a
competent authority for the handling of complaints 6. Gibraltar has adopted these rules in the
Financial Services (Fiduciary and Investment Services) Financial Services (EEA) (Payment
Services) Regulations 20107. The Financial Services Commission has established a
Payment Service Team to handle complaints emanating from this market sector using an
arbitration method of alternative dispute resolution8.
Wider implications for retail industries are derived from the Directive 2008/48/EC of the
European Parliament and of the Council of 23 April 2008 on credit agreements for
consumers (to be implemented by May 2010) which contains Article 24, Out-of-court dispute
resolution which states:
1. Member States shall ensure that adequate and effective out-of-court dispute resolution
procedures for the settlement of consumer disputes concerning credit agreements are put in
place, using existing bodies where appropriate.
2. Member States shall encourage those bodies to cooperate in order to also resolve cross-
border disputes concerning credit agreements.
6
European Directive on Payment Services (2007/64/EC). An ADR organisation may be established
under statutory provisions.
CHAPTER 5 Out-of-court complaint and redress procedures for the settlement of disputes.
Section 1
Complaint procedures
Article 80
Complaints
1. Member States shall ensure that procedures are set up which allow payment service users and
other interested parties, including consumer associations, to submit complaints to the competent
authorities with regard to payment service providers' alleged infringements of the provisions of national
law implementing the provisions of this Directive.
2. Where appropriate and without prejudice to the right to bring proceedings before a court in
accordance with national procedural law, the reply from the competent authorities shall inform the
complainant of the existence of the out-of-court complaint and redress procedures set up in
accordance with Article 83.
7
http://www.gibraltarlaws.gov.gi/articles/2010s078.pdf
8
http://www.fsc.gi/consumer/aboutpsdfirm.htm
6The Electronic Money Directive (Directive 2009/110/EC) 9 focuses on modernising EU rules
on electronic money, especially bringing the prudential regime for electronic money
institutions into line with the requirements of payment institutions in the Payment Service
Directive. The Directive requires that its rules must be n force in all EU States by 30 April
2011.
Implementation of ADR through the EEC.
The European Commission consultation document on Financial Services ADR 10 of
11.12.2008 provided a quantification of the provision of ADR within 29 EU member States. It
subdivided Financial Services ADR into four segments; Banking, Payments, Insurance and
Securities. The results are summarised in table 1 below.
Table 1
Implementatio
n
29 Banki Payme Insura Securit
jurisdictions ng nts nce ies
With ADR
Service 25 27 25 25 The States that do not have
some or any ADR provision are presented in table 2 below.
9
Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 –
The Electronic Money Directive. (19) Out-of-court complaint and redress procedures for the
settlement of disputes should be at the disposal of electronic money holders. Chapter 5 of Title
IV of Directive 2007/64/EC should therefore apply mutatis mutandis in the context of this
Directive, without prejudice to the provisions of this Directive. A reference to "payment service
provider" in Directive 2007/64/EC therefore needs to be read as a reference to electronic money
issuer; a reference to "payment service user" needs to be read as a reference to electronic
money holder; and a reference to Titles III and IV of Directive 2007/64/EC needs to be read as a
reference to Title III of this Directive.
10
http://ec.europa.eu/internal_market/consultations/docs/adr/adr_consultation_en.pdf
7Table 2
Banki Payme Insura Securit
Countries ng nts nce ies
Austria No Yes No No
Bulgaria No Yes No No
Cyprus No No No No
Czech
Republic No Yes No No
Liechtenstein Yes Yes No No
Romania No No Yes Yes
Slovenia Yes No Yes Yes
Provision of ADR in EC States with financial services industries that are particularly relevant
to Gibraltar because of size and markets are provided in table 3 below.
Table 3
Banki Payme Insura Securit
Countries ng nts nce ies
Cyprus No No No No
Ireland Yes Yes Yes Yes
Luxembourg Yes Yes Yes Yes
Malta Yes Yes Yes Yes
Netherlands Yes Yes Yes Yes
All except Cyprus have ADR for all financial services market segments.
For comparison, Gibraltar’s provision is provided in Table 4 below.
Table 4
Banki Payme Insura Securit
Countries ng nts nce ies
Gibraltar No Yes No No
The implementation of EU regulatory ADR recommendations has gathered pace across the
EU particularly among several smaller States that had recognised the value of international
financial services for their economies. However, Gibraltar has not embraced this
development in support of its international ambitions and remains on a slower track for the
development of consumer protection in financial services.
Developments in non-EEC States.
The 2010 Hong Kong Government review 11 of dispute resolution systems provides insights
into Australia, Singapore and the USA and shows the diversity of approaches to ADR
schemes.
• Australia
11
http://www.gov.hk/en/residents/government/publication/consultation/docs/2010/consult_iec_fdrc_e.p
df
8The Financial Ombudsman Service (FOS) Company, limited by guarantee, was
established in 2008 by merger of sector specific dispute resolution schemes covering
banking, insurance and investments. The Australian Securities and Investments
Commission (“ASIC”) requires all financial services providers to have membership of
one or more ASIC-approved External Dispute Resolution (“EDR”) schemes. FOS is one
of the EDRs approved by ASIC. About 80% of the financial services providers are
members of FOS. It covers banking, insurance, financial planning, investments and
superannuation. It has 3,385 effective members. Its dispute resolution process is by
Finding / Recommendation / Ombudsman determination. Individuals and small
businesses can use the service. Members pay a participation fee and are levied an
additional amount based on the number and complexity of disputes considered by the
Ombudsman about that member. Final Decisions are binding on financial institutions.
The claims limit is AUD280,000, approximately £170,000. Caseload for 2008/09 was
19,107 new disputes received with 17,007 cases closed or resolved. The Scheme is
required to provide ASIC with quarterly reports about the operations, and to report all
systemic issues and serious misconduct to ASIC. The Scheme is overseen by a Board
of Directors which has 3 industry and 3 public interest representatives, and an
independent Chairperson.
• Singapore
The Financial Industry Disputes Resolution Centre (“FIDReC”), a company limited by
guarantee, was established in 2005 by merger of a consumer mediation unit and an
insurance dispute resolution organisation. The Monetary Authority of Singapore (“MAS”)
requires all financial services providers which have retail customer relationships to be
members of FIDReC. It covers banking & finance, insurance and capital market
transactions. It has 467 members. Its dispute resolution process is by mediation failing
which, adjudication. Individuals and sole proprietors can complain. Recurrent cost of the
scheme is borne by the industry funded by payment by subscriber institutions of annual
levy and case fees. Final Decisions are binding on financial institutions. The claims limit
is S$50,000 (banking and finance related) approximately £24,000, S$100,000
(insurance related) approximately £48,000. Caseload for 2008/09 was 2,969 new cases.
485 complaints were resolved by mediation and another 91 cases by adjudication.
FIDReC submits to MAS on a quarterly basis a categorised summary report of all
disputes received. The scheme is governed by an independent Board of 7 directors,
comprising 3 industry directors, 3 non-industry directors and an independent Chairman
and directors are appointed by the Board subject to the approval of MAS.
• United States
The Financial Industry Regulatory Authority (“FINRA”), a not-for-profit membership
corporation with no capital stocks, was established in 2007 by consolidation of a self-
regulatory organisation of securities dealers and some operations of the New York Stock
Exchange. FINRA is the largest self-regulatory organisation in the US securities
industry. FINRA members are required to arbitrate disputes with their customers, if the
customer chooses to arbitrate. It covers securities firms doing business with the US
public. It has 4,750 brokerage firms and 633,000 registered securities representatives.
Its dispute resolution process is by Mediation / Arbitration. Individual investors, securities
firms and employees of securities firms can complain. The scheme is funded by
collection of a mixture of regulatory fees from members, dispute resolution fees from
users and other fees received by it in carrying out its regulatory role. Arbitration is
binding on both parties. There is no claims limit. Caseload for 2008/09 was 7,137 new
cases file, with 684 mediation cases closed, of which 82% settled. 4,571 arbitration
9cases were closed, 25% of which were decided by arbitrators, 47% by direct settlement
between parties.
FINRA is a self regulatory organisation supervised by the Securities and Exchange
Commission (“SEC”). All brokers-dealers in the US must register with the SEC and one
of the registration requirements is that an applicant must be a member of FINRA, unless
it qualifies for exemption under certain circumstances. The scheme is governed by a
Board of Governors elected by FINRA members. Currently there are 23 Governors.
Other ADR organisations in the US specialising in areas covered by this review are
independent, non-membership, usually for-profit organisations.
Of these three, only the Singapore scheme has, like the UK, restricted designation of
ADR organisations to a single, government linked agency. Australia and the USA
maintain a number of sector specific ADR organisations. The USA’s preferred ADR is by
mediation and arbitration rather than conciliation and adjudication. The USA does not
provide statute backed ADR to a similar level of coverage to that of leading EEC States.
World round-up
A selection of countries including Canada, Dubai, Hong Kong, New Zealand, the Isle of
Man, Malaysia and its independent territory of Labuan which all have locally, or
internationally important financial services industries are reviewed. Only New Zealand
and Isle of Man have ADR schemes equivalent to those of many EEC States. Dubai has
no provision and Hong Kong is in process of implementing ADR. Malaysia provides ADR
only for banking and general insurance. Canada provides an accident claims ADR
process.
• Canada’s Financial Services Commission of Ontario12 deals only with accident
insurance claim complaints.
• The Dubai Financial Services Authority 13 in a consultancy document circulated in
December 2007 stated that it was examining the possibility of an external dispute
resolution scheme for Retail Clients. Currently firms are required to advise
complainant retail customers of the existence of any external redress options which
may include an external dispute resolution scheme, arbitration, or the Dubai
International Financial Centre Court.
• Hong Kong
The Financial Services and Treasury Bureau published a consultative document 14 in
February 2010 in which it proposed the establishment of an Investor Education
Council and a Financial Dispute Resolution Centre (FDRC). It would handle banking
and investment customer disputes as ADR for the insurance industry is already being
established. It would take cases from companies regulated by the Hong Kong
Monetary Authority and the Securities and Futures Commission. The principle
methodology would be mediation first and if resolution is not possible then arbitration
12
http://www.fsco.gov.on.ca/
13
http://dfsa.complinet.com/net_file_store/new_rulebooks/d/f/DFSA1547_1843_VER26.pdf
14
Consultation Paper – Proposed Establishment of an Investor Education Council and a Financial
Dispute Resolution Centre. Financial Services and the Treasury Bureau February 2010.
10with decisions binding on both parties. The financial limit would be HK$ 500,000,
approximately £40,000. The FDRC should be governed by a Board of Directors to be
appointed by the government. It is proposed that the Board should be broadly based
and representative of the major stakeholders, with well-regarded community
personalities equipped with knowledge of financial services and consumer protection.
The Board could comprise of seven to 11 independent non-executive members,
including the Chairman.
• New Zealand
The Offices of the Banking Ombudsman 15 and the Insurance and Savings
Ombudsman16 are not statutory bodies, and participation by financial institutions is
voluntary. Most, if not all, significant financial institutions participate. The role of these
offices is to assist customers of banks, insurance and savings companies resolve
their disputes with their financial institution in an impartial manner over matters
involving monetary sums up to NZ$ 200,000, approximately £90,000.
• Malaysia
The Financial Mediation Bureau17 (FMB) is an independent body which handles
complaints, disputes and claims from customers of the insurance, banking and credit
card sectors. Banking claims are limited to RM100,000 (approximately £20,000),
cards and cheques RM25,000 (approximately £5,000), Motor, Fire insurance and
Islamic Insurance RM200,000 (approximately £40,000). Awards are binding on
institutions but not the complainant.
• Isle of Man (Mann)
Under British law, Mann is not part of the United Kingdom. It holds neither
membership nor associate membership of the European Union. Protocol 3 of the
UK's Act of Accession to the Treaty of Rome permits trade for Manx goods without
tariffs. In conjunction with the Customs and Excise agreement with the UK, this
facilitates free trade with the UK. While Manx goods can be freely moved within the
EU, capital and services cannot be.
Its Financial Services Ombudsman Scheme 18 is a free, independent, dispute
resolution service for complaints against banks, insurance companies or financial
adviser firms. It became fully operational in January 2002. The role and powers of
the Scheme are set down by law and the Ombudsmen are appointed by the Isle of
Man Office of Fair Trading.
• The Malaysian Federal Territory of Labuan
The Offshore Financial Services Authority 19 (LOFSA) has no Ombudsman Service.
However it will investigate and inform a complainant of its decision to assist the
parties to agree compensation. Enforcement is through courts of law.
15
http://www.bankomb.org.nz/
16
http://www.iombudsman.org.nz/
17
http://www.fmb.org.my/
18
http://www.gov.im/oft/ombudsman/
19
http://www.labuanfsa.gov.my/content/_100416/100416000824/Complaints%20Handling%20Form
%20(Public).pdf
11A summary of the sector coverage of this group is provided in Table 5 below.
Table 5
Banki Payme Insura Securit
Countries ng nts nce ies
Australia Yes No Yes Yes
Singapore Yes No Yes Yes
US No No No Yes
Canada No No No No
Dubai No No No No
Hong Kong No No Yes No
In the non-EEC States
New Zealand Yes No Yes Yes reviewed, 55% have gaps in
Malaysia Yes No Yes No provision or no provision.
Isle of Man Yes Yes Yes Yes Notably, Gibraltar’s competitors
Labuan No No No No such as the Isle of Man
provides ADR across the
industry, Singapore and Malaysia cover Banking and Insurance and Hong Kong has
provision for insurance and is planning the introduction of ADR for banking and investment
disputes.
It is worth noting that the ADR method adopted by most of these disparate financial centres
is closer to the UK’s conciliation and adjudication model than to the US where ADR is mainly
through an arbitration model.
Commentaries on some European schemes.
A review of regulation by Charles River Associates (CRA International) in May 2007 20 for the
City of London Corporation found that in the UK all financial services sectors were regulated
by the Financial Services Authority with its ADR scheme under the jurisdiction of the
Financial Ombudsman Service (FOS). “in this respect, some market participants interviewed
by CRA noted that these procedures may be too complex and expensive for small
intermediaries, which was also noted by Lord Davidson in his review of EU Regulation.”
In Lord Davidson’s Review of the implementation of the EU legislation in the UK 21,
November 2006, Lord Davidson wrote “For small firms the fees to the Ombudsman are a
significant expense and although widely accepted by the insurance mediation industry as
part and parcel of Financial Services Authority regulation, it is seen as an over-burdensome
complaints scheme for this industry.”
20
http://217.154.230.218/NR/rdonlyres/66BB0170-F4CD-48A3-80B2-
D1809F12AE73/0/BC_RS_IMDexecsummforwebFINAL.pdf
21
http://www.bis.gov.uk/policies/better-regulation/reviewing-regulation/simplifying-eu-legislation-
davidson-review
12In France consumers address their complaints to the regulator, ACAM 22 as there is no
industry-wide procedure for handling consumer complaints. Large insurance companies,
however, tend to have their own in-house ombudsmen and the CSCA 23, a trade association
of insurance brokers, has established its own dispute resolution scheme and has a mediator
whose decisions are not binding on either the insurance broker or the client. The service is
free to clients.
The CRA International review found that in ‘Germany, the existing Ombudsman set up by the
industry to deal with complaints regarding insurance companies is foreseen to be also
responsible for handling complaints against intermediaries in the future, but there is no
arbitration court as yet.’24
It also gave an overview of the Netherlands where the Ombudsman was established by all
market parties by self-regulation, within the framework of legal requirements in the Financial
Services Act, ‘A single Ombudsman for the financial sector (KIFID) was created on 1
January 2007 that started operations during March/April 2007.’ Following mediation a case
can proceed to binding adjudication, although the intermediary organisation can unilaterally
opt out of binding ombudsman’s decisions. Although there is no cost to the consumer for
mediation, the consumer pays Eur 50 towards the cost of adjudication. Intermediary cases
can be determined up to Eur 100,000, whilst banks and insurance companies is up to Eur
250,000. Kifid is mandatory for all license holding financial institutes.
It is noted that the costs to smaller firms and consumers needs consideration in the Gibraltar
scheme.
Independent and State schemes.
Fin Net25 is an organisation established by the EU to assist consumers with identifying what
ADR services are available to them, particularly in the case of cross border disputes. Some
50 separate ADR organisations across the EEA have joined Fin Net. The membership list
evidences that State schemes are in the minority. The data is presented in table 6 below.
Table6
By Private Voluntar State
Law y
Belgium Ombudsman des Assurances / x
Ombudsman van de Verzekeringen
Mediation Service Banks – Credit – x
Investments
Czech Republic Financial Arbiter of the Czech Republic x
Denmark Complaint Board of Danish Securities and x
Brokering Companies
Insurance Complaints Board x
Danish Complaint Board of Investment x
22
Autorité de contrôle des assurances et des mutuelles http://www.acam-france.fr/
23
La Chambre Syndicale des Courtiers d'Assurances http://csca.fr/
24
http://217.154.230.218/NR/rdonlyres/00DF9852-33A5-4781-9338-
BBFC7101133D/0/BC_RS_IMDfulllengthforwebFINAL.pdf
25
http://ec.europa.eu/internal_market/fin-net/index_en.htm
13Funds
Danish Complaint Board of Banking x
Services
Danish Mortgage Credit Complaint Board x
Germany German Savings Banks Association – x
Consumer Complaints Office
Ombudsman of German Cooperative x
Banks c/o National Association of German
Cooperative Banks
Ombudsman of German Public Sector x x x
Banks
Ombudsman Scheme of the Private x x x
Commercial Banks
Ombudsman Private Health and Long- x x
term Care Insurance
Arbitration Board at the Deutsche x x
Bundesbank
Arbitration Board of the x
Landesbausparkassen
Kundenbeschwerdestelle
Association of Private Bausparkassen – x x
Customer Complaints System
Association of Private Bausparkassen – x x
Customer Complaints System
Insurance Ombudsman x x
Ireland Financial Services Ombudsman’s Bureau x x
Greece Directorate of Insurance Enterprises and x
Actuaries of the Ministry of Development
Hellenic Ombudsman for Banking – x
Investment Services (H.O.B.I.S.)
Spain Investor Assistance Office – Investors x x
Department of the CNMV Complaints
Service
Directorate-General of Insurance and x x
Pension Funds(DGSFP)
Complaints Service of the Bank of Spain x x
France AMF Ombudsman x x
Mediator of the French Association of x x
Specialised Finance Companies
Insurance Mediator x x
By Private Voluntar State
Law y
Italy ISVAP – Supervisory body for private x x
insurance
Banking Ombudsman x x
Lithuania State Consumer Rights Protection x x
Authority
Luxembourg Commission de Surveillance du Secteur x x
Financier (CSSF)
Insurance Mediation x
Hungary Arbitration Board of Budapest x x
Malta Consumer Complaints Manager, Malta x x
Financial Services Authority (MFSA)
Netherlands Financial Services Complaints Institute x x
Austria Joint Conciliation Board of the Austrian x
Banking Industry
Poland Banking Ombudsman x x
14Insurance Ombudsman x x
Arbitration Court at the Polish Financial x x
Supervision Authority
Portugal CMVM – Portuguese Securities Market x x x
Commission
Lisbon Arbitration Centre for Consumer x x
Conflicts
Finland Finnish Securities Complaints Board c/o x x
Finnish Financial Ombudsman Bureau
Consumer Disputes Board x x
Finnish Insurance Complaints Board c/o x x
Finnish Financial Ombudsman Bureau
Sweden National Board for Consumer Complaints x
United Kingdom Financial Ombudsman Service x x
Liechtenstein Bank Ombudsman of Liechtenstein x x
Arbitration Board for the Settlement of x
Disputes Concerning Cross-border Credit
Transfers
Norway Norwegian Banking Complaints Board x
Norwegian Bureau for Insurance Disputes x x x
(NBI)
23 26 19 18
4 Gibraltar financial services companies
Consumer protection through ADR would impact on Gibraltar regulated businesses that have
clients who are private customers. The class ‘private customers’ may include small business
enterprises. Regulated firms must provide customer agreements to those customers so that
a contractual relationship exists between them. Classification of the customer such as
‘professional, business investor, experienced investor’ may affect the protection afforded.
Regulated entities’ customers may be so classified that they do not have a right of access to
the ADR service provided for private clients. ADR may be included as a contract term.
Among the entities regulated by the FSC most are likely to have customers who would have
right of access. Whilst precise information on firms’ customers’ types is not in the public
domain a reasonable assessment can be presented. The FSC’s relevant classifications 26 of
registered firms and numbers in each classification are presented in table 7 below.
Table 7
20/10/2010 With
Classification Privat
e
Client Qt
Qty s y
Audit Firms 14 None 0
Banks 18 All 18
Bureaux de Change 14 All 14
Collective Investment Scheme Intermediaries 0 All 0
Collective Investment Scheme Managers and
Depositaries 11 Few 11
Collective Investment Schemes - Authorised 2 All 2
26
http://www.fsc.gi/fsclists/categorysearch.asp
15Collective Investment Schemes - Experienced Investor
Funds 78 Some 78
Collective Investment Schemes - Recognised 31 All 31
Collective Investment Schemes Administrators 9 Few 9
Company Managers 65 None 0
E-money Institutions 2 All 2
Insurance Companies 63 All 63
Insurance Intermediaries 30 All 30
Insurance Managers 7 Few 7
Investment Dealers 5 All 5
Investment Managers 24 All 24
Money Transmitters 3 All 3
Occupational Pension Schemes 5 All 5
Professional Trustees 46 All 46
427 348
In October 2010 there were 427 firms directly regulated by the FSC. Those firms that have
or may have private clients and the need to provide access to external ADR number 348. An
assessment of the number of linked firms (with associated companies operating in different
FSC classifications) reduces these to some 289 corporations that would be affected by the
introduction of ADR across the financial services industry.
165 Relevant Gibraltar laws27
1895 Arbitration Act.
This Act promotes the settlement of disputes through an alternative to the Courts of
Law.
1987 Financial Services (Insurance Companies) Act. Schedule 12, Information for policy
holders of Gibraltar insurers and EEA insurers states:
1 (3) Before entering into a contract to which this paragraph applies, the insurer shall
furnish the other party to the contract in writing with the following information–
iii) the arrangements for handling any complaints concerning the contract, whether by
the other party or any other person who is a life assured or beneficiary;
and
Information before contract of general insurance. 3 (2) Before entering into a contract
to which this paragraph applies, the insurer shall, if the other party (or one of the
other parties) to the contract is an individual, inform that party in writing–
(a) of any arrangements which exist for handling complaints concerning the contract
including, where appropriate, the name and address of any body which deals with
complaints from any party to the contract;
(b) that the existence of a complaints body does not affect any right of action which
any party to the contract may have against the insurer;
1991 Financial Services (Investment and Fiduciary Services) Act states:
38F.(1) Customers and other interested parties may make complaints about
insurance and reinsurance intermediaries to the Consumer Protection Office of the
Government, or such other person or entity as the Minister may designate by
regulations (the “complaints authority”).
1991 Financial Services (Conduct of Business) Regulations states:
40. A licensee shall have internal procedures to ensure the proper handling of
complaints from customers and to ensure that any appropriate remedial action on
those complaints is promptly taken.
1998 Unfair Terms in Consumer Contracts Act states:
(3) Persons or groups of persons designated by the Minister under the provisions of
this section (hereinafter the “designated person”), may consider any complaint that
any contract term drawn up for general use is unfair.
2006 Financial Services (Conduct of Business: Investment Firms & Insurance
Intermediaries) Regulations States:
Schedule 2
Content of terms of business provided to a customer: general requirements.
A firm’s terms of business provided to a customer should, where relevant, include
some provision about−
(20) Complaints procedure
How to complain to the firm, and a statement, if relevant, that the customer may
subsequently complain directly to the Department of Consumer Affairs of the
Government of Gibraltar.
27
http://www.gibraltarlaws.gov.gi/full_index.php
172006 Financial Services (Conduct of Fiduciary Services Business) Regulations states:
Complaints.
18.(1) A licensee shall have internal procedures to ensure the proper handling of
complaints from customers and to ensure that any appropriate remedial action on
those complaints is promptly taken.
(2) A licensee shall enter in a register a written summary of all material complaints
received and the manner in which they were handled.
(3) Such a register shall be open for inspection by the Commissioner and any person
duly authorised by him.
2006 Financial Services (Distance Marketing) Act states:
Consideration of complaints.
17. The Authority shall consider any complaint made to it about a breach unless the
complaint appears to the Authority to be frivolous or vexatious.
2008 Consumer Protection (Unfair Trading) Act states:
Enforcement by way of injunction.
11.(1) The Minister may appoint by notice in the Gazette a Consumer Officer to
administer the provisions of this Act.
(2) It shall be the duty of the Consumer Officer to consider any complaint made to
him that a commercial practice is contrary to the provisions of this Act, unless–
(a) the complaint appears to the Consumer Officer to be frivolous or vexatious; or
(b) a person appointed under subsection (3) has notified the Consumer Officer that
he agrees to consider the complaint.
(3) Without prejudice to subsection (1), the Minister shall designate by notice in the
Gazette, such persons or groups of persons who may apply to him for designation
and who, in the Minister’s opinion, have as their sole or principal aim the promotion of
interests of consumers.
2010 Financial Services (EEA) (Payment Services) Regulations states:
“competent authority” means the Financial Services Commission or such other
person as the Minister may, from time to time, designate pursuant to regulation 20;
20.(1) The Minister shall designate either a public authority, or a body expressly
empowered by statute for the purpose, as the competent authority responsible for the
authorisation and prudential supervision of payment institutions which is to carry out
the duties provided for under this Part.
82. Competent authorities for complaints.
(2) Where appropriate and without prejudice to the right to bring proceedings before
the Supreme Court, the reply from the competent authority shall inform the
complainant of the existence of the out-of-court complaint and redress procedures
set up in accordance with regulation 83.
Out-of-court redress.
83.(1) The provisions of the Arbitration Act shall apply for the settlement of disputes
between payment service users and their payment service providers concerning
rights and obligations arising under these Regulations as if there were an Arbitration
Agreement between them providing for the reference of disputes between them..
84. Any attempt by a payment service providers to derogate, to the detriment of
payment service users, from the provisions of these Regulations shall be
unenforceable save where explicitly provided for in these Regulations, but payment
18service providers may decide to grant more favourable terms to payment service
users.
Establishing an ADR authority
EEC Financial Services Directives and Gibraltar laws listed above provide that a member
State may designate ADR authorities28 and for Payment Services and electronic money,
must designate an ADR authority. The State may legislate to provide the legal basis for a
scheme as it has in the case of the Payment Services Act which in paragraph 83 specifies a
form of arbitration be used although in the following paragraph 84 the regulations allow firms
to use a complaints authority operating alternative mediation techniques. Legislation such as
that for unfair terms in contracts provides the means for Government to designate ADR
authorities by the Minister placing a notice in the Gazette.
The State may designate a scheme and, as in many countries, designate several schemes
as competent authorities. In the 1990’s the UK had two schemes providing services for the
same sectors of financial services business. The IOB private service and the regulator, the
Personal Investment Authority, both provided schemes for the life industry’s products. New
Zealand’s Banking Ombudsman would receive similar complaints to its Insurance and
Savings Ombudsman. In France Large insurance companies maintain their own
independent ADR resource whilst the insurance industry trade association provides another.
Most ADR systems for financial services disputes use informal adjudication whose rules
have been developed specifically in the interests of resolving financial services disputes
between consumers and institutions since the IOB scheme in 1981. Arbitration which,
through long practice supervised by august international arbitration institutions, is structured
with highly developed formal rules. Its history is disputes between commercial entities. A
Gibraltar Ombudsman, with systems comparable to those of most other EEC schemes
would have advantage in being more recognisable to consumers, particularly for those
consumers whose complaints cross EEC borders. Gibraltar consumers and institutions
would recognise the adjudication procedures by their similarity to schemes such as those of
the Gibraltar Public Service Ombudsman.
6 Impact on Gibraltar and its firms.
Under EEC rules, currently only payment services providers (and after April 2011 e-money
firms) are obliged to provide customers with a State designated scheme to which to refer
complaints which remain unresolved following completion of the firms’ internal complaints
procedure. This is an EEC development, from recommending consumer ADR to requiring it,
and this presages a proliferation that will impact on all regulated firms. The advantages to
firms of providing ADR voluntarily, under the industry’s control, over a scheme imposed on it
are compelling.
Gibraltar financial services firms with business in the EEC and beyond, with the exception of
money service regulated businesses, currently do not need to provide ADR. The adoption of
28
Financial Services (Investment and Fiduciary Services) Act 2006-42, 38F.(1)Complaints.
http://www.gibraltarlaws.gov.gi/articles/1989-47o.pdf
19Gibraltar ADR will enhance their offer to their markets providing competitive advantage,
particularly over competitors with expensive ADR services.
An ADR centre will enhance Gibraltar’s mediation industry and provide businesses with a
focal point for mediation. This has the potential to bridge the less than satisfactory gap that
exists between un-serviced lower value business to business disputes which currently have
no practical resolution method and higher value disputes that are currently resolved through
arbitration.
A private, independent, Gibraltar ADR organisation can provide services beyond Gibraltar to
financial centres and companies established in territories that do not provide consumer
protection. Financial services markets operate with similar or equivalent rules, contracts and
codes of business practice and in languages for which Gibraltar has resources. Reputable
companies have sought to establish ADR for their clients. This development in international
ADR has not flourished because it has not had the underpinning that an organisation which
is also a designated authority can provide. This service will look outward from Gibraltar
making connections that will seek to bring ADR, particularly mediation business into the
Gibraltar community.
Statutory provision of consumer protection by Ministerial delegation for unfair contract terms
has a need to find suitable organisations for its implementation. The development of
financial services ADR for consumer protection under this proposal will provide the
operational structure for delivering legal professional case review with the required principles
and capacity.
No EEC or international forum exists which is inclusive of all financial services ADR
professionals. This new organisation will aim to develop Gibraltar as a centre for the debate
of issues specific to this global industry. The objective is to enhance Gibraltar’s financial
services offer and to expose businesses as diverse as hospitality and conferencing, training,
IT and others to international opportunities.
Gibraltar has one designated scheme which is provided by the Financial Services
Commission with which specified firms are required to cooperate. Regulated firms would not
have an option not to participate in any scheme run by the State regulator unless there is an
alternative designated scheme available. Where a State designated voluntary membership
scheme is one of several designated schemes, firms have an enhanced choice. If there is
only a designated voluntary scheme then they have an option to join or not. Choice in the
availability of designated ADR schemes is likely to put downwards pressure on fees charged.
Firms that are linked under one corporation may benefit from centralising the complaints
systems of all linked firms, or of centralising the referral to external ADR. As well as any cost
savings that should arise from centralisation, there may be ADR fee concessions that apply
to groups.
Regulated firms already will have comprehensive customer complaints systems which will
reference customers’ rights and the options should they not be satisfied with the outcome of
their complaint.
Required changes to firms’ complaints systems include some additional processes and
resources as well as in the information given to customers. The end of a firm’s complaints
process will require the addition to the formal final or ‘decision’ letter of information about the
20next steps the customer may take if not satisfied. This document would provide the customer
with access to the ADR scheme and no additional resource is required by the firm at this
stage.
Following a customer referring the case, the ADR scheme will consider it for acceptance. If it
is not out of the scheme’s remit, frivolous or vexatious, the case will be accepted and the
firm will need to respond to the initial correspondence aimed at conciliating the case.
Financial impact on regulated firms:
• Personnel resource
• Annual fee
• Case fee
Personnel resource
Additional resource requirements might involve the firm’s complaint handling team and a
member of the senior management team. If the complaint cannot be resolved at this stage,
the firm will need to assemble documentation, together with any additional information on its
reasoning in its ‘decision’ letter and send it to the ADR scheme for adjudication which would
normally be a desktop procedure, rarely requiring a conference involving the parties to the
dispute.
Annual fees
The amount of levy that each UK FSA-regulated business pays currently ranges from around
£100 a year for a small firm of financial advisers to over £300,000 for a high-street bank or
major insurance company. It regulates some 29,000 firms and has a budget in 2010/11 of
£458,000,000. The average cost of regulation per firm is over £15,000. The levy includes
FSA regulatory fees, Ombudsman fees and Compensation Scheme fees.
The Gibraltar FSC regulated business levy currently ranges from £1,750 to £40,000. It
regulates some 500 firm and has a budget for 2010 of some £2,225,000. The average cost
per firm is around £4,500. This levy consists of regulatory fees.
Estimates for a Gibraltar voluntary ADR scheme indicate that annual membership fees
should be expected in the range of £150 to £3,500 per annum, depending on parameters
such as the size of firm.
Case Fees
The UK Financial Services Ombudsman charges £500 per case. Less than one in six
complaints initially presented become chargeable cases.
Estimates for a Gibraltar voluntary scheme indicate that case fees should be expected in the
range of £250 to £350.
Mitigation of costs:
• Attraction of more business and businesses resulting from the enhanced reputation
of Gibraltar.
• Reduced legal bills.
21• Expanding markets by promoting the enhanced consumer protection options
available to customers.
• Marketing advantages over rival companies that do not provide an ADR scheme.
• Improved customer services from new knowledge of how the Ombudsman handles
the issues complained about .
• Better understanding of consumer issues that have been adjudicated by schemes.
• Greater certainty about the outcome and costs associated with issues of complaint.
• Opportunities for scheme cost reduction with contributions of additional revenue
streams from business to business mediation, referrals to arbitrators, international
financial services complaints handling, non-financial services complaint review work,
ADR professionals conferencing.
7 Proposal
The proposal is to establish the Gibraltar Financial Ombudsman Service which will be
sponsored and supported by the financial services industry. EU and Gibraltar laws provide a
simple route for States to ‘Designate’ such a complaints service as a States’ financial
services complaints authorities.
Setting up a private bureau is inexpensive, industry led, and fast. The scheme will have an
appropriate legal structure (a company limited by guarantee); directors (representing the
initial supporters and guarantors and other representatives of the financial services industry);
accountability (a ruling Council of the great and the good representing the industry and
consumer interests, appointing future ombudsman, scrutinising the Ombudsman’s decision);
scheme membership rules for firms; terms of reference for complaints; SLA’s between the
Council, the operation, the scheme members and the public; an administration comprising a
COO, and a P.A.; a head of complaints (the Ombudsman); business policies and
procedures; an office with communications including a website for public awareness and
access.
Members of the financial services industry will be asked to provide £100,000 to fund the
inception and first year of the scheme. They will also be asked to provide guarantees of
£100,000.
Costs for the development of other financial services consumer protection will be sought
from those sectors at which the service is aimed.
Stephen Kerbel will lead the service as its Chief Operating Officer and a first Ombudsman
has been proposed to scrutinise, approve, confirm, make case decisions and report to the
Council.
Offices with support including initial staff support for the scheme are available from the
Business Centre at the Eliott Hotel.
Interest has been expressed by leading lawyers to support the staffing of the service with an
Ombudsman and case workers.
Case workers will be contracted on a case by case basis.
22On the job training processes will be integrated into operations together with a budget for
external training.
Supporting firms will be asked to provide Directors for Gibraltar Financial Ombudsman
Service Limited.
The Directors will appoint new Ombudsman and invite industry professionals, leading
consumerists and other notables to membership of the Council.
The business plan’s primary objective is to provide a financially sustainable Ombudsman
Service for Gibraltar’s regulated financial services. The plan is more ambitious. Being a
private organisation it will seek out other revenue opportunities. Its goal will be to reduce the
cost of the scheme to Gibraltar firms. It will take advantage of market gaps; it will offer
complaints handling services to firms beyond Gibraltar. It will use local specialist staff
resources which are plentiful. It will take advantage of Gibraltar’s unique location to establish
Gibraltar as a focal point, the international centre for the financial services ADR profession. It
will use this platform to encourage other forms of ADR, including commercial arbitration to
the Gibraltar arbitration profession.
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