There are now 4 approved schemes to which consumers can take their financial grievances. We spoke to the head of each one to find out what they can help with, what they can't, how the process works and how to access the scheme when a problem comes up.
At last our "lightly" regulated financial sector has been reined in with increased regulation and protection for consumers, through the Financial Service Providers (Registration and Dispute Resolution) Act 2008.
Financial advisers must now demonstrate a higher level of competency by being trained, registered, and signed up to a formal dispute-resolution scheme.
The Financial Markets Authority (FMA) was formed in 2011 and replaced the Securities Commission. One of its roles is to police the tougher rules – and it got off to a quick start by taking action against Bernard Whimp and his low-ball share offers. Whimp specialised in making written offers to shareholders to buy their shares at prices well below current market value.
Since April 2011 financial advisers must put your interests first, which includes having an internal complaints system that's promoted and accessible to customers, and also belonging to one of 4 approved financial dispute-resolution schemes.
Deborah Battell, who heads the Banking Ombudsman scheme (one of the 4 approved schemes, see below), says the financial dispute-resolution schemes aim "to make justice accessible to the public". The schemes are free and cut down on the time, expense and effort of going through the legal system and are much more informal than the courts.
The director of Financial Dispute Resolution, Stuart Ayres, believes providers should encourage complaints: "Usually complaints stem from miscommunication. Dispute resolution can really change relationships between consumers and financial service providers".
There are 4 schemes providing financial dispute-resolution services:
- Banking Ombudsman (BOS)
- Insurance and Savings Ombudsman (ISO)
- Financial Services Complaints Ltd (FSCL)
- Financial Dispute Resolution (FDR)
The Banking Ombudsman (BOS) and the Insurance and Savings Ombudsman (ISO) schemes have existed since the 1990s. They started out as self-regulatory schemes established by the banking and insurance industries and over that time have considered thousands of complaints.
Financial Dispute Resolution (FDR) was the government Reserve scheme. It was being disestablished from 1 July 2014 but the current scheme operator, FairWay Resolution Ltd, was approved to continue with it under the same name. FairWay Resolution Ltd is a Crown-owned company.
Financial Services Complaints Ltd (FSCL) is a not-for-profit organisation established under the new legislation to provide a scheme for those organisations and people outside the banks and insurance companies. It was the first scheme approved and has the largest number and widest range of members.
All financial advisers and financial services providers must belong to one of these schemes. Your complaint is then heard by the scheme to which your adviser or provider belongs. You must use the scheme your provider is signed up with – you can’t take your dispute to another scheme.
Tip: You can find out which scheme your provider belongs to by asking them, or by checking the register on the Companies Office website.
What they do
The schemes can investigate these types of complaints about their members:
- any breach of contract with a consumer
- not following industry codes of practice (which may include not dealing fairly or responsibly with a consumer)
- conduct that is not fair or reasonable in the circumstances
- breaking the law.
A scheme can terminate the membership of any provider who refuses to comply with its final decision – which also stops a provider from joining another scheme until the existing complaint is settled. A provider who doesn’t belong to a scheme is no longer authorised to give financial advice and can be prosecuted by the Financial Markets Authority for continuing to act as an adviser.
What they don't do
A scheme can't award compensation for more than $200,000 – although both parties to the dispute can agree to extend this limit.
As well, it can’t investigate:
- a provider's commercial judgement (for example, whether an investment is suitable for you) unless this breaches a code of practice that the provider was bound by
- a provider's interest rates or standard fees and charges
- a product's investment performance
- events that took place before the establishment of the scheme or before a provider belonged to the scheme (with the exception of FSCL which can hear complaints from April 2010 even if a member didn’t belong to the scheme at that point) or more than 6 months prior to the complaint.
- complaints that could be better dealt with by another body (such as the Commerce Commission) or that’s already been made to another body (such as the courts) or that’s already been investigated by the scheme (although Banking Ombudsman scheme members can agree to a complaint being re-investigated and can also agree to waive the time limitations).
A scheme won't accept complaints it regards as "frivolous" or "vexatious".
Making a complaint
The 6 steps of the complaints process:
You must use your provider’s internal complaints process first. Many problems are minor misunderstandings that can be resolved directly. Your provider has a set time to respond to your complaint – about 3 months.
If your provider hasn’t responded within this time – or if you can't agree on a solution – you've reached what’s called deadlock. Your next step is to contact your provider’s dispute-resolution scheme.
Tip: FDR suggests contacting your provider's dispute-resolution scheme before you try the internal complaints process. Having taken basic details, the scheme will refer you back to your financial service provider so the complaint can be processed through the provider's internal complaints process. This makes the scheme aware of possible upcoming complaints and any wider industry issues.
The scheme can also check after the 3-month period to see what’s happened to your complaint – which is particularly useful if your provider hasn’t responded and the deadlock time has passed.
Before you can lodge your complaint with the scheme, you must show you have used your provider's internal complaints process. However, if your provider hasn’t responded then the scheme can decide to start the process on your behalf.
Tip: You must take your complaint to a dispute-resolution scheme within 2 months of deadlock occurring.
You can lodge your complaint with the scheme over the phone. All the schemes will tell you what info they need and how the process works. All have staff with legal training, so you don’t have to know the legal ins and outs.
Tip: It helps to have as much documentation as possible when you take your complaint to a scheme, such as relevant correspondence, loan documents or financial plans. This will speed up the investigation.
The scheme gathers information from you and the provider. Your dispute may be resolved at this stage – but if it’s not, it goes on to the next step.
This is the investigation/mediation stage. If they’re needed meetings are arranged, either face-to-face or by video (or telephone) conference, with a representative from the dispute-resolution scheme acting as a mediator. The goal is to reach an agreement. If this doesn't happen or the meetings don't take place, the scheme will recommend a settlement based on the information that it’s collected. If you don't accept this settlement, the dispute goes to the final step.
The scheme imposes a final decision. If you accept this decision, then it’s binding on the provider. If you don’t, then the case is closed and you can pursue your complaint further through a disputes tribunal or through the courts.
Disclaimer: Sue Chetwin, Consumer NZ chief executive, is on the board of the Banking Ombudsman.