The Reserve Scheme

Establishment and functions of the reserve scheme

27. Subpart 3 of Part 3 of the Financial Service Providers Act provides for the reserve dispute resolution scheme. The reserve scheme is established by the Governor General by Order in Council following the recommendation of the Minister of Consumer Affairs. The Minister may only make a recommendation to the Governor General after consultation with the Ministers of Finance and Commerce and any persons or their representatives the Minister considers are likely to be substantially affected by the recommendation.

28. The reserve scheme must meet the principles as set out in paragraph 20 and the same criteria for an approved dispute resolution scheme as set out in sections 52 and 63 of the Act (see Appendix One).

29. The reserve scheme is an integral part of the dispute resolution regime. It provides an assurance or backstop to industry that there will be a dispute resolution scheme for financial service providers to join by the date the Act is enforced.

30. Any financial service provider (FSP) may join the reserve scheme including those FSPs that have an approved dispute resolution scheme covering their sector of the finance industry; however, a member of the reserve scheme cannot also be a member of an approved scheme.

31. It is expected that that the reserve scheme will be fully funded by industry.

32. The reserve scheme will not be a central body to act as a "clearing house" for all enquiries and complaints or to coordinate the FSP industry's dispute resolution schemes and their sharing of information. Promotion of the disputes resolution regime and a 0800 number operated by the Ministry of Consumer Affairs contact centre will assist in directing enquiries and complaints to the appropriate scheme.

33. It is proposed that the purpose and functions of the reserve scheme are:

• To consider, at no cost to the complainant, complaints within its jurisdiction arising out of the provision within New Zealand of financial services by any member financial service provider to individuals and businesses that have no more than 19 employees;
• Subject to specified limitations, to facilitate the satisfaction, settlement or withdrawal of such complaints whether by agreement, by making recommendations or awards or by such other means as seem expedient;
• To promote and publicise the reserve scheme and to advise member FSPs on the development and maintenance of good complaint-handling practices; and
• To cooperate and collaborate with approved dispute resolution schemes, government and other authorities, companies or persons on all matters relating to and affecting the settlement of complaints and any financial services business related to those complaints.

Operating rules of the reserve scheme: discussion of main rules

34. This section outlines the main proposed operating rules of the reserve scheme and the basis on which they were developed. The full set of proposed operating rules is set out in Part 4.

Scope

What is meant by complaint

35. The Financial Service Providers Act does not define the term "complaint". The Act requires that schemes must have a rule stating what complaints can be made to the scheme and that these relate to contract, statute, industry codes and any other matters as defined in the rules.

36. The Australian Standard on Complaints Handling (AS ISO 10002-2006) defines a "complaint" as:

An expression of dissatisfaction made to an organisation, related to its products, or the complaints-handling process itself, where a response or a resolution is explicitly or implicitly expected.

37. The Australian definition is for a complaint at the beginning of the complaints process i.e. when it should be directed in the first instance to the organisation concerned.

38. This definition is widely accepted in Australia and ASIC is currently proposing to adopt this definition when approving dispute resolution schemes in the financial sector. ASIC views this definition as advantageous as it "removes the onus on investors and consumers to explicitly state that something is a complaint, promotes more consistent treatment of complaints and helps prevent complaints from falling through the cracks". ASIC also found that in some instances, complaints were not being identified as complaints early enough in the process which delayed speedy resolution. Prompt identification of complaints facilitates earlier resolution, which benefits both consumers, and financial services providers.

39. A complaint could be seeking redress related to cost, timeliness, fairness, contractual matters, business practice, poor service or interpretation of service/product rules, terms and conditions.

40. Disputed transactions handled by dispute resolution schemes may also involve matters that are disciplinary complaints. A disciplinary complaint is one related to conduct or competence and is an expression of dissatisfaction or concern that a financial service provider has not acted competently or ethically, or has acted negligently. These complaints are handled by the relevant industry disciplinary body. Disciplinary procedures do not normally involve compensation for consumers.

41. A consumer dispute resolution scheme, however, is aimed at providing redress for consumers. Therefore a complaint seeking redress for any harm resulting from a financial service provider's conduct or incompetence may be taken to a dispute resolution scheme. Information sharing with the appropriate disciplinary bodies will be required in these types of complaints.

42. A complaint is not dissatisfaction with commercial decisions, prices or interest rates where no actual "harm" requiring redress has been suffered. Accordingly, it is not expected that the reserve scheme resolve complaints about the commercial judgement of a member organisation, although the scheme should investigate administrative matters about how that judgement is effected. However, the reserve scheme may consider complaints about commercial judgement which involves an act or omission contrary to or not in accordance with a duty owed at law, in a code of practice, or pursuant to the terms (express or implied) of the contract between the scheme member and the consumer.

43. 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.

When can complaints be taken to the reserve scheme

44. It is proposed that a complaint may be taken to the reserve scheme for consideration only when it has already been taken to the member's internal complaint resolution procedure, or has been raised with the member if a sole provider, or has been taken to the member's industry complaint resolution scheme if one exists, and:

• redress has not been offered or the redress offered was considered unsatisfactory, the parties have agreed they are in deadlock and the complaint was lodged within 3 months of deadlock being reached (and the member had informed the customer of this time limit); or
• it has been at least 2 months since the complaint was lodged and the complainant has not been advised the matter is in deadlock.

45. "Deadlock" refers to the situation where a complaint reaches an impasse in the member's internal complaints scheme. The consumer is unsatisfied with how the complaint is being dealt with, but the member has not referred the complaint to an external dispute resolution scheme.

46. The timeframes proposed for when a complaint can be taken to the reserve scheme aim to balance a suitable period for the complainant and the FSP to resolve the matter; yet also to allow the complainant an avenue for alternative consideration of the complaint if he or she feels that the complaint is not being fairly processed.

47. It is also proposed to impose an overall time limit of two years for taking complaints to the reserve scheme from the time the complaint was first lodged with the member. The two year limit applies when a person has not been advised by the FSP (but later becomes aware through other means) that they can take a complaint to the reserve scheme. This allows for the situation when a consumer has made a complaint, and is advised over a prolonged period of time that it is being dealt with (but with little progress) and is not aware that they could take the complaint to the reserve scheme. It is also proposed that the dispute resolver has the discretion to consider complaints outside of the time limit if it is considered there are special circumstances.

48. In line with the proposed Limitation Bill, it is proposed that the reserve scheme provides for a time limit for complaints of 6 years from the date that the consumer first became aware, or should reasonably have become aware, that they suffered the loss the complaint is about.

49. It is proposed that the reserve scheme will consider complaints that were lodged with the member on or after 1 May 2010, the scheduled date that the reserve scheme becomes established. This date allows time for prospective members of the reserve scheme to have internal procedures in place by the date a complaint may be taken to the reserve scheme (which requires complaints to be considered within members' internal procedures in the first instance).

50. It is also proposed that the reserve scheme allow members to refer complaints to the reserve scheme. While dispute resolution schemes are established primarily for the benefit of consumers, financial service providers may find an independent dispute resolution scheme useful for resolving, for example, a complaint that is complex and potentially contentious in a timely and independent manner. ASIC is proposing dual access for their guidelines for dispute resolution schemes.

Compensation cap

51. In Australia, ASIC is currently consulting on a proposal to replace claim limits with compensation caps when approving external dispute resolution schemes in the financial sector. ASIC proposes to specify an amount for compensation caps, which will be adjusted every three years.

52. It is proposed that the reserve scheme have a compensation cap of $100,000 or $1,000 per week in the case of disability insurance that provides for regular payments to the insured. It is proposed the cap will be reviewed at least every five years at the time of the review of the reserve scheme.

53. A compensation cap is proposed rather than a claims limit. A claims limit states the maximum value of a claim that can be brought to the scheme. If the value of the transaction at the centre of the claim is above the limit, then the claim can not be lodged. A compensation cap means that consumer may bring a dispute to the scheme where the value of the transaction in question is above the cap; however, awards will only be made up to the cap. A consumer may waive the excess of their claim in order to have access to an external dispute resolution scheme.

54. Claim limits for other dispute resolution or ombudsman schemes are: Banking, $200,000; Insurance & Savings, $200,000; Disputes Tribunal proposed new limits, $15,000 or $20,000 with the consent of both parties; Motor Vehicles Disputes Tribunal proposed new limit $100,000.

55. The proposed cap amount is in recognition that reserve scheme members can be from the full range of financial sector organisations and is high enough to cover most claims. However, as we are encouraging industry-led dispute resolution solutions, a cap deliberately set below the limit of the existing Banking Ombudsman and Insurance & Savings Ombudsman schemes of $200,000 has been chosen to enable the industry-led schemes to have a point of difference when promoting these schemes. The proposed cap is higher than the proposed new limit of the Disputes Tribunal and the same as the proposed new limit of the Motor Vehicles Disputes Tribunal.

Requirements of members

56. All members of the reserve scheme will be required to meet certain basic membership requirements. It is proposed that members of the reserve scheme will need to follow some basic good practices regarding dispute resolution. These include having a process for dealing with complaints. For sole providers and small firms this may be in the form of a checklist. For larger providers, there should be a formal internal complaints resolution procedure. For providers who belong to an industry association, they might use the industry association for the equivalent of an internal complaints resolution procedure.

57. It is also proposed that members have an obligation to provide general information to their customers about the reserve scheme and access to it.

58. These obligations are akin to what you would expect members of a voluntary consumer dispute resolution scheme to impose upon members. It is important that the reserve scheme has such obligations and that members make a commitment to these as part of membership. Otherwise membership of the reserve scheme could be seen as only a requirement for registration without any commitment or intention to provide for consumer dispute resolution.

59. A further essential requirement on members of the reserve scheme is a duty to co-operate with the reserve scheme service provider when the service provider is undertaking an investigation. As a minimum, this includes providing information to the service provider so that a complaint can be properly considered and being available to answer questions to assist the investigation.

60. As required by section 63(m) of the Financial Service Providers Act, the reserve scheme will have a rule that members are bound to any resolution of a complaint concerning that member if the complainant accepts the resolution. As well, as required by section 63(n) of the Act, the reserve scheme will have a rule that a resolution of a complaint about a member of the scheme is binding on the complainant concerned, if the complainant accepts the resolution.

Procedural requirements

Fair and informal proceedings

61. In determining proposed rules for the consideration of complaints by the reserve scheme, the key underpinning principle is fairness. The proposals have also been heavily influenced by looking at the procedural rules in place in dispute resolution schemes in the telecommunications, energy and financial sectors.

62. It is proposed that the reserve scheme may use a range of techniques to resolve complaints from investigation to mediation to expert determination. This practice recognises that some complaints may be readily resolved by having an independent party look into the complaint, talk to both parties and suggest a way forward. Other complaints will be more complex and will require more major investigation and even expert determination. From experience in other dispute resolution schemes, most complaints are able to be dealt with without the need for expert determination. A more informal approach is also proposed in line with dispute resolution best practice.

63. The consideration of a complaint by the reserve scheme service provider must be fair to both the complainant and the FSP. Both parties must be treated according to natural justice and allowed to put forward their position and to be heard. Both parties need to be kept informed throughout the consideration of their case.

64. The reserve scheme will not be effective if consumers or FSPs consider they have not been treated fairly and with respect.

Disclosure of information

65. It is proposed that the reserve scheme rules provide that any confidential or sensitive information provided for the purpose of, or generated during the course of, resolving a complaint will be kept confidential. By providing for confidentiality, this protects the privacy interests of the consumer and the commercial interests of the FSP. This said, the rules will provide that information may be disclosed (in accordance with the Privacy Act 1993) to another FSP if their co-operation is required to resolve the complaint or to a licensing authority if there has been a series of complaints about a particular financial service provider or to a third party if the dispute resolver, complainant and member agrees. Such disclosure is to enable compliance with section 67 of the Financial Service Providers Act.

Time limits

66. It is proposed that the reserve scheme rules set out time limits for the scheme to respond to complainants. Time limits have been set to enable fair and courteous treatment of complainants and to allow reasonable time for the service provider to resolve the dispute in a considered and fair manner.

Alternative court action

67. As required by section 63(o) of the Financial Service Providers Act, the reserve scheme rules will allow complainants to take alternative court action against the FSP member at any time, including if a complainant rejects the resolution. It is proposed that the reserve scheme will cease investigating the complaint in such a situation, unless the FSP asks for the investigation to be completed (as allowed by section 63(p) of the Act.

Settlement, recommendations and awards

68. It is proposed that the reserve scheme rules provide for a stepped process for dispute resolution. This process is to encourage parties to settle (or withdraw) a dispute by agreement where possible. Often, complaints can be settled in the initial investigative stage through the mere clarification of information and positions by an independent person. If not, then the dispute resolver may assist the settlement process through conciliation and mediation. Disputes settled by agreement are more likely to provide outcomes that satisfy both parties and enable the relationship to continue amicably. It is the experience of dispute resolution schemes that the majority of disputes are settled by agreement.

69. If a settlement cannot be reached the proposed rules provide that the dispute resolver can make a determination. Determinations will be made based on what is fair and reasonable, having regard to good industry practice, relevant industry codes of practice and the law. The dispute resolver will firstly make a recommendation which if accepted by both the complainant and member, will become full and final settlement. If the member concerned does not accept the recommendation, the dispute resolver will then make an award against the member, who is bound by the terms of the award.

Accessibility and promotion

70. If consumers are to obtain redress when required, they must be aware of the existence of the dispute resolution options and scheme relevant to them and then be able to access the service easily. Accordingly, it is proposed that the reserve scheme rules require that members must make their customers aware of their internal dispute resolution procedure and the reserve scheme. This proposed provision is also required by section 63 of the Financial Service Providers Act, which requires both approved and reserve schemes to promote their existence and service. It is expected that the reserve scheme will have printed and online material listing its members and providing information about its service. There will also be a 0800 number run by the Ministry of Consumer Affairs' contact centre to direct any queries or complaints to the appropriate member, dispute resolution scheme or disciplinary body.

71. Accessibility extends beyond information about complaints resolutions and the reserve scheme being available. It is proposed that access to the reserve scheme means that anyone should be able to access the service regardless of socio-economic, cultural, language, geographical or physical circumstances. Complaints to the reserve scheme will be free of charge (in accordance with section 63(l) of the Act) and will be able to be made through various channels – phone, email, internet or fax. In writing the scheme's proposed rules and processes the objective is that they be simple to understand and easy to use. Where required and possible, it is proposed the reserve scheme provider may offer assistance to complainants with special needs.

Performance monitoring requirements

72. It is proposed that the reserve scheme rules include performance monitoring requirements. These have been developed to assist in fulfilling the principles of accountability, efficiency and effectiveness. The requirements are to monitor performance at several levels, including:

• By members and consumer interests to ensure that the reserve scheme provides an efficient and effective long-term solution for stakeholders;
• By the advisory body to ensure the reserve scheme meets its objectives and functions;
• By the advisory body to ensure that the service provider is providing the service to the required standard; and
• By the Minister of Consumer Affairs to ensure that the reserve scheme meets the requirements of the Financial Service Providers Act.

73. The key features of the proposed monitoring and reporting arrangements include:

• Performance standards to be set by the advisory body and performance measured against them;
• An Annual Report prepared by the reserve scheme covering a wide range of performance data, including member compliance;
• Internal reviews of performance by the reserve scheme to be undertaken each year and reported in the Annual Report; and
• Independent reviews to be undertaken every five years, with the terms of reference to be set by, and the independent reviewer appointed by, the advisory body in consultation with the Ministry of Consumer Affairs (as required by section 63(q) of the Act).