With the publication of the consultation document on the “Proposed Establishment of an Investor Education Council and a Financial Dispute Resolution Centre” on February 9, Hong Kong Secretary for Financial Services and the Treasury K.C. Chan invited the public and relevant professions to submit their views on the proposals during the three-month consultation period, which will end May 8.            

Giving an outline of the consultation document at a news conference, Professor Chan stressed that the Hong Kong Special Administrative Region Government attaches great importance to the protection and education of investors.             

With the development of more complex investment products that cut across the traditional boundaries of the banking, insurance and securities sectors in the financial market, the government proposed the establishment of an Investor Education Council (IEC) to enhance the financial literacy of the public, and also proposed the setting up of a Financial Dispute Resolution Centre (FDRC) to help resolve monetary disputes between individual consumers and financial institutions.           

“The proposed IEC will holistically oversee the needs of investor education and delivery of related initiatives,” Professor Chan said. “It will aim to improve the financial literacy and capability of the general public by influencing their fundamental financial attitude and behavior, with a view to assisting them to make better financial decisions.           

“We attach great importance to investor education,” he continued. “It not only helps protect investors themselves, but also enhances investor confidence in the financial system and the effectiveness of their dealings with financial service providers. This is also conducive to maintaining the stability of Hong Kong’s financial services industry.”           

The government proposes to set up the IEC as a company wholly owned by the Securities and Futures Commission (SFC), which would fully fund the operation of the IEC. No extra levies and charges would be imposed on investors.           

Noting that at present, outside of the courts, there is no independent mechanism in place to settle a dispute between a consumer and a financial service provider. Professor Chan said the proposal to establish a FDRC aims to provide a one-stop, independent and affordable avenue for consumers to resolve monetary disputes with the financial service providers.

“This offers an alternative to litigation, which may be disproportionately costly and protracted for consumers,” he said.           

Under the proposal, financial institutions, such as banks or brokers, that are licensees or regulatees of the SFC and the Hong Kong Monetary Authority (HKMA) would join the program. As members, they would be required to enter into mediation and arbitration if it has established a business connection with that customer and fails to settle internally a dispute that has come up.             

The program would be operated by the FDRC, which would be established as a company limited by guarantee. The board of directors would be government-appointed to ensure the independence and impartiality of its dispute-resolution procedures.           

Mediation is a voluntary process.  An independent and neutral mediator may assist the claimant to work with the financial institution. The aim of mediation is to reach a solution that both parties can agree; the terms are confidential. Overseas experience shows the successful mediation rate could be 80% or higher.           

When mediation is unsuccessful, the FDRC would assist the claimant to bring the case to arbitration, if the claimant so wishes.  An arbitrator would then decide the claim; an arbitration award is final and binding on both parties.           

“We propose that the maximum claimable amount under the scheme be set at HK$500,000 (US$64,102). This would cover more than 80% of the monetary disputes currently handled by the HKMA,” Professor Chan said. “The mediation fees of the majority of the cases are within a few hundred dollars, and we think this is affordable to the public. Financial institutions, however, have to pay a higher level of the case fees so as to encourage them to do their utmost in handling complaints.”           

The government, the HKMA and the SFC are prepared to provide the set-up costs and recurrent costs of the FDRC for the first three years. Thereafter, the fixed costs of the FDRC would ultimately be funded by the financial industry.