Minimizing Legal Risk and Litigation Costs through Tatua Center

2.0 Global Best Practice

In many jurisdictions, ADR is offered under ombudsman schemes that are mostly sector-based eg Credit Ombudsman, Financial Ombudsman and Administrative Justice Ombudsman. For purposes of this course, we will focus on the Ombud schemes operating within the financial sector.

2.1 Fundamentals  for Financial Ombud Schemes 

Financial Ombud Schemes (FOS) can be broadly defined as the provision of free, informal, speedy and cost-effective alternatives to court processes. The ombudsman is an independent, impartial person with authority and responsibility to receive, investigate, or informally address complaints, and when appropriate, make findings and recommendations. In addition, the ombudsman makes recommendations for the improvement of the general administration of the entities over which it has jurisdiction.

In 2012, the World Bank published a report Fundamentals of Financial Ombudsman that is used when resolving disputes between consumers and financial businesses. The report outlines the key issues to be borne in mind in creating a financial ombudsman or developing an existing one – including governance, funding, coverage, procedure, accessibility, transparency and accountability.

The International Network for Financial Ombudsman (INFO) is a worldwide association for financial services ombudsman that created guidelines that serve as international best practice.

2.2 Principles for Financial Ombud Schemes

While the World Bank report identifies the principles for FOS, these principles may be applied to any ADR scheme. They include:

  • Independence; the decision-maker must be independent to ensure impartiality. Individual decision-makers must have the necessary abilities, experience, and competence, and have the security of tenure for a period sufficient to ensure independence.

  • Transparency; the financial ombudsman should publish clear details about its powers and procedures, and about the type and effect of its decisions.

  • Effectiveness; the ombudsman must take an active role in investigating the complaint so that the consumer does not need legal representation and must provide a prompt decision. The procedure can be free or of moderate cost for the consumer.

  • Accessibility; ombudsman should make information widely available for the consumer to know about them and where to find them. Financial Service Providers (FSPs) should be required to inform dissatisfied consumers about the ombudsman.

  • Governance; ombudsman scheme should have an independent governance body in the form of a board or council that appoints the ombudsman, or a body that is equally independent of the financial industry. Its function is to help safeguard the independence of the ombudsman; help ensure that that the ombudsman scheme has adequate resources to handle its work; oversee the efficiency and effectiveness of the ombudsman scheme and advise the ombudsman on the strategic direction of the ombudsman scheme.

  • Funding; the cost of the financial ombudsman should be borne by the financial industry from which the ombudsman’s work arises.

  • Accountability; financial ombudsman should publish a report at least yearly, explaining the work that they have done. They should provide appropriate statistics about the disputes they have handled and the way in which they have handled them (including the arrangements for quality control).