1. Alternative Dispute Resolution in the European Union Geoffrey Bezzina Deputy Director, Consumer Complaints Unit Malta Financial Services Authority

2. 24 October 2007Warsaw2 ADR - a brief overview ADR Schemes – sometimes also referred to as out of court redress mechanisms Developed to help citizens who have a consumer dispute but who have been unable to reach an agreement directly with the trader/service provider Usually use a third party such as an arbitrator, mediator or an ombudsman to help the consumer and the trader reach a solution

3. 24 October 2007Warsaw3 ADR - a brief overview Advantages:  Voluntary  more flexible than going to court  can better meet the needs of both consumers and professionals  cheaper, quicker and more informal Disadvantages:  may not be suitable for every dispute  if ADR is binding or mandatory, the parties normally give up most Court protections  time-barred if ADR takes long

4. 24 October 2007Warsaw4 ADR - a brief overview out-of-court mechanisms have evolved differently across EU  public initiatives both at central level, or at local level  private initiatives (such as the mediators/ombudsmen of banks or insurance companies) status of the decisions adopted by these bodies differs greatly:  mere recommendations  binding only on the professional  others are binding on both parties (arbitration)

5. 24 October 2007Warsaw5 Efforts to promote ADR in the EU Two Recommendations adopted by the European Commission have established quality criteria and minimum guarantees that each ADR scheme should offer to its users Recommendations – not binding on the Member State

6. 24 October 2007Warsaw6 Efforts to promote ADR in the EU Recommendation 98/257/EC on the principles applicable to the bodies responsible for out-of-court settlement of consumer disputes  all existing bodies and bodies to be created with responsibility for the out-of-court settlement of consumer disputes respect the following principles: independence, transparency, adversarial procedure, effectiveness, legality, liberty and representation  limited to procedures where a third party proposes or imposes a decision to resolve the dispute (such as arbitration) but does not cover consensual settlement procedures (such as mediation) where the third party facilitates the resolution of a consumer dispute by bringing the parties together and assisting them in reaching a solution by common consent

7. 24 October 2007Warsaw7 Efforts to promote ADR in the EU Recommendation 2001/310/EC on the principles for out-of- court bodies involved in the consensual resolution of consumer disputes  establishes common criteria that these consensual procedures should meet in order to give consumers and business confidence that their disputes will be handled with fairness, rigour and effectiveness  criteria do not prescribe how such procedures should operate but identify a set of principles that such procedures should follow in order to ensure a common minimum standard  principles: facilitate the resolution of a consumer dispute by bringing the parties together and assisting them (mediation)

8. 24 October 2007Warsaw8 Efforts to promote ADR in the EU Commission’s proposal for a European Directive on Mediation in Civil and Commercial Matters [COM(2004)0718]  aims to ensure a sound relationship between the mediation process and judicial proceedings, by establishing common EU rules on a number of key aspects of civil procedure The European Consumer Centres Network (ECC-Net) provides consumers with information and assistance in accessing an appropriate ADR scheme in another Member State

9. 24 October 2007Warsaw9 Efforts to promote ADR in the EU Essentially, consumer dispute resolution procedures cannot be designed to replace court procedures Setting up of the two recommendations – “to realise a high level of consumer protection”

10. 24 October 2007Warsaw10 The evolution of FIN-NET Integration of retail financial services – greater choice for European consumers Opportunity for consumers to shop around not only in their home country but also across national border But, what if something happens? How can one re- assure consumers that they would have easy access to redress in case of a dispute against that entity?

11. 24 October 2007Warsaw11 The evolution of FIN-NET The European out-of-court network for the resolution of financial disputes Links 48 national alternative dispute resolution schemes that deal with complaints in the area of financial services, and covers the European Union, Iceland, Norway and Liechtenstein (the EEA)

12. 24 October 2007Warsaw12 The evolution of FIN-NET Out of court schemes usually cover financial services providers in the country whether they are regulated This means that consumer who purchases a financial product from another country, and has a dispute with that entity would need to know what redress mechanisms are available in that other country Aims at simplifying the situation by ensuring that consumers can deal with a national scheme, in their own language

13. 24 October 2007Warsaw13 Consumers and financial services Mixed feelings about financial services: 25% - complicated 21% - intimidating 21% - depressing

14. 24 October 2007Warsaw14 Consumers and financial services The vast majority of respondents have not obtained financial services from firms located in another Member State. 85% of respondents spontaneously indicate that they have never purchased financial services from firms situated in another Member State High level of reluctance to obtain cross-border financial services in the future - Respondents seem hesitant to look to other Member States for financial services

15. 24 October 2007Warsaw15 Consumers and financial services Three in four spontaneously stated that they do not intend obtaining any financial services product/service from a firm located in another country of the EU … it would seem that respondents in France, Ireland, Malta and Slovakia could be more open to financial services offered by competitors in other Member States as the response rate for “none of them” is comparatively lower

16. 24 October 2007Warsaw16 Consumers and financial services Lack of information and language problems are the main barriers which need to be overcome in order to boost citizens’ use of cross-border financial services Three in ten respondents state that there are no obstacles preventing them from using financial services elsewhere in the European Union, corresponding to a rise of 3 points since 2003.

17. 24 October 2007Warsaw17 Consumers and financial services EU citizens appear to lack confidence in their ability to win in a dispute with a bank or an insurance company At least three in four EU citizens believe that it is difficult to win in a dispute with a bank or with an insurance company

18. 24 October 2007Warsaw18 Retail financial services in the EU Notwithstanding that most customers of retail financial services are likely to remain domestically focused and that consumers must remain free to choose a local product or service if that is their preference, the Commission considers that further reforms may be needed to make markets work better for consumers (para 10, Green Paper on Retail Financial Services)

19. 24 October 2007Warsaw19 Retail financial services in the EU … [and] whilst the Commission is pursuing an evidence-based approach for the various initiatives it is taking, prima facie, from the evidence at hand, there is no guarantee that its initiatives will increase the appetite for retail consumers to purchase financial services cross-border

20. 24 October 2007Warsaw20 Retail financial services in the EU It is all about enhancing consumer confidence Surveys show that European consumers remain concerned about the risks of cross-border activity and lack of confidence in the available legal protection

21. 24 October 2007Warsaw21 FIN-NET & EU retail financial services designed to allow consumers to contact the out-of-court complaint scheme in their home country even when they have a complaint against a foreign financial services provider members are required to abide by a Memorandum of Understanding which outlines mechanisms and conditions according to which members of FIN-NET cooperate and exchange information in handling consumer complaints FIN-NET members are required to comply with Commission Recommendation 98/257/EC

22. 24 October 2007Warsaw22 FIN-NET & EU retail financial services FIN-NET members either cover financial services in particular sectors (e.g. banking and insurance ombudsmen schemes) or handle consumer complaints in general (e.g. consumer complaint bodies) Some of them are central, others are regional or even local; some are public, others are private The status of their decisions varies from mere recommendations to decisions that bind the financial services provider and the complainant Cross-border complaints handled by FIN-NET

23. www.fin-net.eu

24. 24 October 2007Warsaw24 FIN-NET's coverage

25. 24 October 2007Warsaw25 FIN-NET's coverage

26. 24 October 2007Warsaw26 Green Paper on retail financial services The Commission will monitor existing recommendations which establish a number of minimum guarantees for ADR schemes. The proposal for a directive on certain aspects of mediation in civil and commercial matters, when adopted, will complete the recommendations by ensuring a sound relationship between the mediation process and judicial proceedings

27. 24 October 2007Warsaw27 Green Paper on retail financial services The Commission is aware that not all national ADR schemes are members of FIN-NET and that not all EU Member States have ADR schemes for financial services. The Commission will contact competent national authorities later this year to collect information on the existing national ADR schemes that are not members of FIN-NET and identify gaps. It will then assess how the gaps in FIN- NET membership and at national level could be filled.

28. 24 October 2007Warsaw28 Green Paper on retail financial services In June 2007 the Commission sent out a questionnaire to EU Member State authorities asking them to provide information on:  What ADR schemes, competent to resolve disputes in the area of financial services, but not yet members of FIN-NET exist in their Member State and whether any steps are taken to encourage those schemes to join FIN-NET.  Whether there are any financial services sectors where there is no ADR scheme and whether any steps are taken to encourage their creation.  Whether financial services providers are required to inform their customers about the existence of a relevant ADR scheme or, in cross-border cases, FIN-NET.

29. 24 October 2007Warsaw29 Green Paper on retail financial services Initial replies indicate that, broadly speaking, there are three issues which need to be addressed:  Identifying gaps not covered by current FIN-NET members and ensure they are covered by existing ADR schemes;  encouraging Member States to establish ADRs where they do not exist; and  looking into how issues relating to jurisdiction could be identified

30. 24 October 2007Warsaw30 Feedback on the Green Paper a very positive development a pivotal role to play in co-ordinating the various ADR schemes in the interests of cross border users of financial services Pity it kept a low profile an awareness campaign should be undertaken to advise citizens of its existence and the role it can play in facilitating cross border redress

31. 24 October 2007Warsaw31 Feedback on the Green Paper a voluntary system - does not cover all Member States or ADRs membership of FIN-NET should be compulsory FIN-NET should gather information on the various types of ADR operating in Member States and publish what it considers to be best practice and highlight gaps in coverage. Would lead to a convergence of and consistency between various schemes

32. 24 October 2007Warsaw32 Feedback on the Green Paper Many service providers felt that there was no need to harmonise existing schemes as the current schemes reflected different culture and habits in Member States Many respondents felt that that full harmonisation of ADR schemes across Europe could be detrimental to users rather than of benefit. This could run the risk of interfering with local ADR schemes that are working efficiently and meeting the needs of domestic users of retail financial services

33. 24 October 2007Warsaw33 Feedback on the Green Paper Home or host responsibility: Some user groups felt that the relevant scheme should be that of the home Member State of the user rather than the provider. In such cases, the user would be more likely to be familiar with the requirements of the scheme and the means of making a complaint Other suggested that the provider should include details of the scheme that applies to the services it provides when giving information to users

34. 24 October 2007Warsaw34 Feedback on the Green Paper Should service providers be contractually obliged to offer ADR schemes to their customers?  gives greater certainty and comfort to consumers  the alternative view was that, as many recent Directives were obliging Member States to encourage the establishment of ADRs, the requirement for a contractual obligation would be superfluous as customers would always have the right to bring the issue to such a scheme

35. 24 October 2007Warsaw35 Directive 2002/92/EC on insurance mediation Preamble (22) There is a need for suitable and effective complaint and redress procedures in the Member States in order to settle disputes between insurance intermediaries and customers, using, where appropriate, existing procedures. Article 10 - Complaints Member States shall ensure that procedures are set up which allow customers and other interested parties, especially consumer associations, to register complaints about insurance and reinsurance intermediaries. In all cases complaints shall receive replies. Article 11 - Out-of-court redress 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. Member States shall encourage these bodies to cooperate in the resolution of cross-border disputes.

36. 24 October 2007Warsaw36 Directive 2004/39/EC on markets in financial instruments Preamble (61): With a view to protecting clients and without prejudice to the right of customers to bring their action before the courts, it is appropriate that Member States encourage public or private bodies established with a view to settling disputes out ‑ of ‑ court, to cooperate in resolving cross ‑ border disputes, taking into account Commission Recommendation 98/257/EC of 30 March 1998 on the principles applicable to the bodies responsible for out ‑ of ‑ court settlement of consumer disputes. When implementing provisions on complaints and redress procedures for out ‑ of ‑ court settlements, Member States should be encouraged to use existing cross ‑ border cooperation mechanisms, notably the Financial Services Complaints Network (FIN ‑ Net).

37. 24 October 2007Warsaw37 Directive 2004/39/EC on markets in financial instruments Article 53 - Extra-judicial mechanism for investors' complaints 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.

38. 24 October 2007Warsaw38 Payment Services Directive (approved by the Council on 15 October 2007) TITLE IV Rights and obligations in relation to the provision and use of payment services  Chapter 5 Out-of-court complaint and redress procedures for the settlement of disputes

39. 24 October 2007Warsaw39 Payment Services Directive (approved by the Council on 15 October 2007) 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.

40. 24 October 2007Warsaw40 Payment Services Directive (approved by the Council on 15 October 2007) SECTION 2 - OUT-OF-COURT REDRESS PROCEDURES  Article 83 - Out-of-court redress 1. Member States shall ensure that adequate and effective out-of- court complaint and redress procedures for the settlement of disputes between payment service users and their payment service providers are put in place for disputes concerning rights and obligations arising under this Directive, using existing bodies where appropriate. 2. In the case of cross-border disputes, Member States shall make sure that those bodies cooperate actively in resolving them.

41. 24 October 2007Warsaw41 Solvency II Proposed Directive - COM(2007) 361 final Article 190: The insurance undertaking shall also inform the policyholder of the arrangements for handling policyholders' complaints of policyholders concerning contracts including, where appropriate, the existence of a complaints body, without prejudice to the policyholder’s right of the policyholder to take legal proceedings.

42. 24 October 2007Warsaw42 Challenges for FIN-NET significant gaps in what is essentially a voluntary system. does not cover all member states and financial services and the powers and competences of the participating ADR schemes vary considerably. in some Member States customers do not have access to any out-of-court cross- border dispute solving possibility because ADR schemes are not established

43. 24 October 2007Warsaw43 Challenges for FIN-NET The EP's report into the crisis at the Equitable Life highlighted major weaknesses in the system for handling cross-border complaints and redress. The report identified gaps in the specific redress systems in individual member states and EU wide redress systems, and concluded that improvements were needed to protect consumers and to promote consumer confidence necessary for the development of a functioning single market

44. 24 October 2007Warsaw44 Challenges for FIN-NET Criteria used to determine jurisdiction of FIN-NET members are diverse and do not form a coherent system. Observers note that it is likely that similar cross-border situations will arise in which there is a total lack of access to out-of-court settlement of disputes

45. 24 October 2007Warsaw45 ADR and FIN-NET: the future If the single market is to function effectively more needs to be done to:  evaluate the effectiveness of the EU redress system;  close the gaps in the current system;  grant consumers clearly defined rights which can be relied upon before national courts;  reassure consumers about access to redress in the case of cross- border financial transactions;  bring greater transparency to the way that redress is calculated;  raise awareness of FIN-NET

46. Alternative Dispute Resolution in the European Union Geoffrey Bezzina Deputy Director, Consumer Complaints Unit Malta Financial Services Authority www.mfsa.com.mt/consumer gbezzina@mfsa.com.mt