This agency will address key concerns of investors who often face problems due to involvement of multiple parties.
Finance Minister Arun Jaitley has recently proposed to set up a common financial redressal agency which will address grievances against all financial services companies. Simply put, an investor can lodge his/her complaint against any financial service provider such as an insurance company, bank, mutual fund, stock broker and so on, at a single point.
In his Budget speech, Jaitley said, “A properly functioning capital market also requires proper consumer protection. I, therefore, also propose to create a Task Force to establish a sector-neutral Financial Redressal Agency that will address grievances against all financial service providers. We have also received a large number of suggestions regarding the Indian Financial Code (IFC), which are currently being reviewed by the Justice Srikrishna Committee. I hope, sooner rather than later, to introduce the IFC in Parliament for consideration.”
Though the Budget has not given clarity on how the government will take this forward, the proposal was in line with the recommendation of Financial Sector Legislative Reforms Commission (FSLRC), a committee headed by Justice BN Srikrishna.
FSLRC had recommended creation of a new statutory body to redress complaints of consumers through a process of mediation and adjudication. The redressal agency will function as a unified grievance redressal system for all financial service providers. To ensure complete fairness and avoid any conflicts of interest, the redressal agency will function independently from the regulators, recommended the committee.
Based on FSLRC’s recommendations on financial redressal agency, here’s how the new agency is likely to shape up.
Structure: The financial redressal agency may replace the existing sector specific ombudsman system (e.g. banking ombudsman and insurance ombudsman). Investors will first need to lodge their complaints with the respective regulators. The agency will act if regulator fails to address the issue. In addition, investors can approach consumer courts to lodge their grievances. However, they have to choose any one route.
The agency would set up an advisory council which will consist of consumers, representative agency on consumer protection and experts in the field of personal finance and consumer rights.
Board of directors would have management control of the agency. The five-member board can comprise a chairperson appointed by the regulators through a selection process in consultation with the Central Government. Each regulator can nominate one official each as a chairperson of which one will be selected by the government. The four other members will be appointed by the regulators. Since FMC will be merged in SEBI, there is a possibility that the redressal agency would have four members – one chairperson and one member each from RBI, SEBI, PFRDA and IRDAI.
Funding: The agency will be funded through allocations from the Central Government. A standard fee would be contributed by all financial service providers and a complaint-based fee will be collected as and when a complaint is brought against a financial service provider.
Proceedings: Investors can either lodge their complaints directly with the agency or with the regulator. The agency will screen complaints and the accepted complaints will be referred to a mediator who will assist the parities to arrive at a voluntary settlement. In case the mediation process fails, the compliant will be escalated to an adjudicator who will have a final word. The agency has to appoint an independent skilled and qualified adjudicator who will be responsible for handling complaints. The adjudicator can provide for an award compensation to the consumer, subject to limits that will be specified by the regulators, or issue any other directions. A dissatisfied party will have the right to bring an appeal before the tribunal and further to the Supreme Court.
A common redressal agency is a good step forward towards consumer empowerment. This agency will certainly address the concerns of investors who often face problems due to involvement of multiple parties, for example: if a bank mis-sells an insurance scheme to an investor, it involves intervention of RBI and IRDAI.
Do share your ideas on how this agency can be strengthened to protect the interests of investors.
