Monday, November 16, 2009

Independent SC framework sought

insurance ombudsman

PETALING JAYA: The Securities Commission’s (SC) proposed alternative dispute resolution (ADR) framework for resolving retail investors’ disputes with intermediaries should be truly independent unlike existing current mediation and enforcement bodies, say consumer groups and financial industry observers.

Federation of Malaysian Consumer Associations (Fomca) secretary-general Muhammad Sha’ani Abdullah said the framework must include a stringent code of ethics and compliance standards to be adhered to by all officials appointed to the proposed ADR body.

“This will address the perception of independence and must be given utmost importance so the organisation does not repeat the mistakes of many other enforcement agencies. There must be no exception or monetary limitation to limit or prevent cases to be lodged and adjudicated. All officials, full-time and part-time, must not in any way be involved in capital market activities including as directors of the member organisations,’’ he told StarBiz.

Sha’ani added that the framework must mandate a timeline for complaints handling to encourage first-level complaints to be resolved at member level.

All resolutions by adjudication must be binding on members but individual complainants should be free to seek further or higher level dispute resolution avenues, he noted, adding that all decisions must be posted on SC website.

Precedent case decisions must be used to resolve or mediate similar new cases to prevent delays in resolutions as well as to improve the members’ trade practices, said Sha’ani, who is also the National Consumer Complaints Centre CEO.

Consumer Association of Penang president S.M. Mohamed Idris suggested appointing an ombudsman instead of setting up a mediation-like bureau to redress investors’ disputes.

The ombudsman, an independent and impartial official who investigates complaints from the public, would have greater creditability as he would have no ties with financial intermediaries, he said.

“One of the reasons the present Financial Mediation Bureau (FMB) has a credibility problem is that its mediators are chosen by the FMB board, where of the nine directors, four are from the banking and insurance industry.

“Board members, in turn, are appointed by FMB members who are all from the banking and insurance industry,” said Idris.

The intermediaries too should have no say in the hiring of the mediator/ombudsman, he said. The FMB is an independent body set up to help settle disputes between customers and their respective financial service providers.

Idris stressed that the services should be free for consumers and suggested ADR have more branches unlike the Kuala Lumpur-based FMB.

A SC spokesman said the commission hoped to set up the ADR framework next year and was conducting various studies for its effective implementation, including the experience of other countries.

MyFP Services Sdn Bhd financial planner and managing director Robert Foo believes that having independent individuals on board will prevent any conflict of interest.

In this respect, there should be very clear internal procedural guidelines about what was a conflict of interest situation and how the mediation procedure should proceed, he said.

There should also be checks and balances in place with regards to who could be appointed as mediators, he added.

Foo believes FMB and the ADR body should merge to become a one-stop centre for all disputes and claims relating to financial products and services.

“To have one for capital market products and another for so-called banking products can be confusing to the public. One should also note that financial products are now blurring the boundaries between normal banking, insurance and investment services and offerings.

“For instance, investment-linked insurance products should come under capital market since they are essentially investment products and yet they are considered insurance products and do not come under SC’s ADR body but under the FMB. They should all be merged,” Foo said.

Another important duty of mediation bureaus was to provide feedback to the regulators to remedy the mis-selling and misrepresentations that constantly occurred in the financial and capital market industry, he said.

The SC should also improve on the type of information available to the public. For example, there is currently no aggregate industry information readily available to gauge whether Malaysian unit trusts have been giving good returns.

Citing some irregularities in the unit trust industry, Areca Capital Sdn Bhd CEO Danny Wong said: “There are quite a number of ‘grey areas’ whereby investors were short-changed by irresponsible players who “churn” funds for commission.

“There are also cases where consumer rights were abused by unreasonable investors such as disputes in acceptance of transaction requests due to incomplete forms or non-receipt of requests through facsimile, the timing for which could create a price difference of the transaction.”

Fortress Capital Asset Management (M) Sdn Bhd CEO Thomas Yong, while advocating the Australian experience where a similar body comprised industry participants, said: “The industry must be convinced that it is always in their interests to have a self-regulatory body to weed out rogue players and ensure all industry interest groups’ commitment to the body.

“Before the body is set up, a proper preparatory work must be done to ensure that the body’s policies are clear and comprehensive.”

Great Vision Advisory Group head of tax and financial consulting Datuk Chua Tia Guan said fair treatment should also be accorded to financial intermediaries in dealing with disputes.

In this regard, he said, the views expressed by the financial service providers must be heard and treated equally as those of the investors.

The mediation procedures and timeline must be clearly spelt out as lengthy mediation process would add to the cost of doing business and unfavourably impact the growth of the financial industry.

A pilot project should be carried out to ensure that the proposed mediation body could operate effectively and efficiently, said Chua.