Alternative Dispute Resolution
in the European Union
Geoffrey Bezzina
Deputy Director, Consumer Complaints Unit
Malta Financial Services Authority
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
24 October 2007
Warsaw
2
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
24 October 2007
Warsaw
3
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)
24 October 2007
Warsaw
4
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
24 October 2007
Warsaw
5
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
24 October 2007
Warsaw
6
Efforts to promote ADR in the EU
 Recommendation 2001/310/EC on the principles for out-ofcourt 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)
24 October 2007
Warsaw
7
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
24 October 2007
Warsaw
8
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”
24 October 2007
Warsaw
9
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 reassure consumers that they
would have easy access to
redress in case of a dispute
against that entity?
24 October 2007
Warsaw
10
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)
24 October 2007
Warsaw
11
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
24 October 2007
Warsaw
12
Consumers and financial services
 Mixed feelings
about financial
services:
25% - complicated
21% - intimidating
21% - depressing
24 October 2007
Warsaw
13
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
24 October 2007
Warsaw
14
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
24 October 2007
Warsaw
15
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.
24 October 2007
Warsaw
16
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
24 October 2007
Warsaw
17
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)
24 October 2007
Warsaw
18
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
24 October 2007
Warsaw
19
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
24 October 2007
Warsaw
20
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
24 October 2007
Warsaw
21
FIN-NET & EU retail financial services
 FIN-NET members either
cover financial services in
1000
particular sectors (e.g.
900
banking and insurance
800
ombudsmen schemes) or
700
handle consumer complaints
600
in general (e.g. consumer
500
complaint bodies)
400
 Some of them are central,
300 335
others are regional or even
200
local; some are public, others
100
are private
0
 The status of their decisions
2001
varies from mere
recommendations to decisions
that bind the financial services
provider and the complainant
994
796
601
2002
2003
580
536
2004
2005
2006
Cross-border complaints
handled by FIN-NET
24 October 2007
Warsaw
22
www.fin-net.eu
FIN-NET's coverage
22, 73%
Banks
17, 57%
Insurance companies
16, 53%
Mortgage banks
13, 43%
Credit unions
Insurance intermediaries
11, 37%
Investment providers
11, 37%
11, 37%
Investment intermediaries
Mortgage intermediaries
10, 33%
Securities intermediaries
10, 33%
6, 20%
Pension providers
4, 13%
Pension intermediaries
Issuers of e-payment ins
25
20
15
10
5
0
2, 7%
24 October 2007
Warsaw
24
FIN-NET's coverage
0
2
4
6
8
10
12
14
16
18
Payments
20
19, 63%
Mortgages
17, 57%
Credit & loans
17, 57%
Investments
16, 53%
Deposits
16, 53%
Life/Non-life
15, 50%
Securities
14, 47%
8, 27%
Pensions
Private long-term health
insurance
1, 3%
Private health insurance
1, 3%
24 October 2007
Warsaw
25
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
24 October 2007
Warsaw
26
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 FINNET membership and at
national level could be filled.
24 October 2007
Warsaw
27
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.
24 October 2007
Warsaw
28
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
24 October 2007
Warsaw
29
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
24 October 2007
Warsaw
30
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
24 October 2007
Warsaw
31
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
24 October 2007
Warsaw
32
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
24 October 2007
Warsaw
33
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
24 October 2007
Warsaw
34
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.
24 October 2007
Warsaw
35
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).
24 October 2007
Warsaw
36
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.
24 October 2007
Warsaw
37
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
24 October 2007
Warsaw
38
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.
24 October 2007
Warsaw
39
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-ofcourt 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.
24 October 2007
Warsaw
40
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.
24 October 2007
Warsaw
41
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 crossborder dispute solving
possibility because ADR
schemes are not established
24 October 2007
Warsaw
42
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
24 October 2007
Warsaw
43
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
24 October 2007
Warsaw
44
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 crossborder financial transactions;
 bring greater transparency to the
way that redress is calculated;
 raise awareness of FIN-NET
24 October 2007
Warsaw
45
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