Legislators say dispute centre plan 'toothless'

South China Morning Post

Legislators say the government's proposed financial dispute resolution centre has not gone far enough to protect investors.

After a briefing by a government official at the regular monthly financial affairs panel meeting yesterday, lawmakers raised a range of concerns over the proposed centre, warning it has no investigative or punishment power over banks or brokers.

If the government wants to use the resolution centre to offer investor protection, it needs to be a tiger with teeth. But it has no investigative power and cannot impose penalties on banks or brokers. It is a toothless tiger, Civic Party legislator Ronny Tong Ka-wah said.

Following a public consultation last year, the government last month said the financial dispute resolution centre would be set up by the middle of next year.

It will have an annual operating budget of HK$55 million initially funded by the government, the Securities and Futures Commission and the Hong Kong Monetary Authority for the first three years, then by financial institutions.

Later this year the government will need to seek lawmakers' approval for the funding, and signs are it will face an uphill battle.

The decision to set up the resolution centre follows the Lehman Brothers minibonds controversy, which erupted after more than 20,000 investors complained they bought minibonds and other products linked to Lehman after they were misled by staff at banks and brokers. Their investments became worthless overnight after the US investment bank collapsed in September 2008.

Democratic Party lawmaker Kam Nai-wai said only about 70 of the 30,000 Lehman minibond victims opted to use resolution procedures to solve their cases, indicating the method was not popular.

I wonder if the centre will help protect investors. There are no legal procedures to force banks to pay customers. Banks or brokers could well refuse to reach settlement, Kam said.

The government should set up a regulator with power to investigate complaints and to order banks or brokers to pay investors.

The centre will have full-time mediators to facilitate talks between staff of banks, brokers or fund houses and customers on disputes relating to credit cards, loans, stocks and funds and other investment products. However, the mediator can only help the sides to reach voluntarily settlement and has no power to judge which side is in the right, nor order any compensation.

Emily Lau Wai-hing, another Democratic Party lawmaker, said it would be difficult for the party to support the proposed centre.

The Legislative Council is still investigating the Lehman minibond fiasco. The government should consider [waiting] until receiving our recommendations on how to improve investor protection, Lau said.

Tong worried that banks or brokerages may send staff with legal backgrounds to attend the resolution process.

If this happens, it would be unfair to an investors who has no legal background, he said.

The undersecretary for Financial Services and the Treasury, Julia Leung Fung-yee, said the resolution centre was supported by a public consultation last year.

Leung also said all financial institutions, except insurers and pension providers, would be required to join the centre.

Chan Kin-por, the legislator for the insurance sector, said the centre should apply the same standards for both banks and insurance companies and not exclude insurers.

Legislator Paul Chan Mo-po, who represents the accountancy sector, said the centre could only handle claims up to HK$500,000, which he said was too low.

Many investors invest much more than that, Chan said.