Speaking out: Prof KC Chan invites people to send in their views on the proposed Investor Education Council and the Financial Dispute Resolution Centre.

"We have witnessed the launch of more complex and varied financial products that cut across traditional boundaries of banking, insurance and securities markets over the past years.We have also seen more retail investors entering the markets," Secretary for Financial Services & the Treasury Prof KC Chan told reporters at a press briefing today.

"We attach great importance to investor education initiatives. Those who better understand the market and products are more likely to make investment decisions that best suit their needs."

Prof Chan stressed that,"While every effort should be made to enhance the financial literacy of the public, it is also important to ensure that there are effective processes for resolving problems when things go wrong."

The second part of the public consultation paper examines a proposal for setting up a Financial Dispute Resolution Centre. It would provide a platform that helps resolve monetary disputes between an individual consumer and a financial institution in a speedy, affordable, independent and impartial way.

The Investor Education Council "will aim to improve the financial literacy and capability of the general public, by influencing their fundamental financial attitude and behaviour, with a view to assisting them to improve the quality of their financial decisions," Prof Chan said.

It would reach large audiences through regular mass-media campaigns, build outreach programmes for different community sectors, and develop a self-service website for the public.

The bureau proposes to set up the council as a company wholly owned by the Securities and Futures Commission, and it would need to amend the Securities & Futures Ordinance to do so. The commission would wholly fund the council's operation, with an annual budget estimated at $50 million. It would not rely on any government funding nor charge the public for its services. A board of directors with relevant representatives from financial institutions and the government would govern the council.

Prof Chan outlined a proposal to set up a one-stop service for resolving disputes between financial institutions and individual customers. A Financial Dispute Resolution Centre would administer a scheme primarily by way of mediation, and failing that, arbitration.

"There is no need to go through expensive litigation. This would provide a speedy, effective and results-oriented service," he said.

Financial institutions regulated or licensed by the Hong Kong Monetary Authority or the Securities & Futures Commission would be required to join the scheme as members. The centre would require financial institutions such as banks and brokers to enter into mediation and arbitration when they have a monetary dispute - if the claimant wants this, and if the parties cannot resolve the dispute directly.

Mediation is a voluntary, non-binding and private dispute-resolution process, Prof Chan said. An independent and neutral mediator helps the parties communicate in a rational way, to reach a solution that both parties can agree. The agreement is private and confidential.

If an agreement cannot be reached through mediation, if the claimant is willing, the centre would take the case to an arbitrator agreed by both sides. The arbitrator would then decide the claim, and the arbitration award would be final and binding on both parties.

The bureau proposes that $500,000 be set as the maximum claimable amount under the scheme. This would cover more than 80% of the monetary disputes handled by the Hong Kong Monetary Authority.

Prof Chan noted that the centre's powers do not duplicate the powers or functions of the regulatory bodies, the HKMA and the SFC. Those existing bodies have the ability to investigate possible regulatory breaches, and they can discipline and punish - but they cannot resolve a dispute.

Under the bureau's proposal, the centre's service would be offered at a charge to both the claimants and financial institutions, under a "pay-as-you-use" principle. The institutions would be charged a higher fee "to incentivise them to resolve the disputes at an early stage", Prof Chan said.

There would be no charge for either side if a claimant makes enquiries about a case. A claimant would pay $100 to file a claim form, a token fee to prevent abuse of the system. If the case goes to mediation, the claimant would pay $500 for claims of less than $100,000, or $2,000 for claims of $100,000 to $500,000. The financial institution would pay $5,000 or $10,000, depending on the claim size. Arbitration would cost a claimant $5,000, and a financial institution $20,000. These fees would cover variable costs.

For the first three years, the bureau proposes to have the Government, the HKMA and the SFC cover the centre's fixed costs. After that, the fixed costs would be shared among financial sectors - banks, brokers, fund houses - depending on the sector-specific caseload in the past three years.

The Government would appoint a board of directors to govern the centre. The board would be responsible for overseeing its operations - and ensuring the independence and impartiality of its dispute-resolution procedures.

To view or download the consultation paper, click here. The two-part document includes more than 22 questions. You can send your views in by mail to Division 1, Financial Services Branch, Financial Services & the Treasury Bureau, 18/F, Tower 1, Admiralty Centre, 18 Harcourt Road; by fax to 2294 0460, or by email to iec_consultation@fstb.gov.hk (for views on the Investor Education Council) or fdrc_consultation@fstb.gov.hk (for views on the Financial Dispute Resolution Centre).