First steps to unified financial sector grievances redressal body

In order to strengthen the consumer protection mechanism, the government has initiated an exercise to set up a unified body to address grievances of customers in the financial sector.

Currently, there are separate grievance redressal mechanism for insurance, banking services, pension and securities market.

Financial Redressal Agency (FRA) design offers a simplified resolution process, allowing retail consumers in distant and remote locations to pursue effective remedies against financial service providers (FSPs), without imposing significant costs on them, Finance Ministry said in a statement.

It will try to resolve all complaints through mediation and discourage court-like processes, it said, adding that cases where the parties are unable to reach a settlement would be resolved through a light-touch adjudication process.

The task force headed by former chairman of the Pension Fund Regulatory and Development Authority (PFRDA) D Swarup has stressed that for the FRA, which represents the curative aspects of the consumer protection, to be effective –the preventive aspects to be implemented by the regulators need to be simultaneously strengthened.

“It highlighted the need for basic protections (articulated by FSLRC) to be provided in law through a new financial consumer protection and redress legislation to empower FRA to provide redress; and strengthen preventive regulatory framework on consumer protection for implementation by the regulators,” the report submitted on June 30 this year said.

This law should be created by adopting the relevant consumer protection provisions from the Indian Financial Code (IFC) 1.1, it said.

Suggesting various implementation steps, the task force said first empower the FRA to redress complaints being handled by Insurance Regulatory and Development Authority of India (IRDAI), Insurance Ombudsman, and Pension Fund Regulatory and Development Authority (PFRDA).

In the second phase to be implemented after one year, FRA should be given power to redress complaints by retail consumers against FSPs regulated by Securities and Exchange Board of India (SEBI) as well as retail complaints that are handled by Reserve Bank of India (RBI) and Banking Ombudsman.

Inviting comment on the suggestions of the task force by January 31, Finance Minister Arun Jaitley had announced the creation of a sector-neutral FRA to address the grievances of retail consumers against all FSPs in the Budget 2015-16.

As per the task force’s recommendations, FRA would be managed by a Board to the appointed by the financial regulators, in consultation with the government. 

“It would also have an Independent Assessment Officer to consider complaints against the FRA’s redress function arising out of issues related to its standard of service. It would run an efficient process to manage vacancies,” it said.

Stressing that the current framework offers only sub-optimal outcomes for consumers, the task force said varying approach, processes, capacity, service levels and powers to redress complaints.

“The average consumer is put under unnecessary stress when required to approach different redress agencies based on the nature of the product. This stress is further amplified due to varying levels of consumer protection across regulators,” it said.

Inadequacy in powers to handle all categories of complaints, it said, adding that in some instances, regulated FSPs are not covered within the scope of the concerned regulator’s redress functions.

Further, there is a lack of powers to award compensation in some cases, pushing consumers to courts or consumer forums, it said.

The task force has also observed that little room for specialisation as present systems do not have a specialised cadre of redress professionals.

“Possible conflict in role. A large number of complaints on a particular issue could reflect regulatory and supervisory gaps. It would help if feedback from complaints flows to the regulator through an independent mechanism,” it said.

In addition, it said tasking regulators with resolving individual retail complaints takes away their resources for discharging core supervisory functions.

The task force has recommended an initial budget of about Rs 100 crore to operationalise the FRA.

It expects the proposed FRA to be largely cost neutral and additional expenses over current cost would largely flow towards improved access, effectiveness and speed of redress to the retail consumers.

The panel suggested that the FRA will establish a front-end presence in diverse locations for consumers to submit complaints.

The remedies awarded by the FRA may include directions to the FSP to take remedial steps and payment of compensation, it said, adding the accountability of FRA will be ensured through robust requirements on disclosure and performance review.

FRA will provide an independent feedback loop to regulators on complaints, including information on complaints received against unregulated FSPs, with a view to assisting them in strengthening consumer protection regulation and supervision, it said.

Consumers will be able to appeal against the orders of FRA at Securities Appellate Tribunal (SAT) and this would standardise the availability of such an independent mechanism across the financial sector.