The Bracken column is named after Brendan Bracken, the founding editor of The Banker in 1926 and chairman of the modern-day Financial Times from 1945 to 1958.

In the current climate, there has been a marked increase in the willingness of stakeholders to litigate their financial services disputes. Given cost constraints, however, there is also a desire to settle financial disputes out of court or in a tribunal if at all possible. It is therefore a pertinent time to examine the attempted harmonisation across EU member states of alternative dispute resolution (ADR) schemes for financial disputes, especially as the results of the responses to the European Commission's December 2008 consultation paper in this area were published in September.

The globalisation effect

While globalisation has led to an increase in cross-border banking and purchases of investments and insurance, inevitably mis-selling and other failings occur and retail customers can find themselves in legal limbo if they either cannot resolve their disputes with financial services providers bilaterally or do not wish to incur the expense of court proceedings. An apt example can be found in the near collapse of Equitable Life only a few years ago. German customers who bought services from the German branch of the UK-owned Equitable Life found that they could not obtain redress through the UK Financial Ombudsman Service (FOS) as it only covered services rendered from the UK branches of financial services providers. Nor could they turn to the Versicherungsombudsman eV (the German insurance ombudsman) as the German branch of Equitable Life was not a member of this scheme.

Although many EU member states have financial services ADR options such as ombudsmen, mediator schemes or complaint boards, the nature of these varies dramatically. The jurisdictional scope of the ADR body can be important, as can the compulsory nature of any decision made by an ADR body - with some schemes being binding on both parties (for example, the regional scheme in Lisbon) and some binding on the provider only (for example, the UK's FOS). Such uncertainty and discrepancies can lead to a weakening of consumer confidence and conceivably to forum shopping.

Cross-border standards

The consultation period for the EC's paper on this topic closed on February 27. Views of stakeholders, such as public authorities, consumer groups and the financial services industry, were sought on how ADR can be improved across the EU and whether standards should be harmonised. It also asked if more should be done to promote FIN-NET - a financial dispute resolution network, launched in 2001, of national 'out-of-court complaint schemes' in the European Economic Area (EEA), which consumers can approach to identify the relevant complaint procedure in a specific EEA state.

After several months of collating the results, the key points that arose out of the consultation were as follows:

- Public knowledge of FIN-NET needs to be increased and the network needs to be developed. FIN-NET was only consulted on 1041 cross-border disputes in 2007, a relatively small number, given the size of the EEA.

- The information on the FIN-NET website needs to address the language barriers between the EEA states. Though there are 30 EEA states, documents on the website are only available in English, French and German.

- Caution should be exercised in promoting ADR uniformity between member states due to differing local legislation, systems and traditions.

- Existing member states with ADR schemes which are not members of FIN-NET should be encouraged to join and those member states without ADR schemes should be persuaded (although some stakeholders argue for obligatory action at EU level) to establish an ADR scheme.

It seems sensible for FIN-NET's role to be enhanced, but while local law and custom should be respected, it is probably only workable if certain basic requirements are applicable EU-wide - such as the mandatory availability of an ADR scheme in each state and an obligation for providers to inform consumers of this. Of course, the method by which complaints are determined should be left to the procedures and the discretion of the relevant ADR scheme - it may, for instance, be anathema to other states that the UK FOS can determine a dispute "by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances" without any requirement to observe normal evidential rules or even the common law.

ADR schemes play a vital role in offering a flexible, cheaper and often faster solution to a host of typical consumer disputes in financial services. It is to be hoped that the Commission's efforts will encourage greater consistency and access to them, which will increase consumer confidence to the benefit of the sector as a whole.

Laurence Lieberman is a partner and Adam Mason is an associate in the financial disputes group at law firm Taylor Wessing

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