Still at the mercy of financial institutions
The government's legislative response to the Lehman minibonds scandal is profoundly disappointing. Tens of thousands of people in Hong Kong suffered financial losses and the two watchdogs - the Monetary Authority and the Securities and Futures Commission - had to look deep into their souls to find out what went wrong.
The SFC said clients of financial institutions should have the right 'to have their grievances resolved by a dispute resolution procedure'. The HKMA recommended that the government consider 'the need for a financial ombudsman to order compensation'.
The common perception, then, was that the investing public needed greater protection and that financial institutions needed to be more closely regulated. And yet, after more than a year of work, the government has not brought forth anything remotely resembling an effective response to the problem. It is proposing an Investor Education Council and a Financial Dispute Resolution Centre (FDRC). No word of a financial ombudsman.
From the government's standpoint, it seems, the public was at fault. The government's solution is that investors need to be educated. While that may be true, what is needed even more is greater protection for investors. Why isn't the government willing to do this?
Secretary for Financial Services Professor Chan Ka-keung said last year that the government would launch a consultation on establishing a financial ombudsman. Yet the administration is not doing it.
In Legco last week, Chan said the FDRC would be a financial ombudsman - but, as its name signifies, that body would only conduct dispute resolution. Most dictionaries define an ombudsman as someone who investigates - and redresses - complaints. But, the government says, 'the FDRC would not have any investigation or disciplinary power'. Nor would it have the power to order compensation. What kind of ombudsman is that?
The government's proposal to set up mediation and arbitration services would not help consumers present a case or negotiate an effective outcome. They would continue to be at the mercy of financial institutions with deep pockets and vast legal resources.
By contrast, Britain's Financial Ombudsman Service first tries to settle disputes through conciliation; if that fails, it produces a formal adjudication that can be rejected if either party wants an ombudsman to settle the case. The government's proposals should respond to the charges of mis-selling in the wake of the Lehman scandal. Effective redress for consumers is needed, not a quick cosmetic fix.
An ombudsman is needed to investigate and make decisions on the rights and wrongs of specific cases. Where there are thousands, if not tens of thousands of cases, what is needed is a new legal device: class-action lawsuits, where large numbers of litigants can take joint action. Until the government agrees to a financial ombudsman and to class action, it will not be addressing the problem of the consumers of financial products in Hong Kong.
Frank Ching is a Hong Kong-based writer and commentator