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Public Participation in the Financial Dispute Resolution Design Process in Hong Kong


Introduction

Civic engagement has become increasingly important to public policy making in jurisdictions across the world, including Hong Kong. According to Cheung, much of this development echoes findings of new governance scholars regarding the benefits and general growth in quasi-legislative processes to actively engage citizens and stakeholders in governance”[1].

In Hong Kong, the use of civic engagement in policy decision making has increased in recent times.  Such deliberative methods including public consultations, feedback on draft proposals, and on-line and in-person inquiry mechanisms have been used increasingly in crafting policy relating to the reclamation of the old Kai Tak Airport, MTR Subway expansion, refuse collection sites and policy making on the establishment of self-regulatory entities, such as the proposed establishment of a Financial Dispute Resolution Center, which will be discussed in greater detail below.

  1. 1.     The mandate for the public comment process in HK

The mechanism by which public engagement occurs in Hong Kong form an important part of public policy making. On some issues, the government may actively seek public opinion, while in other areas the government may play a more passive role and respond to active citizen engagement only as it arises.  This more receptive stance can be traced to colonial practices through which the British Government established mechanism to, in Cheung’s words, “help [the government] cope with increasing community demands and to legitimize policy decisions”[2]. The HKSAR government has retained these mechanisms after the handover, such that public opinion can still be heard in various ways and be channeled to relevant policy-making bodies. These mechanisms of engaging public comment, according to Cheung, include: i) district bodies such as District Councils ii) statutory and advisory bodies such as the Education Commission; and iii) public consultation exercises[3], such as the FDRC consultation process as will be discussed here.

          The district bodies are comprised of popularly elected councilors who meet with residents of their respective neighborhoods and reflect their opinions to authorities at higher ranks of government. They largely deal with social and environmental matters regarding resource allocation within the district.

          Statutory and advisory bodies also play an important role in civic engagement. Many such boards and bodies exist in Hong Kong. They are comprised of both appointed and non-appointed members. However, with regard to the effectiveness of such bodies on influencing policy-making, Cheung observes that, “[w]hile the advisory bodies can offer policy advice to the government, their role in the policy process is not particularly significant.”[4]

Public consultation exercises are also a useful means of collecting public opinions. Such exercises are held from time to time, depending on the level of public interest in the relevant issues up for legislation.  Annual consultations are held for the policy address and the budget.[5]

  1. 2.     Case Study: The Proposal of the Financial Dispute Resolution Centre (the “FDRC”)

In early 2010, The Financial Services and Treasury Bureau issued a public consultation paper which included a proposal to set up a Financial Dispute Resolution Centre (hereafter “the Centre”) for individual investors in Hong Kong. The aim of the Centre is to “provide a one-stop service venue for resolving monetary disputes between an individual consumer and a financial institution through mediation and if need be arbitration”[6]. The Centre will involve the participation of various players in the financial industry. For instance, financial institutions licensed by the Hong Kong Monetary Authority and the Securities & Futures Commission will be required to join the center as members[7].

The proposal to set up such a centre also accords with the judiciary’s recent encouragement of early dispute settlement. In a government press release, the government noted that “at present, outside of the courts, there is no independent mechanism in place to settle a dispute between a consumer and a financial service provider”[8].

According to the government’s proposal, only cases with a maximum claimable amount of HK$500,000 will be handled by the Centre. The cap is set in such a way as to cover more than 80% of all monetary disputes that are sent to the Hong Kong Monetary Authority.  According to the report, “an independent and neutral mediator may assist the claimant to mediate with the financial institution if the claimant so wishes”.  However, where mediation fails, the Centre “may assist the claimant to bring the case further to arbitration if the claimant so wishes”[9].  Unlike mediation, the outcome of arbitration, namely the arbitration award, is final and binding on both parties.

  1. 3.     The use of civic engagement / public comment on the development of the FDRC proposal

In developing the FDRC, the government conducted a process of public consultation to gather feedback and input. In February 2010, the Financial Services and Treasury Bureau published a consultation paper titled “Proposed Establishment of an Investor Education Council and a Financial Dispute Resolution Centre: Consultation Paper”. It requested that the public provide comments on the proposal over a three month period. The comments and questions were then analyzed and incorporated into a follow up draft[10]. Following the conclusion of the consultation period, the government published a document titled “Consultation Conclusions” on 3 January 2011.  Over 115 submissions were received.  In general, the report indicated that citizens for the most part welcomed the establishment of the Centre[11]. From a comparison of the Consultation Conclusions with the final report, the comments, to a certain extent influenced the revised government proposal as will be explored further below.

  1. 4.     The mechanism for the collection of comments

As stipulated in the February 2010 Consultation Paper, the public was invited to join the consultation process by reading the proposal and providing comments and questions regarding the content of the proposal. The comments were accepted by email, letter, or fax.  An officer was also specifically assigned to assist with the collection of questions and ensure that such questions were addressed.

  1. 5.     The nature of the comments

The Consultation Conclusions submitted to the Legislative Council notes that the comments reflected the views of a “diverse group of stakeholders”[12].  The Conclusions document largely contains comments that are positive in nature and indicates that citizens “generally” welcomed the proposal[13],

  1. 6.     The use of the comments in revising and refining the proposal

The Consultation Conclusions includes a section describing the government’s next steps in implementing the proposal.  It states that the “Hong Kong Monetary Authority (“HKMA”) and the Securities and Futures Commission (“SFC”) will respectively consult their licensees and regulatees within the first half of 2011 before amending the licensing conditions for authorized institutions and the Code of Conduct for SFC-licensed corporations to include the requirement [of] abide[ing] by the FDRC procedures”. The Bureau will then “seek funding approval in the latter half of this legislative session in accordance with established procedures.”  The Conclusions note that the FDRC is expected to be set up by mid-2012[14].

In the Meeting Document of the Panel on Financial Affairs of the Legislative Council on 5 May 2011 titled “Background brief on the proposed establishment of a financial dispute resolution centre” a more complete picture of the range of views on the FDRC are shared:

“The respondents indicated support in principle for setting up a one-stop service for solving financial disputes. There were however very diverse comments on the proposed establishment of an FDRC. While consumers generally supported the proposal, reactions from industry organizations ranged from qualified support to opposition.”[15]

The Meeting document outlines the proposed changes to the original proposal. It states that the original proposal was largely endorsed, except for a few changes. The passage that explains the changes reads as follows:

a)  the proposed fee structure has been revised with a view to minimizing abuse by either consumers or financial institutions;

b)  for those cases with wider implications and/or involving allegations by consumers of misconduct of financial institutions, instead of putting the cases on hold while regulators are investigating the matter and have carried out disciplinary actions, FDRC should, unless advised by the relevant regulator(s) otherwise, proceed with those cases in parallel; and

c)   instead of introducing legislative amendments to SFO to mandate SFC licensees to participate in the financial dispute resolution scheme operated by FDRC, the Administration will pursue non-legislative means through amendments to the Code of Conduct for SFC licensees to include the requirement to abide by the FDRC procedures.

The most notable change is perhaps the last one. After the public consultation, the Bureau decides to pursue “a non-legislative” process rather than a legislative one.  In other words, specific legislation is not required by the Legislative Council; instead, the Code of Conduct issued by the SFC will be amended. The SFC Code of Conduct, lacking legal effect, therefore will only serve as a guide to relevant parties.  Some have speculated that this change arose as a result of pressure by financial institutions which sought to avoid additional requirements of self-regulation and control.

This case study raises two important questions: 1) how do governments effectively weigh the views of particular stakeholder and select among a diverse array of recommendations?  2) How are differences in access to resources/financing taken into account in such policy making processes?



[1] Cheung, Peter T.Y. (2011). “Civic Engagement in the Policy Process in Hong Kong: Change and Continuity”. Public Administration and Development. 31, 113–121.


[2] Supra note 5


[3] Supra note 5


[4] Supra note 5


[5] Supra note 5


[6] February 10, 2010. “Hong Kong Proposes Financial Dispute Resolution Center for Individual Investors”. China Briefing. Retrieved February 20, 2012. From http://www.china-briefing.com/news/2010/02/10/hong-kong-proposes-financial-dispute-resolution-center-for-individual-investors.html


[7] Ibid.


[8] February 9, 2010. “Government proposes establishment of Investor Education Council and Financial Dispute Resolution Centre” (Government press release).  Retrieved February 20, 2012. From http://www.info.gov.hk/gia/general/201002/09/P201002090172_print.htm


[9] Ibid.


[10] Financial Services and the Treasury Bureau (February, 2010). Proposed Establishment of an Investor Education Council and a Financial Dispute Resolution Centre: Consultation Paper. Retrieved 15 February 2012. From http://www.legco.gov.hk/yr11-12/english/panels/fa/papers/fa_s9.htm


[11] Financial Services and the Treasury Bureau (January 3, 2011). Consultation Conclusions: Proposed Establishment of an Investor Education Council (IEC) and a Financial Dispute Resolution Centre (FDRC) (power-point presentation materials). Retrieved 14 February, 2012. From http://www.legco.gov.hk/yr10-11/english/panels/fa/papers/fa0103cb1-974-2-e.pdf


[12] Legislative Council (January 3, 2011). Consultation Conclusions: Proposed Establishment of an Investor Education Council (IEC) and a Financial Dispute Resolution Centre (FDRC). Retrieved February 14, 2012. From http://www.legco.gov.hk/yr10-11/english/panels/fa/papers/fa0103cb1-771-1-e.pdf


[13] Supra note 7


[14] Supra note 12


[15] Legislative Council (9 May, 2011). “Paper on proposed establishment of a Financial Dispute Resolution Centre prepared by the Legislative Council Secretariat (Background brief)”. Retrieved February 17, 2012. From http://www.legco.gov.hk/yr10-11/english/panels/fa/papers/fa0509cb1-2049-e.pdf

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