Proposals to Enhance Financial Dispute Resolution Scheme

What Happened?

In August 2017, the Financial Dispute Resolution Centre ("FDRC") published the Conclusions to its October 2016 Consultation on "Proposals to Enhance the Financial Dispute Resolution Scheme" ("FDRS"). The changes are intended to broaden the FDRC's dispute resolution offering and, in turn, benefit a wider number of claimants besides individuals and sole proprietors.

What are the Key Proposals?

New Eligible Claimants  

The FDRC's dispute resolution offering will extend to small partnership enterprises, small private limited companies and small financial institutions, subject to satisfying the prescribed criteria.

A small enterprise must, per its latest financial statement, have its own or its group's annual turnover of HK$50 million or less; its own or its group's gross assets of HK$50 million or less; and the small enterprise or its group must have 50 or fewer employees based in Hong Kong.

Maximum Claimable Amount to Increase (including, for qualifying "Practice Direction 31" cases)

The maximum amount claimable by eligible claimants will increase from HK$500,000 to HK$1 million. This is anticipated to allow the FDRC to consider up to 50 percent of the additional complaint enquiries made to it with respect to claims that exceed the current claim limit (based on the overall number of complaint enquiries received from 2012–15). The single maximum claimable amount will continue to apply for the banking and securities industries.

Limitation Period Extended

Extending from 12 to 24 months, the new time limit will run from either the date of first knowledge of loss or of purchase of the relevant financial instrument, whichever is the later. This new period would match the current securities regulation requirement to keep contract notes and other documents for 24 months.

Even if the time limit has expired, parties may mutually agree to apply to have their dispute(s) resolved by the FDRC (see further below).

FDRC will Accept Cases Already in Court

From the date of implementation parties may apply to the FDRC even where court proceedings are afoot, subject to obtaining a stay or providing the court with a formal notification. Parties to "PD31 cases" may also apply, subject to meeting the "intake criteria" of the terms of reference, and can opt to be legally represented in mediation.

Mutual Agreement for Non-Qualifying Disputes

Eligible claimants whose claims exceed the maximum claimable amount or fall outside the prescribed limitation periods may mutually agree with the relevant financial institution to apply to the FDRC for: (i) "mediation first, arbitration next"; (ii) "mediation only"; or (iii) "arbitration only". A separate registration fee and revised fee scale will apply in these cases (see Part III, Table B of the Conclusions).

Reporting Obligations

The FDRC will no longer provide detailed case information to the Hong Kong regulators. However, it will continue to provide its usual monthly reports and will report suspected systemic issues and serious misconduct.

What Next and When?

The amended "intake criteria" of the terms of reference are expected to apply to complaints with a date of first knowledge of loss or a date of purchase of the relevant financial instrument (whichever is the later) falling on or after 1 January 2018 (1 July 2018 for small enterprises). Disputes arising prior to that will continue to be subject to the old "intake criteria". The amended terms of reference and confirmation of the implementation date will be confirmed on the FDRC's website (www.fdrc.org.hk).

Jurisdictions: 

Registered Foreign Lawyer, RPC