A financial ombudsman was prescribed for professional participants – Newspaper Kommersant No. 61 (7506) dated 04/10/2023

The Bank of Russia plans to conduct an experiment to resolve disputes between professional market participants and clients with the involvement of a financial ombudsman. According to analysts, up to 5,000 investors apply to the courts a year. Market participants consider the initiative useful, since court representatives often do not have a clear understanding of the intricacies of the brokerage business. However, a number of experts doubt the effectiveness of the new mechanism.

As Kommersant was told at the Central Bank, the regulator plans to conduct an experiment with a number of brokers, in which disputes between clients and professional market participants will be resolved with the participation of the financial commissioner. The Central Bank believes that since the client is obviously a weak party, the financial commissioner will be able to more effectively resolve disagreements.

We are not talking about losses associated with market risks, because investments are always associated with risk, the Central Bank explained. “But, for example, disputes caused by failures in the mobile applications of brokers could be considered with the participation of the financial ombudsman and independent experts attracted by him,” the Central Bank notes. Deadlines have not yet been set. The press service of the financial ombudsman did not respond to Kommersant’s request.

Attempts to “demonstrate the abilities of the financial ombudsman” have been made by the Central Bank for a long time, says Anna Avakimyan, chief analyst at RegBlok, he “acts as a lawyer and, to some extent, an arbitration manager.” According to Ms. Avakimyan, up to 5,000 investors apply to courts a year to resolve disputes with professional market participants. Up to 70% of this number can apply to the financial commissioner, the analyst believes. The cost of financial ombudsman’s services, according to her, is a commission of 0.5-1.5% of the amount of financial benefit. At the same time, the number of complaints against professional participants in the Central Bank increased by 18% in 2022, to 368 thousand.

The Association of Bondholders (ABO) noted that they applied to the Central Bank on this issue in 2021. They explained that a private investor in disputes with a broker “acts one on one and, as a rule, the balance of power is not equal.” The financial commissioner, according to the AVO, could resolve many issues without bringing the matter to court proceedings, when an individual would be forced to bear the costs of judicial protection of his interests, moreover, at the location of the broker (usually in Moscow), and the judicial system receives additional burden from millions of private investors. “The measure is not only timely, but even somewhat belated,” they added.

Attempts to include all financial industries under the jurisdiction of the financial ombudsman seem consistent, but a decision on this matter should be made only if the number of claims of citizens against financial organizations of each industry is significant and this solves the problem of speeding up the consideration of disputes without disproportionate effect costs, says NAUFOR President Alexei Timofeev. There are relatively few disputes in the stock market, he said, and the costs would be clearly unjustified “and likely to be used to fund dispute resolution in other industries.”

A Kommersant source in a large brokerage company said that now disputes between clients and brokers in most cases are already resolved outside the courts. “Individuals, as a rule, do not go to court, but send a complaint to the Central Bank. It is not very clear where to include one more link in the form of a financial ombudsman,” he says.

Natalia Kondratieva, Head of the Brokerage Services Department of BC Ingosstrakh-Investments, believes that the involvement of a financial commissioner in court cases and disputes between a client and a broker would be very useful, since court representatives often do not have a clear understanding of the intricacies of the brokerage business. “By the way, I would not say that the client in court in these situations is a weak side. There were cases on the market when it was just the opposite, the court, not understanding the intricacies of the brokerage business, sided with the client, although the situation was in favor of the broker,” she added.

Deputy General Director of JSC “Finam” Dmitry Murakhovsky does not see any benefit for clients in the initiative. Finam, according to him, has built a system of pre-claims work and the vast majority of conflicts are resolved long before the client goes to court or complains to the Central Bank of the Russian Federation.

The social significance and coverage of the population with brokerage services are not comparable with the same parameters for other industries in which the financial commissioner operates, Mr. Murakhovsky believes. Statistics show that brokers are much less likely to be complained about than banks or insurance companies, he emphasizes. The only effect that can be predicted is an increase in the administrative burden, Dmitry Murakhovsky believes, and “clients will ultimately bear the additional costs.”

Ksenia Kulikova