New Delhi: A task force constituted by the finance ministry to create a framework for a sector-neutral Financial Redressal Agency (FRA) to address grievances of retail consumers against all financial service providers (FSPs) has recommended that the agency should have the authority to direct FSPs to pay compensation to aggrieved consumers.
The idea of an FRA, first articulated by the Financial Sector Legislative Reforms Commission (FSLRC), found resonance in the 2015-16 budget speech of finance minister Arun Jaitley. The government later constituted a 10-member task force under former pension regulator Dhirendra Swarup. The government, which received the task force report in June, has now invited comments from stakeholders on the report by 31 January 2017.
The task force highlighted the need for basic protections to be provided in law through a new financial consumer protection and redress legislation. However, it has urged the government to operationalize a shell FRA initially through an executive order with a budget of Rs100 crore. In the first phase, the FRA will be empowered to redress complaints being handled by Insurance Regulatory and Development Authority of India (Irdai), Insurance Ombudsman, and Pension Fund Regulatory and Development Authority (PFRDA). In the second phase, FRA will redress complaints by retail consumers against FSPs regulated by Securities and Exchange Board of India (Sebi) as well as retail complaints that are handled by the Reserve Bank of India (RBI) and Banking Ombudsman.
FRA would be managed by a board to be appointed by the financial regulators in consultation with the government. It would also have an independent assessment officer to consider complaints against the FRA’s redress function arising out of issues related to its standard of service.
The design of FRA offers a simplified resolution process, allowing retail consumers in distant locations to pursue effective remedies against FSPs without imposing significant costs on them. FRA will try to resolve all complaints through mediation. “Cases where the parties are unable to reach a settlement would be resolved through a light-touch adjudication process. It will discourage court-like processes. The FRA will establish a front-end presence in diverse locations for consumers to submit complaints," according to a statement by the finance ministry.
The accountability of FRA will be ensured through robust requirements on disclosure and performance review. FRA will provide an independent feedback loop to regulators on complaints, including information on complaints received against unregulated FSPs, with a view to assisting them in strengthening consumer protection regulation and supervision.
Consumers will be able to appeal against the orders of FRA at Securities Appellate Tribunal (SAT). This would standardize the availability of such an independent mechanism across the financial sector.