Responsible Finance Forum

China: Ombudsman Scheme with the Securities Regulatory Commission

The ombudsman service in China, supported by GIZ on behalf of BMZ and the China Securities Regulatory Commission, illustrates development of financial market infrastructure for dispute resolution through mediation.

 

Download Full Report

Background

China has more than 50 million private investors. In the past few years, an increasing number of complaints were addressed to the Chinese supervisory authorities, so the China Securities Regulatory Commission (CSRC) considered implementing an ombudsman scheme to lighten the burden on the judicial system. The ombudsman scheme is a convenient, time- and cost-efficient, flexible, out-of-court conciliation scheme that helps protect private investors in China.

On behalf of the BMZ, the German Federal Ministry for Economic Cooperation and Development, GIZ is cooperating with institutions from the Chinese financial sector to implement the ombudsman scheme.

The program, “Investor protection in the securities market in China,” is part of the GIZ Financial Sector Reform Programme based on a trilateral cooperation among GIZ, the German Financial Services Regulatory Authority (BaFin), and the CSRC. Several other key stakeholders on both sides of the globe are involved. The project has facilitated strong cooperation and exchanges of experiencesamong the Association of German Private Commercial Banks (BdB), which established an ombudsman scheme in Germany in 1992, the CSRC, and the Securities Association of China (SAC).

Objectives

CSRC and GIZ work jointly to improve the protection of private investors in the securities market by strengthening Chinese institutions.

To achieve these goals, the program follows two approaches:

Capacity Development in the Chinese financial sector through workshops and advisory services on investor protection specialists and managers of Chinese public authorities

Exchange between German and Chinese financial sector institutions in cooperation with BdB, CSRC, SAC, and the Securities Investors Protection Fund (SIPF).

Several steps were taken to establish the ombudsman scheme:

  • In October 2010, a Sino–German workshop on the ombudsman scheme brought together experts from BdB and an expert team from the Renmin University. The experts from BdB visited local authorities, investment firms, and the Shanghai Stock Exchange to learn about complaint mechanisms. A Chinese delegation of CSRC, SIPF, and SAC representatives visited BdB in Germany and learned about the German system during two study tours in 2011 and 2012.
  • A comprehensive study of research results from German and Chinese experts was handed over to the Chinese public authorities in 2011. This study served as a guideline for the design of the Chinese ombudsman scheme.
  • In 2012, SAC set up the Mediation Professional Committee, composed of representatives of securities companies, and started designing financial mediation schemes. The Chinese authorities formally approved the Mediation Center, which is responsible for the daily management of the mediation scheme.
  • SAC issued a set of rules on the mediation scheme:
    1. Management Measures for Securities Dispute Mediation System (Trial)
    2. Securities Dispute Mediation Rules (Trial)
    3. Mediator Management Measures (Trial)

 

Results

The mediation scheme is fully operational in China and has started processing disputes. It resolves disputes between consumers (private and institutional financial investors) and service providers in the securities market, disputes among member companies, and disputes between member companies and other stakeholders. The scheme is organized in three parts (see Figure 3.2):

  • The SAC Mediation Committee gives overall guidance to the mediation scheme. The committee is responsible for the design and revision of mediation rules and measures and for mediator appointments.
  • The SAC Mediation Center organizes and coordinates the securities mediation and is responsible for the mediators’ management.

SAC Branch Offices in all provinces support the mediation scheme by receiving the complaints and conducting a preliminary complaint assessment. Mediators are stationed in all provinces to provide effective and timely dispute-resolution services. Part-time mediators were recruited by the SAC and are prepared to undertake their responsibilities through training provided by SAC.

Success Factors and Challenges

  • The major success factor was the strong commitment of the Chinese authorities from the onset. Because of the high participation of Chinese people in the capital markets, public authorities in China were aware of the need to build strong institutions to protect investors in the securities market. Therefore, all key stakeholders from the Chinese financial sector were involved in the process, which made the initiative succeed.
  • Consultation with FSPs was especially relevant because the concept of the ombudsman scheme was at first received with scepticism.
  • Recruitment and training of mediators was challenging. It was difficult to determine the best kind of professional background for mediators, as well as how (and where) they should be trained. Initially, the plan was to train Chinese ombudsmen in Germany, but language barriers and the differences in legal systems and mediation schemes made this approach too difficult.

Key Lessons

  • Identifying a strong partner in the country who supports the scheme is vital.
  • Involving all relevant stakeholders, including FSPs, in a consultation process is essential for the success of any new initiative, particularly when it entails a new way of settling disputes.
  • Looking at international “best practices” can be helpful, but it is important to implement an ombudsman scheme adapted to the country’s institutional and legal landscape and to consider different options for the institutional setup, looking closely at their advantages and disadvantages.

Download Full Report