In order to strengthen the consumer protection mechanism, the government has initiated an exercise to set up a unified body to address grievances of customers in the financial sector. Currently, there are separate grievance redressal mechanism for insurance, banking services, pension and securities market.
Financial Redressal Agency (FRA) design offers a simplified resolution process, allowing retail consumers in distant and remote locations to pursue effective remedies against financial service providers (FSPs), without imposing significant costs on them, Finance Ministry said in a statement. It will try to resolve all complaints through mediation and discourage court-like processes, it said, adding that cases where the parties are unable to reach a settlement would be resolved through a light-touch adjudication process.
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The task force headed by former chairman of the Pension Fund Regulatory and Development Authority (PFRDA) D Swarup has stressed that for the FRA, which represents the curative aspects of the consumer protection, to be effective – the preventive aspects to be implemented by the regulators need to be simultaneously strengthened. “It highlighted the need for basic protections (articulated by FSLRC) to be provided in law through a new financial consumer protection and redress legislation to empower FRA to provide redress; and strengthen preventive regulatory framework on consumer protection for implementation by the regulators,” the report submitted on June 30 this year said.
This law should be created by adopting the relevant consumer protection provisions from the Indian Financial Code (IFC) 1.1, it said. Suggesting various implementation steps, the task force said first empower the FRA 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 to be implemented after one year, FRA should be given power to 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 Reserve Bank of India (RBI) and Banking Ombudsman. Inviting comment on the suggestions of the task force by January 31, Finance Minister Arun Jaitley had announced the creation a sector-neutral FRA to address the grievances of retail consumers against all FSPs in the Budget 2015-16.
As per the task force’s recommendations, FRA would be managed by a Board to the appointed by the financial regulators, in consultation with the government.