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Establishing and improving diversified mechanisms for resolving financial disputes serve as judicial safeguards for building a strong economy. These mechanisms should encompass mediation, arbitration and litigation to effectively enhance the efficiency of financial dispute resolution, reducing judicial costs, boosting investor confidence, and supporting China¡¯s goal of achieving high-quality financial development.

Obstacles to dispute resolution

The construction of a strong economy requires the stability and development of financial markets, with the efficient resolution of financial disputes being a critical factor.

In 2019, the Supreme People¡¯s Court, People¡¯s Bank of China and National Financial Regulatory Administration (NFRA) emphasised the need to enhance public awareness and trust in such mechanisms when they jointly issued the Opinions on Comprehensively Advancing the Building of the Diversified Resolution Mechanism for Financial Disputes.

However, several factors continue to hinder the efficient resolution of financial disputes, which merit further discussion.

First are the unique characteristics of parties involved in financial disputes. In such disputes, one party is often a professional financial institution, such as a bank, securities firm or insurance company, possessing extensive expertise and strong legal risk awareness.

The other party is typically a financial consumer who may lack financial knowledge and legal awareness. This imbalance often leads to communication barriers and unequal negotiations, undermining the effectiveness of mediation.

A second drawback is the absence of a professional mediator workforce. Financial dispute mediation differs from general mediation, as it often involves issues such as financial product sales, service quality, and contract performance.

Given the complexity of financial laws, regulations and industry standards, mediators must possess solid financial expertise and extensive legal practice experience to accurately identify core issues and propose reasonable solutions.

Lastly, difficulties in service of process significantly impact the handling of financial cases. In practice, some borrowers deliberately evade debts, making it challenging for courts to serve notices of litigation, thereby delaying case proceedings.

Collaborative governance

Financial institutions should work closely with financial regulatory authorities, leveraging their respective functions to create a collaborative mechanism for resolving financial disputes.

As the primary party responsible for handling financial disputes, financial institutions must strictly fulfil their review obligations when drafting contracts, ensuring the legality and validity of arbitration clauses, and improving the registration of clients¡¯ addresses to mitigate delivery issues.

They should also enhance internal risk management capabilities.

In resolving financial disputes, institutions should adopt differentiated strategies tailored to individual cases to achieve optimal social outcomes. To this end, financial institutions should streamline complaint channels, establish rapid resolution mechanisms, and resolve disputes at the frontline to the greatest extent possible, so minimising the need for judicial intervention.

Financial regulatory authorities, on the other hand, should prevent financial disputes by formulating and enforcing relevant regulatory provisions ensuring fairness and transparency in financial markets. For instance, the UK Financial Conduct Authority (FCA) fulfils its role by striving to ensure the compliant operation of financial markets.

Additionally, regulatory authorities should play a critical role during financial crises, mitigating systemic financial risks and reducing the occurrence of financial disputes at their source.

Pathways to implementation

The first pathway is advancing market-oriented and socially driven mediation mechanisms. The modern Fengqiao Experience ¨C a grassroots governance model for resolving disputes ¨C advocates resolving them through market-based and social approaches.

This includes strengthening mediation resources, standardising organisational management and enhancing public awareness and guidance. For instance, individuals with relevant experience in mediating financial disputes can be recruited as mediators to bolster dispute resolution capabilities.

A case in point is the People¡¯s Court of Chancheng district in Foshan, which has established a dedicated financial service centre as a frontline reception point. The centre operates through both online and offline systems, incorporating various methods to reduce litigation cases at the source.

The second pathway is institutionalising diversified dispute resolution mechanisms. The Supreme People¡¯s Court, People¡¯s Bank of China, and the NFRA have jointly promoted the construction of diversified financial dispute resolution mechanisms to streamline financial consumers¡¯ access to remedies and meet the growing demand for financial justice.

This initiative requires standardising mediation procedures, such as having mediation agreements signed and sealed under the mediator¡¯s organisation. Parties can then apply to the court for confirmation of the agreement¡¯s validity. Once confirmed, non-compliance by one party allows the other to request court enforcement.

This measure advances the reform of diversified dispute resolution mechanisms, enhances the integration of litigation and non-litigation processes and ensures a seamless transition between resolution pathways for financial disputes.

The third pathway is the need to establish databases of typical financial dispute cases and financial complaints. By collecting, organising and analysing various financial cases, these databases can provide comprehensive references for financial institutions, regulatory authorities and judicial bodies.

They help stakeholders better understand the causes, characteristics and resolution pathways of financial disputes, enhancing the professionalism and fairness of dispute handling.

Takeaway

As financial markets evolve, the number and complexity of financial disputes continue to grow. In tandem, collaborative governance has become a key measure to improve the efficiency of financial dispute resolution.

Currently, the Supreme People¡¯s Court and other authorities are advocating the use of non-litigation dispute resolution mechanisms to protect the rights of financial consumers, enhance the convenience of dispute resolution and alleviate the strain on stretched judicial resources.

The state should also strengthen financial legislation, build a more comprehensive and forward-looking financial legal framework, and cultivate a high-quality, professional judicial mediation team to provide robust legal support for the stable operation of financial markets.

Zhu Tao is a partner and Chen Jing is a paralegal at ETR Law Firm