Hong Kong mediation centre aims to end Lehman minibonds investor pain

Although the taxpayer-funded Financial Dispute Resolution Centre has handled far fewer cases than expected in its first 10 months of operation, industry players say it has made banks and brokers handle client complaints more seriously.

The FDRC, which started operations in June last year, was set up in the wake of the Lehman Brothers minibond fiasco in late 2008 in which more than 20,000 investors complained that they had been misled by banks and brokers into buying products linked to Lehman. They were left out of pocket overnight after the US investment bank collapsed in September 2008.

Many customers complained their banks and brokers had treated them as so-called professional investors - a designation given to those with substantial investment experience and having a portfolio worth more than HK$8 million. Some complex and risky products may only be sold to such investors, and not to normal retail investors.

Some retail investors complained they were treated as professional investors to allow them to be sold risky products such as accumulators, equity-linked notes and high-yield bond products. They suffered huge losses when the global financial crisis hit in 2008 and 2009.

In the past, investors who could afford to would hire lawyers to sue banks in court, but not all who felt they had been cheated had the financial resources to do so. That prompted the government to set up the dispute resolution centre to provide mediation and arbitration services for customers claiming up to HK$500,000 from their banks or brokers.

The FDRC, which cost HK$15 million to set up and requires HK$55 million a year to run, will be funded by the government, the Securities and Futures Commission and the Hong Kong Monetary Authority for the first three years, and by financial institutions thereafter.