The Markets in Financial Instruments Directive (MiFID 2) is a set of regulations designed to harmonize financial markets and ensure that investors are protected across the EU. One of the key components of MiFID is the establishment of financial ombudsmen, designed as independent dispute resolution services to efficiently help consumers and financial firms resolve complaints and disputes. However, these ombudsman services frequently side with financial firms and are super-inefficient.
Conflict Of Interest!
Under MiFID, the funding of financial ombudsman services typically comes from the financial firms they supervise. The idea is that the firms that benefit from the financial ombudsman’s services should pay for it. In most regulatory regimes, financial firms are required by law to contribute to funding the financial ombudsman service. The detailed funding arrangements for financial ombudsman services vary between countries. However, the general principle is that the financial firms subject to the ombudsman’s oversight and regulation should bear the cost of the ombudsman’s services.
Overall, the tasks of financial ombudsmen in MiFID are focused on protecting consumers and ensuring that financial firms act fairly and transparently.
However, the situation that the funding of the financial ombudsman services (mostly) takes place through regulated financial firms creates a conflict of interest. In some jurisdictions, the ombudsmen services are even implemented as part of organizations representing financial firms.
There are no binding EU-wide standards and procedures for investor protection via Financial Ombudsmen Services. This is a primarily cosmetic headline institution.
Inefficiency And Absurd
Since the foundation of FinTelegram several years ago, we have constantly been confronted with complaints from clients or victims of regulated financial service providers who have tried to find a solution through Financial Ombudsmen Services. The European Fund Recovery Initiative (EFRI) has initiated many cases across various jurisdictions and accompanied them with its lawyers. Elfriede Sixt, the EFRI principal, finds that the financial ombudsman services in the EU are not able to fulfill their function of investor protection as defined in the MiFID II regulations:
It is, unfortunately, a fact that the financial ombudsman services work very slowly, bureaucratically and inefficiently. Cases are often delayed for many months and ultimately dismissed for lack of jurisdiction. This further harms the victims. In many cases, the direct route to court would have been faster. This is absurd!
Elfriede Sixt, EFRI Principal
FinTelegram has seen cases where the ombudsmen imposed hurdles on the customers or victims that could hardly be crossed. In contrast, the ombudsmen at the financial firms were very lenient and flexible.
Share Information
As the Financial Ombudsmen Services should be an essential part of investor protection, we will focus on and report on these cases from now on. If you have any information about cases handled by Financial Ombudsmen Services, please let us know via our whistleblower system, Whistle42.
