Dispute Resolution Mechanisms in the UK Financial Sector

Abstract

The UK has established a unitary regulatory structure for the financial sector headed by a single government regulatory agency. The strong emphasis on self regulation of the financial sector for which the British system was once renowned has now formally ended. But it is the reduction in the fragmentation of regulation rather than the move away from self regulation that is the most significant change. The UK will now be an important source of real-life data to inform the international debate about optimal regulatory structures. The single statutory ombudsmen scheme, which will be the primary redress routes for retail consumers, will merit particular attention in this respect and it is examined closely in the article. It claims to be the world's largest ombudsman scheme but with the benefits of a unitary structure come also the challenges of avoiding becoming a cumbersome bureaucracy and of retaining the specific industry expertise that was facilitated by the fragmented system.

The key providers of alternative dispute resolution services for wholesale investors are dedicated private sector organisations, rather than the regulator or even exchanges. ADR in the UK financial sector has not acquired the prominence that it now has in the USA but increased usage is likely because of sweeping reforms of the civil justice system generally that seek to encourage the use of ADR. Interesting questions about bypassing mandatory rules by choice of dispute resolution mechanisms have not yet entered the debate on UK financial regulation but the article suggests that this may change with increasing use of ADR.

JEL Classification: K22, K41