Most providers of financial services to retail customers (including banks, insurers, lenders, and KiwiSaver providers) must belong to an approved dispute resolution scheme. The schemes are designed to deal with complaints or disputes arising with individual customers or small organisations; dispute resolution is a free service.

Four schemes are currently approved to provide financial dispute resolution services:

• Banking Ombudsman Scheme

• Insurance & Financial Services Ombudsman

• Financial Services Complaints Limited

• Financial Dispute Resolution Service.

This bill seeks to improve the effectiveness of the financial dispute resolution system for customers. It would do this by making two main amendments to the Financial Service Providers (Registration and Dispute Resolution) Act 2008:

• It would allow the responsible Minister to decide how and when independent reviews of the approved dispute resolution schemes are carried out. This would enable reviews to be more consistent and make it easier to compare the schemes.

• It would allow regulations to set minimum requirements for scheme board members, including skills, experience, and independence from industry. This would help to maintain effective and independent governance of the schemes.

The bill would also make other minor changes to the Act. It would make clear that schemes’ annual reports must include information about the operation of the approved scheme and any independent review report received within the last financial year.

Proposed new section 79(1)(caa)(iii) would enable regulations to prescribe requirements to ensure that scheme board members are reasonably independent of any financial service provider or group of financial service providers. This regulation-making power is intended to provide flexibility to balance independence with expertise.

Dispute resolution schemes emphasised the value of retaining some financial service provider representation on their boards, citing the importance of sector expertise and funding relationships. The New Zealand Banking Association told us it was concerned that the provision could be interpreted as requiring the removal of current industry representatives from dispute resolution scheme governance roles.

The bill is not intended to entirely prohibit all current industry representatives from dispute resolution scheme governance roles. However, we acknowledge that the bill as introduced may give this impression.

We recommend amending proposed new section 79(1)(caa)(iii) so that it focuses on requirements to ensure independence of the board as a whole. For example, the regulations could place limits on the number or proportion of members on a board or governing body who may represent or promote the interests or views of any industry participants.

The bill does not propose consolidating the four approved financial dispute resolution schemes. However, we acknowledge the significant support for a single-scheme model from consumer advocates, who argue that:

• the current multi-scheme model creates confusion, inconsistency, and accessibility barriers for consumers

• a single scheme would improve fairness, transparency, and efficiency by reducing duplication

• international best practice supports unified dispute resolution frameworks.

Dispute resolution schemes raised concerns about calls to consolidate the four approved financial dispute resolution schemes into a single entity. The Banking Ombudsman cautioned that such a move would be premature and could undermine existing consumer awareness of and trust in the current schemes. It also warned that consolidation might erode the specialist expertise that each scheme has developed.

The Insurance & Financial Services Ombudsman pointed to the troubled experience of a financial ombudsman service overseas, which has faced criticism for overstating its success rates, poor consumer ratings, and leadership instability.

Financial Services Complaints Limited acknowledged the potential benefits of consolidation and wondered if a broader review of the Act might be worthwhile. It referred to its May 2025 independent review, which identified a view from consumers and consumer advocates that there should be one dispute resolution scheme for all financial services. The review argued that, done well, a single scheme would level the playing field for all participants.

The issue of scheme consolidation is outside the policy intent of this bill. However, the potential benefits of having a single financial dispute resolution scheme could include improved fairness, transparency, and efficiency. Scheme consolidation would represent a substantial structural reform. We encourage the Minister to undertake further analysis of the costs, benefits, and risks; broad stakeholder consultation; and, potentially, a wider review of the primary Act. We intend to monitor the effects of the legislation and any policy work in the scheme consolidation area in 12 months.