One ombudsman, one system: Kazakhstan reshapes financial dispute resolution

Under the proposed system, consumers of financial services will be entitled to apply to the Unified Financial Ombudsman Service if they disagree with a response received from a financial institution or if no response is provided within the timeframe set.

The new service will become a central institution for pretrial dispute resolution in Kazakhstan’s financial market, consolidating the currently separate mechanisms of banking, insurance, and microfinance ombudsmen.

The financial ombudsman will review disputes between consumers and financial organizations, and issue decisions that will be binding on financial institutions. If a dispute remains unresolved, consumers will retain the right to seek judicial review.

Pre-trial dispute resolution procedures are mandatory in the following cases:

• Property-related claims by consumers against banks, non-resident bank branches, microfinance institutions, insurance and reinsurance companies, securities brokers, and entities holding assigned loan claims, arising from financial service agreements;
• Loan restructuring disputes, including cases where a bank, microfinance institution, or collection agency refuses to amend loan or microcredit terms, or where no mutually acceptable solution is reached following an application by an individual consumer;
• Insurance-related disputes, including disagreements between policyholders (insured persons or beneficiaries) and insurance companies, as well as disputes between insurance companies themselves concerning compulsory or voluntary insurance.

Under the current legal framework, both private citizens and small business entities are recognized as financial consumers entitled to pre-trial settlements, with the law further extending these protections to cover inter-insurer disputes.

The Council of the Financial Ombudsman Service will be authorized to appoint the required number of financial ombudsmen across different segments of financial services, subject to prior approval by the Agency.

The Agency will establish requirements for the professional activities of financial ombudsmen, the corporate governance system of the Service, and will oversee compliance by financial organizations and the Ombudsman Service with regulatory requirements, applying supervisory measures where necessary.

The introduction of a unified pretrial dispute resolution mechanism is expected to reduce the burden on the judicial system and enhance the effectiveness of supervisory activities by allowing the Agency to focus resources on regulation and development of the financial market.

It is noted that the proposed model aligns with best international practices and is based on a three-tier system for handling consumer complaints: initial appeal to the financial institution, secondary review by the financial ombudsman, and, if required, subsequent appeal to the Agency.

As Qazinform previously reported, Kazakhstan ratified the establishment of the Financial Risk Assessment International Center.