HKMA Banking Complaint Handling: The Role of the Financial Dispute Resolution Centre

The Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC) jointly published a circular in October 2024 setting out enhanced expectations for authorised institutions (AIs) handling investment-related complaints. The circular, Handling of Investment-related Complaints, directly links the complaint-handling process to the Financial Dispute Resolution Centre (FDRC). For any licensed corporation or registered institution operating in Hong Kong, the FDRC is now the mandatory first port of call for unresolved monetary disputes up to HKD 1,000,000 between a financial institution and an individual customer. This is not a soft guideline; the HKMA expects AIs to integrate FDRC referral procedures into their internal complaint-handling manuals by the first quarter of 2025. Failure to do so exposes the institution to regulatory criticism and potential enforcement action. This article sets out the statutory framework, the procedural steps for referring a dispute to the FDRC, and the specific obligations that HKMA-regulated banks must meet under the new circular.

The Statutory and Regulatory Framework

The FDRC’s Mandate Under Cap. 623

The FDRC was established under the Financial Dispute Resolution Centre Ordinance (Cap. 623). The ordinance provides the legal basis for the FDRC to administer a two-tier dispute resolution process: mediation first, then arbitration if mediation fails. The legislation applies to all “financial institutions” as defined in Schedule 1 to Cap. 623, which includes any authorised institution under the Banking Ordinance (Cap. 155) and any licensed corporation under the Securities and Futures Ordinance (Cap. 571).

A customer must first lodge a complaint with the financial institution. If the institution does not resolve the complaint within 60 calendar days, or if the customer is dissatisfied with the outcome, the customer may apply to the FDRC. The FDRC will only accept a claim if the monetary amount in dispute does not exceed HKD 1,000,000. The institution is bound by the outcome of the FDRC arbitration if the customer elects to proceed.

The HKMA’s Supervisory Role

The HKMA does not directly administer complaint resolution. Its role is supervisory: it monitors how AIs handle complaints internally and whether they comply with the FDRC referral obligations. The HKMA’s Supervisory Policy Manual (SPM) Module IC-1 sets out the minimum standards for complaint handling by AIs. The October 2024 circular updates IC-1 to require AIs to:

• Provide clear written explanations of the FDRC’s role to complainants.
• Maintain a record of all complaints that are referred to the FDRC.
• Report aggregated FDRC referral data to the HKMA on a semi-annual basis.

Source: HKMA and SFC, Handling of Investment-related Complaints, Circular, 15 October 2024.

Step-by-Step Procedure for AIs

Step 1: Internal Complaint Handling

The process begins at the AI level. The AI must acknowledge receipt of the complaint within 5 business days. The institution has 60 calendar days to investigate and issue a final response. This timeline is set out in the FDRC’s Terms of Reference.

If the AI fails to respond within the 60-day window, the customer may immediately apply to the FDRC. The AI cannot extend this period unilaterally.

Step 2: Issuing the FDRC Referral Notice

Once the AI issues its final response, or if the 60-day period expires without a response, the AI must provide the customer with a written FDRC Referral Notice. This notice must contain:

• A statement that the customer may refer the dispute to the FDRC.
• The contact details and website of the FDRC.
• A clear explanation that the FDRC process is voluntary for the customer but binding on the institution if the customer agrees to arbitration.

The HKMA circular requires the Referral Notice to be in both English and Chinese. The AI must retain a copy of the signed acknowledgment from the customer.

Step 3: FDRC Mediation

The customer submits a completed Claim Form to the FDRC. The FDRC will first attempt mediation. Mediation is a without-prejudice process. The mediator is appointed by the FDRC. The cost of mediation is borne by the FDRC for claims up to HKD 100,000; for claims above that amount, the institution and the customer share the cost equally, capped at HKD 5,000 per party.

If mediation succeeds, the parties sign a settlement agreement. The FDRC closes the file.

Step 4: FDRC Arbitration

If mediation fails, the customer may elect to proceed to arbitration. The arbitrator is appointed by the FDRC from its panel. The arbitration is conducted under the FDRC’s Arbitration Rules, which are based on the Arbitration Ordinance (Cap. 609).

The award is final and binding on both parties. The institution cannot appeal. The customer has a limited right to challenge the award only on grounds of procedural irregularity or lack of jurisdiction under section 81 of Cap. 609.

Practical Compliance Obligations for AIs

Staff Training and Documentation

The HKMA circular requires AIs to train all frontline staff and complaint-handling officers on the FDRC referral process. Training must cover:

• The 60-day timeline.
• The content of the FDRC Referral Notice.
• The prohibition on discouraging customers from using the FDRC.

The AI must maintain a training log that records the date, content, and attendance of each training session. The HKMA may request this log during its on-site examinations.

Record-Keeping and Reporting

AIs must maintain a centralised register of all complaints that are referred to the FDRC. The register must include:

• The complaint reference number.
• The date of the final response.
• The date the FDRC Referral Notice was issued.
• The outcome of the FDRC process (mediation or arbitration).

The AI must submit a semi-annual report to the HKMA within 30 days of the end of each half-year period (30 June and 31 December). The report must include the number of complaints referred, the number of mediations and arbitrations concluded, and the aggregate monetary amount in dispute.

Compliance with the Code of Banking Practice

The Code of Banking Practice (2023 edition), endorsed by the HKMA, requires AIs to handle complaints “fairly, promptly, and transparently.” The FDRC referral obligation is a direct expression of this principle. An AI that fails to issue a Referral Notice is in breach of the Code, and the HKMA may take supervisory action, including the imposition of a financial penalty or the issuance of a direction under section 63 of the Banking Ordinance (Cap. 155).

Common Pitfalls and How to Avoid Them

Failure to Issue the Referral Notice

The most common compliance gap identified by the HKMA in its 2023 thematic review was the failure to issue the FDRC Referral Notice within the required timeframe. AIs often delayed the notice pending internal appeals or further review. The HKMA has made clear that the 60-day clock starts from the date of the initial complaint, not from the date of any internal appeal.

Action: Set a system alert at day 50 to flag complaints that have not yet received a final response. The Referral Notice must be prepared and ready to issue by day 58.

Discouraging Customers from Using the FDRC

The HKMA circular explicitly prohibits AIs from making any statement that could be interpreted as discouraging a customer from using the FDRC. This includes statements that the FDRC process is “unnecessary,” “too slow,” or “unlikely to succeed.” Any such statement recorded in a complaint file or email will be treated as a serious compliance breach.

Action: Review all standard complaint response templates. Remove any language that could be construed as discouraging FDRC referral. Insert a neutral, mandatory statement: “You have the right to refer this dispute to the Financial Dispute Resolution Centre.”

Inconsistent Application Across Business Lines

Many AIs operate multiple business lines—retail banking, wealth management, corporate banking. The FDRC referral requirement applies to all complaints from “individual customers,” defined in Cap. 623 as a natural person acting otherwise than in the course of business or a sole proprietor. Corporate banking complaints are generally excluded. AIs must ensure that their complaint-handling systems correctly classify the customer type and apply the referral rule only where applicable.

Action: Implement a customer-type flag in the complaint management system. The flag must be set at the point of complaint intake.

Conclusion and Actionable Takeaways

The HKMA’s October 2024 circular has elevated the FDRC from a peripheral dispute resolution option to a central compliance requirement for all authorised institutions. The regulator expects AIs to treat FDRC referral as a mandatory step, not a discretionary courtesy.

1. Update your internal complaint-handling manual to include the mandatory FDRC Referral Notice procedure, and ensure all templates are bilingual by 31 March 2025.
2. Train all frontline and complaint-handling staff on the 60-day timeline and the prohibition on discouraging FDRC referral, and maintain a verifiable training log.
3. Set a system alert at day 50 after complaint receipt to trigger preparation of the FDRC Referral Notice, preventing any last-minute delays.
4. Implement a customer-type classification flag in your complaint management system to ensure the FDRC referral rule is applied only to individual customers as defined in Cap. 623.
5. Prepare your first semi-annual FDRC referral report for the period ending 30 June 2025, and submit it to the HKMA by 30 July 2025.

This does not constitute legal advice. Consult a solicitor for your specific case.