On March 22, the House of Representatives promulgated the Arbiter for Financial Services Act (the “Act”) that sets up the office of the Financial Arbiter. Conceived as an expeditious alternative to resolve disputes between financial operators and consumers of financial services, the fundamental flaws that riddle the Act, create more concerns than dispel them.

Any system intended to resolve disputes must be characterised by an innate balance of the divergent interests among those participating in the system. Speed, while vital, is not the only criterion that sets the benchmark of an efficient dispute resolution system – the quality of decisions and the respect towards the principles of due process are just as fundamental. If the cost of introducing that system is to do away with due process and the time honoured checks and balances then the cost is far too high.

Even at first glance, the Act fails in creating a sustainable and balanced system that would guarantee a fair and transparent adjudication. The result is a system rooted in compulsion rather than shared values – that places in question the legitimacy of the system.

The Act creates an office of the arbiter that encompasses three functions rolled into one. The arbiter is a mediator, investigator and judge of the complaints that consumers may make against financial services providers.

He has the power: to investigate in private (whatever that should be understood to mean); to enter and inspect the premises of a financial services provider independently of the seriousness of a complaint; and then proceed to adjudicate the complaint following completion of an investigation.

The Act creates an intricate set of conflicting roles for the arbiter with little regard to the checks and balances necessary in the process. The conferment of patently conflicting roles concentrated in one office and one person seriously taints the integrity of the whole system.

The qualifications required for an arbiter are that he possesses the necessary expertise in consumer-related issues in respect of financial services, including a general understanding of the law. No formal legal training or experience in the practice of law is necessary

Independence and impartiality are not served by words in the law, but rather by the in-built mechanisms that the law ought to create in the process itself. In practical terms, the arbiter’s role should be clear and unequivocal; he cannot and should not be vested with an investigative and adjudicating role at the same time. These are roles that ought to be clearly and indisputably segregated.

The underlying principle of the rule of law requires the supremacy of the law as the objective measure against which personal conduct is benchmarked. Dispute resolution authorities intervene to apply the law impartially between disputing parties. It is therefore with trepidation that one discovers that the arbiter is not bound to determine and adjudge according to law, and that the law has to give way to what, in the opinion of the arbiter, is fair, equitable and reasonable in the particular circumstances and substantive merits of the case. It is only as an aside, almost an afterthought, that the arbiter has to consider and have due regard to applicable laws, rules and regulations. This is yet another flaw in the Act that undermines the very fundamentals of the rule of law.

As if this were not enough to make a second year law student shudder at the prospect, the financial arbiter is given the power to award up to €250,000 in damages and compensation, apart from interests and costs. Just to place it in perspective this is a multiple of 16 times the authority of a magistrate. One must seriously question the basis on which any logical, let alone a juridical argument can be sustained, that endows this ‘super finance hero’, the arbiter, the latitude to be a mediator investigator, and judge in cases he has investigated privately, the power to award a maximum of €250,000 plus in compensation, with the informality and procedural dismissiveness that the Act contemplates.

So who can act as this super hero? The qualifications required for an arbiter are that he possesses the necessary expertise in consumer-related issues in respect of financial services, including a general understanding of the law. No formal legal training or experience in the practice of law is necessary, but the arbiter is still endowed with the power and ability to order compensation of up to €250,000.

The lack of proportionality is glaring. Our Constitution requires that a magistrate in the ordinary courts of the land is required to have at least seven years’ experience in the practice of law, and is engaged in deciding civil cases which are 16 times less in magnitude (in terms of value). The arbiter, on the other hand, requires merely a general understanding of the law, with no formal training or experience whatsoever – and he can then simply dispense justice based on that general understanding of the law, and his opinion of what is reasonable in the circumstances. Further comment would be superfluous.

In addition, the Act empowers the arbiter to entertain complaints on events that could have happened as far back as 2004, a full 12 years ago. It also requires that the arbiter ought to deal with questions of prescription in terms of law.

I wonder how an arbiter, with no formal training in the law, would go about trying to reconcile these two requirements. Issues of prescription can be very complex and difficult to address even for the most seasoned of lawyers. The Act, however, expects a person with merely a general understanding of the law to deal with complaints that can be 12 years old on the one hand but on the other having to apply the law on prescription.

Why was it necessary for the arbiter to be vested with retrospective jurisdiction? What value does this add and to whom?

The most natural stance would have been for the arbiter to exercise jurisdiction over future events; but someone, lurking somewhere in the dark, must have had his own agenda.

The Act makes a complete and utter mockery of any system intended to resolve disputes impartially, and according to law. Have we completely lost all sense of due process that we feel comfortable and assured in devising schemes that create “big dictators in their little empires” where their discretion and opinion takes precedence over the law itself?

Investor protection remains of paramount importance in the regulation of financial markets. No one in the financial services industry disputes or questions it. However, the industry expects, and rightly so, to be treated fairly and without undue bias – and just like financial operators are guided by the law and regulations in conducting their business, they expect to be benchmarked against those same laws and regulations and not by the unfettered discretion of an untrained individual whose opinion of what is equitable and fair in the circumstances is likely to determine their fate.

We can ill afford to take basic principles of law lightly and to displace them for what, on paper, may appear as an efficient system to determine disputes, by persons who have no training in the law, but merely a general understanding. Efficiency cannot simply be rendered a synonym of quick, it entails much more. It entails the quality of decisions delivered in the shortest possible time and at the lowest possible cost in the context of the complexity of the decisions.

The industry remains at best, guarded and sceptical, in the face of this Act. The Act needs severe rebalancing not least in the areas mentioned above. It needs assurance that it will be treated fairly and without institutionalised bias.

Louis de Gabriele is a lawyer and heads the corporate and finance practice group at Camilleri Preziosi Advocates.