Ombudsman Schemes: Banking, Insurance and Securities

An ombudsman scheme gives a customer of a regulated entity a free, informal route to a remedy without going to court. The complainant pays nothing, needs no lawyer, and is not bound by the outcome; the regulated entity is. The schemes are creatures of regulation rather than of statute in the ordinary sense, and they occupy the space between a complaint to the entity itself and a consumer complaint or a suit. The Reserve Bank consolidated its three earlier schemes into the Integrated Ombudsman Scheme of 2021.

The three principal schemes, and the features they share

1. The Reserve Bank's Integrated Ombudsman Scheme, 2021

Launched on 12 November 2021, the scheme replaced the separate schemes for banks, non-banking financial companies and digital transactions with a single scheme covering all entities regulated by the Reserve Bank. Its design is captured in the phrase used to describe it: one nation, one ombudsman.

1. A jurisdiction defined by deficiency in service. The earlier schemes listed the grounds of complaint, which left gaps. The present scheme covers any deficiency in service, subject to a list of exclusions, so a complaint does not fail because it does not fit a listed head.
2. A single point of receipt. Complaints are filed online, by post or by email, and are received at a centralised receipt and processing centre, which removes the question of which ombudsman has territorial jurisdiction.
3. A condition precedent. The complainant must first have complained to the regulated entity and either received a reply that it rejects, or received none within thirty days.
4. Resolution or an award. The ombudsman first attempts settlement by conciliation or mediation. Failing that he may pass an award directing the entity to perform its obligations and to compensate the complainant for loss, with a further sum for loss of time, expenses and harassment.
5. Appeal. An appeal lies to the appellate authority designated under the scheme, and the regulated entity may appeal only with the previous sanction of its executive head.

2. The Insurance Ombudsman

The Insurance Ombudsman functions under rules framed by the Central Government, most recently the Insurance Ombudsman Rules, 2017 as amended in 2021. The scheme covers complaints against insurers relating to the repudiation of claims, delay in settlement, disputes about premium, misrepresentation of policy terms and the servicing of policies, and it extends to complaints against insurance brokers and other intermediaries. As with the banking scheme, the complainant must have approached the insurer first, and the complaint must be made within the period the rules prescribe. The ombudsman may first act as a mediator and, failing settlement, make an award, which is binding on the insurer but not on the complainant, and which the insurer must comply with within a stated period.

3. The Securities Market

The securities market uses a different structure. Investor grievances are filed through the Securities and Exchange Board of India's complaint redress system, which routes them to the listed company or intermediary and monitors the response. Where the grievance is not resolved, the investor may take it to an online dispute resolution mechanism administered through market infrastructure institutions, in which conciliation is attempted first and, failing settlement, the dispute goes to arbitration conducted online. The outcome of that arbitration is an arbitral award under the Arbitration and Conciliation Act, 1996, which distinguishes the securities route from the banking and insurance schemes.

4. The Schemes Compared

5. Assessment

The schemes work because they are free, quick and informal, and because the regulator stands behind them: an entity that ignores an award answers to its supervisor rather than to a bailiff. Their weaknesses follow from the same design. The ombudsman is appointed and funded by the regulator or the industry, which raises a question of independence that the schemes answer by rules on tenure and eligibility rather than by structure. The remedies are capped, so a large claim must go elsewhere. And because the complainant may reject the award while the entity may not, the schemes are best understood not as a form of adjudication but as a regulated route to a settlement that the customer may always decline.

6. Related Topics and Provisions