Background to the complaint

1. The complainant is a customer of a Cypriot online trading firm (“the firm”), licensed by the Cyprus Securities and Exchange Commission (“CySEC”). The complainant claims that, like many other customers in the EU and third countries, she was unable to close her account and recover her funds.

2. On 25 August 2016, the complainant submitted a complaint to the European Commission. She claimed that Cyprus had infringed the Alternative Dispute Resolution (ADR) Directive^[1]. She considered that the law on the Cyprus Financial Services Ombudsman (“FSO”)^[2] does not properly implement the ADR Directive and that the FSO fails to comply with the requirements under the ADR Directive.

3. On 26 September 2016, the Commission’s Directorate General Justice and Consumers (DG JUST) replied to the complainant. It explained that the ADR Directive applies only to ADR entities designated by the competent national authority. It noted that Cyprus has designated the Competition and Consumer Protection Service (“CCPS”)^[3] as an ADR entity, not the FSO. Therefore, the ADR Directive’s quality requirements did not apply to the FSO. In addition, the Commission stated that the CCPS had informed it that it would deal with consumer complaints relating to the firm in accordance with the Cypriot legislation implementing the ADR Directive. It informed the complainant that it was currently discussing the implementing legislation with the Cypriot authorities. The CCPS had also informed the Commission that it had contacted CySEC regarding the firm.

4. On 4 November 2016, the Commission informed the complainant that it would proceed to closing her complaint and that she could add further observations within four weeks.

5. On 16 February 2017, the complainant sent an e-mail to the Commission disagreeing with the closure of her infringement complaint.

6. On 22 February 2017, the complainant submitted another complaint to the Commission about Cyprus’ infringement of the ADR Directive. She complained that (a) the CCPS redirects complaints about trading firms to the FSO as shown by an e-mail from the CCPS of 6 September 2016 to her. She claimed that (b) the CCPS could only deal with disputes up to EUR 5 000, thereby excluding most disputes on financial services and (c) the application form of the CCPS is available in Greek only. The complainant further noted that (d) on its website, CySEC redirects complaints about trading firms to the FSO.

7. On 19 April 2017, the Commission replied stating that following the complainant’s correspondence, it had re-opened her (first) infringement complaint. The Commission stated that (a) as it had informed the complainant on 26 September 2016, the CCPS - after the Commission had raised the issue again - had confirmed that it would deal with complaints regarding trading firms. The Commission agreed that (b) the value cap of EUR 5 000 for disputes submitted to the CCPS raised questions of conformity with the ADR Directive and that this issue was also discussed with the Cypriot authorities regarding the implementing legislation. It stated that the Cypriot authorities were currently introducing a proposal for new legislation in the Cypriot parliament that would be fully in line with the ADR Directive. In addition, the Commission stated that (c) whereas the ADR Directive does not oblige ADR entities to accept complaints in a language other than their own, the CCPS accepts complaints in Greek and English and recently made its online complaint form available also in English^[4]. The Commission further stated that (d) CySEC was free to direct consumers to the FSO since the ADR Directive does not prohibit other out-of-court mechanisms as a means of redress. However, the Commission agreed that it would be beneficial for consumers to be directed to the CCPS. The Commission had been informed by the CCPS that the latter was in contact with CySEC to adapt its website accordingly. In light of the above, the Commission intended to close the complaint and invited the complainant to add further observations within four weeks.

8. On the same day, the complainant submitted another complaint to the Commission alleging that Cyprus infringed the ADR Directive.

9. On 8 May 2017, the complainant requested the Commission not to close her complaint. She claimed that the CCPS continues (i) not to process complaints related to financial services, (ii) to impose a cap of EUR 5 000, and (iii) to redirect disputes to the FSO. She argued that a promise about a future change of the Cypriot legislation was not sufficient and that investors have the right to be protected. The complainant claimed that the CCPS complaint form also discourages persons from submitting complaints by asking evidence about their professional activity.

10. On 31 May 2017, the complainant turned to the Ombudsman

The inquiry

11. The Ombudsman opened an inquiry into the complainant’s concern that the European Commission failed to open an infringement procedure against Cyprus regarding Cyprus’ compliance with the alternative dispute resolution (ADR) Directive.

12. In the course of the inquiry, the Ombudsman’s inquiry team inspected the Commission's file on this case and met with the Commission’s representatives to obtain information on the steps the Commission had taken regarding this case. The Ombudsman's decision takes into account the arguments and views put forward by the parties.

Further developments

13. On 20 August 2017, the complainant sent a further e-mail to the Commission. She claimed that Cyprus failed to designate an ADR entity for the financial sector. She argued that the procedures of the FSO - the de facto ADR entity in Cyprus - infringe the quality requirements of the ADR Directive.

14. On 26 September 2017, the complainant forwarded an e-mail to the Commission sent by the CCPS on 25 September 2017. In this e-mail, the CCPS stated that Cyprus adopted a new law on ADR disputes and was currently evaluating the new ADR entities. The CCPS therefore referred the complainant in the meantime to the FSO and/or CySEC. According to the complainant, this e-mail demonstrates that Cyprus is still infringing the ADR Directive.

Arguments presented to the Ombudsman

15. The complainant claimed that neither the CCPS nor the FSO comply with the quality requirements of the ADR Directive. The lack of a functioning ADR entity in Cyprus has an EU-wide impact since there are more than 200 Cypriot trading firms that are able to address EU customers. She considered that customers of online trading firms should have access to rapid and effective national redress mechanisms.

16. During the inspection meeting of 29 September 2018, the Commission stated that the FSO is not listed as an ADR entity and therefore, does not need to comply with the ADR Directive. It stated that there had indeed been problems with the implementing legislation of the ADR Directive in Cyprus and that it had therefore launched an EU Pilot procedure^[5]. Cyprus had subsequently repealed its implementing legislation, adopted new implementing legislation, and was now in a transitional phase. It explained that Cyprus would withdraw the CCPS as an ADR entity since its rules of procedure do not fully comply with the ADR Directive and notify new entities to the Commission.

17. The Commission stated that the ADR Directive does not prevent third parties from turning to the Court or other instances (such as the FSO), but merely requires that there are entities in place that meet the ADR quality standards. The Commission stated that since the CCPS is expected in the very near future no longer to remain a designated ADR entity by Cyprus, and since currently its rules of procedure do not comply with the ADR Directive, the CCPS does not have at present any choice but to refer complainants to the FSO and/or to CySEC.

18. It stated that it had sent pre-closure letters to the complainant in February and April 2017, and was currently awaiting the implementation of the Cypriot legislation before sending a final decision to the complainant.

19. The Commission stated that by 2017, it had received more than 500 similar complaints concerning CySEC (most of them appearing to be the product of a mass mailing campaign).

20. In her comments on the inspection meeting report, the complainant stated that Cyprus, despite having adopted new legislation implementing the ADR Directive, has not yet notified an ADR entity for disputes in the financial sector. Therefore, Cyprus has been delaying the establishment of such an ADR entity for two years, which has a negative impact on consumer protection in the EU. The complainant furthermore complained about the failure of the FSO to comply with the ADR Directive.

The Ombudsman's assessment

21. From the correspondence between the Commission and the complainant and the inspection meeting, it is clear that the Commission has acted upon the complainant’s concerns regarding Cyprus’ implementation of the ADR Directive, and has provided the complainant with reasonable explanations and clear updates on the steps taken. In particular, the Commission opened an EU Pilot procedure regarding this issue after which Cyprus introduced new implementing legislation. In this regard, it is reasonable that the Commission is awaiting the implementation of this legislation and the notification of the ADR entities to it before taking a final decision on the infringement complainant.

22. In light of the above, the Ombudsman does not find that the Commission’s handling of the infringement complaint concerning Cyprus’ implementation of the ADR Directive represents maladministration.

Conclusion

Based on the inquiry, the Ombudsman closes this case with the following conclusion:

There was no maladministration by the European Commission.

The complainant and the European Commission will be informed of this decision.

 

Lambros Papadias

Head of Inquiries - Unit 3

Strasbourg, 24/05/2018

 

[1] Directive 2013/11/EU of the European Parliament and of the Council of 21 May 2013 on alternative dispute resolution for consumer disputes and amending Regulation (EC) No 2006/2004 and Directive 2009/22/EC (Directive on consumer ADR), OJ L 165, p. 63.

[2] Law No. 84(I) of 2010 - Establishment and Functioning of a Unified Institution for Extra-judicial Dispute Resolution of Financial Differences Law, 2010.

[3] See: http://www.mcit.gov.cy/mcit/mcit.nsf/All/194A07D8F5515E53C2256E67004BC34E?OpenDocument&highlight=Consumer

[4] http://www.mcit.gov.cy/mcit/cyco/cyconsumer.nsf/All/3BFB3E56C5684EEAC2257FD5001F07B7?OpenDocument

[5] From the inspection file, it is clear that the Commission launched the EU Pilot proceeding on 28 September 2016. Cyprus replied to the Commission on 14 December 2016 and 7 July 2017.