How financial mediation is going to help the financial market?

The market requires new non-standard approaches towards conflict resolution. Financial mediation is one of the most efficient approaches. The national financial market is in a deep crisis, which results in arising irreconcilable conflicts among its players that ruin business, lead to the loss of business reputation, deterioration of the quality of the customer portfolio and increase in quantity of “toxic assets” of financial institutions.

The market requires new non-standard approaches to resolving such conflicts without bringing the situation to the point of no return

Among instruments of pre-trial resolution of conflicts among financial market players the most efficient one is financial mediation as a process during which two or more conflicting parties gather together in presence of a financial mediator - the third neutral and unprejudiced participant. It helps to reach a voluntary amicable agreement by the parties.

Why exactly financial mediation can help the financial market to survive and start to revive? Why financial market players, who are in conflict for whatever reasons, shall pay attention to this simple but efficient instrument of conflict resolution?

The process of financial mediation is based on such underlying principles as:

• confidentiality (is especially attractive for the parties to the conflict, who would like to come to agreement while saving their face or avoiding public disclosure of the fact of a conflict);
• voluntariness (the parties participate in the procedure voluntarily: at making decision about financial mediation, within the process of mediation, reaching mutually beneficial agreements, and they also independently make decisions on continuation or termination of financial mediation).

 

It is not less important that as compared with a judicial procedure, this way of conflict resolution is not lengthy and can save resources (money and time) considerably.

For the domestic financial system this issued is of extra importance, when resolution of disputes through courts and enforcement services does not give the desired result, the process lasts years and years and requires continuous financial support.

More and more often we observe conflict situation, when clients of financial institutions engage in court litigations being on the opposite positions. However, both parties to the conflict often forget that in the majority of cases it happened not through their fault.

The reason can be global problems, for instance, a global financial crisis, which neither party has influence on. In these cases the parties shall understand that time and finances they spend on litigation could be used more reasonably, for instance, for mutual gain, which would allow to compensate for their losses.

 

International experience of applying financial mediation

The financial system of the USA applies financial mediation efficiently for long time for resolving conflict situations and resolution of disputes among market players.

Financial crisis, which evolved from the mortgage crisis, stroke a painful blow at the banking sector. Problems with debt repayment pushed the American society to searching new methods of resolving disputes between debtors and creditors. In the USA numerous mediation programs have been developed and implemented for resolving disputes of enforcement of pledge. For instance, in May 2009 a mediation program was obligatory in 3 of 20 districts of the state of Florida, which in the very first year helped to resolve 1,072 (out of 1, 401) disputes between banks and debtors.

In accordance with the data of the American Development Center, in the USA 70-75 % creditors and debtors successfully apply the method of “involving a third party”. And the Delaware Association of Bankers stated that the reasons of the efficient application can be the following circumstances:

• creditors may not be aware of which alternative options the borrower might agree upon;
• debtors may be afraid of communicating with creditors;
• debtors often don’t understand that their creditors are ready to consider the possibility of making certain changes to terms and conditions of a loan agreement, which, for instance, would reduce the amount of monthly installments;
• debtors may be not aware of the large number of programs able to reduce the difference between the sum of the debt and the amount they are able to pay;
• debtors may be so disturbed by the state of their affairs that they are not psychologically able to answer the bank’s messages without professional assistance.

According to statistical data:

• 91 % Americans mentioned money saving factor as the major advantage;
• 84 % chosen mediation to save time;
• 83 % are happy with the process;
• 81 % respondents say that mediation gives the opportunity to make independent decisions.

 

Outlooks of establishment and development

The international practice applies financial mediation successfully for a long time. In Ukraine it only starts being applied. At present it is being implemented within the framework of the program of the Council of Europe “Transparency and efficiency of the judicial system”. After having familiarized with international practice, especially that of such countries as the USA, UK, Germany, Australia, Malaysia, Italy, where the judicial procedure traditionally refers to this method, the Ukrainian legislation in effect laid the basis for implementation of mediation in our country, and the Ministry of Justice of Ukraine developed the draft Law “On mediation”, which now passes through the stage of hearings in the Supreme Council of Ukraine.

In January 2016, thanks to comprehensive assistance and in partnership with the Ukrainian Center of Mediation, the idea and strategic vision of INVEST CREDIT CAPITAL LLCLLC was realized, and the Center for Financial Mediation was formed.

Its major goal is establishing in the country a platform for orderly communication of conflicting parties in the financial field and resolution of disputable situations by means of financial mediation.

The Center for Financial Mediation will give assistance in voluntary and mutually beneficial resolution of problematic issues without escalation of a conflict, incurring additional expenditures for court and enforcement proceedings. Successful financial mediation does not only reconciles conflicting parties, but also helps the client to preserve positive financial history, and helps a financial institution to keep a client, for whose attraction considerable funds were spent, as client’s recommendations still remain the most efficient way of attracting new clients.

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