Seminar for Senior Bank Supervisors GOOD PRACTICES FOR FINANCIAL CONSUMER PROTECTION Aurora Ferrari Manager Financial Inclusion Practice
Financial Inclusion and Consumer Protection (1) Consumer protection and financial literacy (CPFL) are key to increasing responsible access to financial services while ensuring that expanded access benefits the economy and consumers A strong CPFL framework protects consumers from possible market abuse and stipulates competition CPFL help build public confidence and can raise demand for financial services Financial literacy enables consumers to benefit from financial decisions 2
Financial Inclusion and Consumer Protection (2) INCREASED ACCESS TO FINANCE Opportunities but also Risks, Limited uptake GROWTH OF LENDING TO HOUSEHOLDS: but potential for mis-selling, NPLs... BASIC BANK ACCOUNTS: low income household s able to open a basic bank account, accessed through a mobile phone or ATMs, to save receive remittances, make payments MOBILE MONEY INTRODUCED: but usage remains constrained REGULATORY REFORMS: Regulators introduce reforms to promote innovation by financial institutions to serve low income clients ACCESS TO FINANCE COMBINED WITH FINANCIAL LITERACY, CONSUMER PROTECTION Risks managed, greater uptake of financial services GROWTH OF LENDING TO HOUSEHOLDS: lower default risk, greater benefit for borrowers BASIC BANK ACCOUNTS: low income households able to select bank account that meets their needs and enables them to lower financial transactions costs, and avoid hidden charges MOBILE MONEY INTRODUCED: usage and viability increases REGULATORY REFORMS: Regulators better understand and accommodate the level of understanding of consumers, ensuring that reforms have a maximum impact on the intended consumers 3
Good Practices for Financial Consumer Protection Originally developed for Europe and Central Asia Launch of revised Good Practices in June 2012 Set of Good Practices developed using international benchmarks, such as principles and recommendations released by the Basel Committee, IOSCO and IAIS, and the OECD laws, regulations and codes of business practices from developed countries and the experiences of reforming emerging economies 23 Diagnostic Reviews in 4 continents 4
World Bank Strategy for Country CPFL Programs Input Baseline Household Survey of Financial Capability Action Plan to Implement Recommendations Implementation Program Follow-up Household Survey Diagnostic Review of Legal & Regulatory Framework Feedback Loop 5
Engagement of All Stakeholders is Needed GOVERNMENT Ministries (e.g. Finance, Economy, Education) Public agencies (e.g. consumer protection, data protection, competition) Councils (e.g. consumer protection, education) CIVIL SOCIETY Consumer associations Debt counseling Foundations Academia Media FINANCIAL SUPERVISORS Financial supervisory agencies Central bank Financial consumer protection agency Compensation schemes REDRESS MECHANISMS Ombudsman Arbitration Mediation, conciliation Courts FINANCIAL INDUSTRY Industry associations Training centers Financial institutions (incl. distributors) Financial infrastructure (e.g. credit bureaus) INTERNATIONAL COMMUNITY Donors Regional organizations Standard setters International associations 6
Good Practices for Financial Consumer Protection Banking Insurance Pensions Good Practices for each segment covering: Legal, regulatory and institutional framework Consumer disclosure Ins Business practices Dispute resolution mechanisms Financial education Credit Reporting Securities Non-Bank Credit
Institutional framework (1) Institutional arrangements for financial consumer protection vary across countries Single agency approach Specialized financial consumer protection agency General consumer protection body No best practice Country-specific characteristics such as size and structure of the financial system and specific regulatory and supervisory activities need to be taken into account 8
Legal and regulatory framework (2) Strong legal and regulatory framework for financial consumer protection is crucial to Protect financial consumers Proactively prevent market abuses Market conduct regulation should at a minimum ensure that consumers Receive information to allow them to make informed decisions, Are not subject to unfair or deceptive practices, and Have access to recourse mechanisms to resolve disputes 9
Consumer Disclosure Consumer Disclosure Consumer Redress Business Practices Financial Literacy Simple Easy to understand Accessible Comparable Tools? Key Fact Statements Price Comparison Websites How do you know if it is working? Consumer testing 10
Helping Consumers Shop Around Makes a BIG Difference Credit Card Loans Average Interest Rates in Peru Source: Superintendence of Banking, Insurance and Private Pension Funds of Peru 11
Business Practices Consumer Disclosure Consumer Redress Business Practices Financial Literacy Prohibition of unfair, abusive, misleading practices Cooling-off periods Prohibition of tying and bundling of financial services Retail sales officers trained and qualified 12
Dispute Resolution Mechanisms Consumer Disclosure Dispute Resolution Business Practices Financial Literacy Complaints department in every financial institution Financial ombudsman Established by industry associations Statutory independent ombudsman Ombudsman structure within financial and regulatory authority 13
Financial Education Coordination mechanism Consumer Disclosure Dispute Resolution Business Practices Financial Education National financial education strategy Financial education targeted on: Risks/rewards Rights/obligations Focus on teachable moments Financial education of youth Household Capability Surveys Help design financial education Provide baseline for impact assessments 14
Going forward Consumer Protection and Financial Literacy Diagnostic Reviews Tailored tools for implementation Impact evaluations Global Survey on Financial Consumer Protection 15
Thank you for your attention! 16