Seminar for Senior Bank Supervisors

GOOD PRACTICES FOR FINANCIAL

CONSUMER PROTECTION

Aurora Ferrari

Manager

Financial Inclusion Practice

Financial Inclusion and Consumer Protection (1)

2 www.worldbank.org/consumerprotection

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

Financial Inclusion and Consumer Protection (2)

3

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

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

INCREASED ACCESS TO FINANCE

Opportunities but also Risks, Limited uptake

ACCESS TO FINANCE COMBINED WITH FINANCIAL LITERACY, CONSUMER PROTECTION

Risks managed, greater uptake of financial services

• 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

Good Practices for Financial Consumer

Protection

4 www.worldbank.org/consumerprotection

World Bank Strategy for Country

CPFL Programs

Baseline Household Survey

of Financial Capability Action Plan to

Implement Recommendations

Diagnostic

Review of Legal & Regulatory Framework

Implementation Program

5

Follow-up Household

Survey

Feedback Loop

Input

www.worldbank.org/consumerprotection

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)

FINANCIAL SUPERVISORS

• Financial supervisory agencies • Central bank • Financial consumer protection agency • Compensation schemes

INTERNATIONAL COMMUNITY

• Donors • Regional organizations • Standard setters • International associations

REDRESS MECHANISMS

• Ombudsman • Arbitration • Mediation, conciliation • Courts

CIVIL SOCIETY

• Consumer associations • Debt counseling • Foundations • Academia • Media

FINANCIAL INDUSTRY • Industry associations • Training centers • Financial institutions (incl. distributors) • Financial infrastructure (e.g. credit bureaus)

6

www.worldbank.org/consumerprotection

Ins

Good Practices for Financial Consumer

Protection

Banking

Insurance

Pensions

Securities

Non-Bank Credit

Good Practices for each segment covering:

Legal, regulatory and institutional framework

Consumer disclosure

Business practices

Dispute resolution mechanisms

Financial education

Credit Reporting

8

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

www.worldbank.org/consumerprotection

9

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

www.worldbank.org/consumerprotection

10

Consumer Disclosure

Consumer Disclosure

Business Practices

Consumer Redress

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

www.worldbank.org/consumerprotection

11

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

12

Business Practices

Consumer Disclosure

Business Practices

Consumer Redress

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

www.worldbank.org/consumerprotection

13

Dispute Resolution Mechanisms

Consumer Disclosure

Business Practices

Dispute Resolution

Financial Literacy

• Complaints department in every financial institution

• Financial ombudsman Established by industry

associations Statutory independent

ombudsman Ombudsman structure

within financial and regulatory authority

www.worldbank.org/consumerprotection

14

Financial Education

Consumer Disclosure

Business Practices

Dispute Resolution

Financial Education

• Coordination mechanism • 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

www.worldbank.org/consumerprotection

Going forward…

15

• Consumer Protection and Financial Literacy Diagnostic Reviews

• Tailored tools for implementation

• Impact evaluations

• Global Survey on Financial Consumer Protection

Thank you for your attention!

www.worldbank.org/consumerprotection

16